ASSIGNMENT FOR OCTOBER 4, 2018

Book Reference: Labor Standards and Social Legislation with Notes and Comments by Dean Salvador
Poquiz

VII. WAGES

Statutory References:

Arts. 97-129 of the Renumbered Labor Code

Book III, Rules VII to XI of the Omnibus Rules Implementing the Labor Code
New Civil Code, Arts. 1707, 2241-2244
DOLE Department Order No. 195, Series of 2018
DOLE Department Order No. 174, series of 2017
DOLE Department Order No. 126-13 series of 2013
Explanatory Bulletin issued by DOLE Secretary Leonardo Quisumbing dated Nov. 25, 1996
PD 851, Labor Advisory No. 12 series of 2013

Topics:
A. Definition
B. Minimum Wage Rates
C. Facilities vs. Supplements
D. Forms, Time, Place of Payment
E. Bonuses
F. 13th month pay
G. Non-Diminution of Benefits
H. Attorney’s Fees
I. Wage Deduction, Interference in Disposal & Withholding of Wages
J. Job Contracting and Labor Only Contracting
K. Worker Preference in case of Bankruptcy
L. Powers and Functions of the NWPC & RTWPB
1. Wage Distortion
M. Administration and Enforcement

Cases:

1. GAA vs. CA, 140 SCRA 304

2. Atok Big Wedge Assoc. vs. Atok Mining Co., 97 Phil. 294
3. Chavez vs NLRC, 448 SCRA 478, GR 146530, January 17, 2005
4. LG Marcos vs. NLRC, G.R. No. 111744, September 8, 1995
5. Sevilla Trading vs. Semana, G.R. No. 152456, April 28, 2004
6. Davao Integrated Ports vs. Abarquez, G.R. No. 102132, March 19, 193
7. RTG Construction vs. Facto, G.R. No. 163872, December 21, 2009
8. Babas vs. Lorenzo Shipping, G.R. No. 186091, December 15, 2010
9. Superior Packaging vs. Balagsa, G.R. No. 178909, October 1

Page 1 of 37
1
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44169 December 3, 1985
ROSARIO A. GAA, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EUROPHIL INDUSTRIES CORPORATION, and CESAR R.
ROXAS, Deputy Sheriff of Manila, respondents.
Federico C. Alikpala and Federico Y. Alikpala, Jr. for petitioner.
Borbe and Palma for private respondent.

PATAJO, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals promulgated on March 30,
1976, affirming the decision of the Court of First Instance of Manila.
It appears that respondent Europhil Industries Corporation was formerly one of the tenants in Trinity
Building at T.M. Kalaw Street, Manila, while petitioner Rosario A. Gaa was then the building administrator.
On December 12, 1973, Europhil Industries commenced an action (Civil Case No. 92744) in the Court of
First Instance of Manila for damages against petitioner "for having perpetrated certain acts that Europhil
Industries considered a trespass upon its rights, namely, cutting of its electricity, and removing its name
from the building directory and gate passes of its officials and employees" (p. 87 Rollo). On June 28, 1974,
said court rendered judgment in favor of respondent Europhil Industries, ordering petitioner to pay the
former the sum of P10,000.00 as actual damages, P5,000.00 as moral damages, P5,000.00 as exemplary
damages and to pay the costs.
The said decision having become final and executory, a writ of garnishment was issued pursuant to which
Deputy Sheriff Cesar A. Roxas on August 1, 1975 served a Notice of Garnishment upon El Grande Hotel,
where petitioner was then employed, garnishing her "salary, commission and/or remuneration." Petitioner
then filed with the Court of First Instance of Manila a motion to lift said garnishment on the ground that her
"salaries, commission and, or remuneration are exempted from execution under Article 1708 of the New
Civil Code. Said motion was denied by the lower Court in an order dated November 7, 1975. A motion for
reconsideration of said order was likewise denied, and on January 26, 1976 petitioner filed with the Court of
Appeals a petition for certiorari against filed with the Court of Appeals a petition for certiorari against said
order of November 7, 1975.
On March 30, 1976, the Court of Appeals dismissed the petition for certiorari. In dismissing the petition, the
Court of Appeals held that petitioner is not a mere laborer as contemplated under Article 1708 as the term
laborer does not apply to one who holds a managerial or supervisory position like that of petitioner, but only
to those "laborers occupying the lower strata." It also held that the term "wages" means the pay given" as
hire or reward to artisans, mechanics, domestics or menial servants, and laborers employed in
manufactories, agriculture, mines, and other manual occupation and usually employed to distinguish the
sums paid to persons hired to perform manual labor, skilled or unskilled, paid at stated times, and
measured by the day, week, month, or season," citing 67 C.J. 285, which is the ordinary acceptation of the
said term, and that "wages" in Spanish is "jornal" and one who receives a wage is a "jornalero."
In the present petition for review on certiorari of the aforesaid decision of the Court of Appeals, petitioner
questions the correctness of the interpretation of the then Court of Appeals of Article 1708 of the New Civil
Code which reads as follows:
ART. 1708. The laborer's wage shall not be subject to execution or attachment, except for
debts incurred for food, shelter, clothing and medical attendance.
It is beyond dispute that petitioner is not an ordinary or rank and file laborer but "a responsibly place
employee," of El Grande Hotel, "responsible for planning, directing, controlling, and coordinating the
activities of all housekeeping personnel" (p. 95, Rollo) so as to ensure the cleanliness, maintenance and
orderliness of all guest rooms, function rooms, public areas, and the surroundings of the hotel. Considering
the importance of petitioner's function in El Grande Hotel, it is undeniable that petitioner is occupying a
position equivalent to that of a managerial or supervisory position.
In its broadest sense, the word "laborer" includes everyone who performs any kind of mental or physical
labor, but as commonly and customarily used and understood, it only applies to one engaged in some form
of manual or physical labor. That is the sense in which the courts generally apply the term as applied in
exemption acts, since persons of that class usually look to the reward of a day's labor for immediate or
present support and so are more in need of the exemption than are other. (22 Am. Jur. 22 citing Briscoe vs.
Montgomery, 93 Ga 602, 20 SE 40; Miller vs. Dugas, 77 Ga 4 Am St Rep 192; State ex rel I.X.L.
Page 2 of 37
Grocery vs. Land, 108 La 512, 32 So 433; Wildner vs. Ferguson, 42 Minn 112, 43 NW 793; 6 LRA 338;
Anno 102 Am St Rep. 84.
In Oliver vs. Macon Hardware Co., 98 Ga 249 SE 403, it was held that in determining whether a particular
laborer or employee is really a "laborer," the character of the word he does must be taken into
consideration. He must be classified not according to the arbitrary designation given to his calling, but with
reference to the character of the service required of him by his employer.
In Wildner vs. Ferguson, 42 Minn 112, 43 NW 793, the Court also held that all men who earn compensation
by labor or work of any kind, whether of the head or hands, including judges, laywers, bankers, merchants,
officers of corporations, and the like, are in some sense "laboring men." But they are not "laboring men" in
the popular sense of the term, when used to refer to a must presume, the legislature used the term. The
Court further held in said case:
There are many cases holding that contractors, consulting or assistant engineers, agents,
superintendents, secretaries of corporations and livery stable keepers, do not come within
the meaning of the term. (Powell v. Eldred, 39 Mich, 554, Atkin v. Wasson, 25 N.Y.
482; Short v. Medberry, 29 Hun. 39; Dean v. De Wolf, 16 Hun. 186; Krausen v. Buckel, 17
Hun. 463; Ericson v. Brown, 39 Barb. 390; Coffin v. Reynolds, 37 N.Y. 640; Brusie v.
Griffith, 34 Cal. 306; Dave v. Nunan, 62 Cal. 400).
Thus, in Jones vs. Avery, 50 Mich, 326, 15 N.W. Rep. 494, it was held that a traveling salesman, selling by
sample, did not come within the meaning of a constitutional provision making stockholders of a corporation
liable for "labor debts" of the corporation.
In Kline vs. Russell 113 Ga. 1085, 39 SE 477, citing Oliver vs. Macon Hardware Co., supra, it was held that
a laborer, within the statute exempting from garnishment the wages of a "laborer," is one whose work
depends on mere physical power to perform ordinary manual labor, and not one engaged in services
consisting mainly of work requiring mental skill or business capacity, and involving the exercise of
intellectual faculties.
So, also in Wakefield vs. Fargo, 90 N.Y. 213, the Court, in construing an act making stockholders in a
corporation liable for debts due "laborers, servants and apprentices" for services performed for the
corporation, held that a "laborer" is one who performs menial or manual services and usually looks to the
reward of a day's labor or services for immediate or present support. And in Weymouth vs. Sanborn, 43
N.H. 173, 80 Am. Dec. 144, it was held that "laborer" is a term ordinarily employed to denote one who
subsists by physical toil in contradistinction to those who subsists by professional skill. And in Consolidated
Tank Line Co. vs. Hunt, 83 Iowa, 6, 32 Am. St. Rep. 285, 43 N.W. 1057, 12 L.R.A. 476, it was stated that
"laborers" are those persons who earn a livelihood by their own manual labor.
Article 1708 used the word "wages" and not "salary" in relation to "laborer" when it declared what are to be
exempted from attachment and execution. The term "wages" as distinguished from "salary", applies to the
compensation for manual labor, skilled or unskilled, paid at stated times, and measured by the day, week,
month, or season, while "salary" denotes a higher degree of employment, or a superior grade of services,
and implies a position of office: by contrast, the term wages " indicates considerable pay for a lower and
less responsible character of employment, while "salary" is suggestive of a larger and more important
service (35 Am. Jur. 496).
The distinction between wages and salary was adverted to in Bell vs. Indian Livestock Co. (Tex. Sup.), 11
S.W. 344, wherein it was said: "'Wages' are the compensation given to a hired person for service, and the
same is true of 'salary'. The words seem to be synonymous, convertible terms, though we believe that use
and general acceptation have given to the word 'salary' a significance somewhat different from the word
'wages' in this: that the former is understood to relate to position of office, to be the compensation given for
official or other service, as distinguished from 'wages', the compensation for labor." Annotation 102 Am. St.
Rep. 81, 95.
We do not think that the legislature intended the exemption in Article 1708 of the New Civil Code to operate
in favor of any but those who are laboring men or women in the sense that their work is manual. Persons
belonging to this class usually look to the reward of a day's labor for immediate or present support, and
such persons are more in need of the exemption than any others. Petitioner Rosario A. Gaa is definitely not
within that class.
We find, therefore, and so hold that the Trial Court did not err in denying in its order of November 7, 1975
the motion of petitioner to lift the notice of garnishment against her salaries, commission and other
remuneration from El Grande Hotel since said salaries, Commission and other remuneration due her from
the El Grande Hotel do not constitute wages due a laborer which, under Article 1708 of the Civil Code, are
not subject to execution or attachment.
IN VIEW OF THE FOREGOING, We find the present petition to be without merit and hereby AFFIRM the
decision of the Court of Appeals, with costs against petitioner.
SO ORDERED.
Page 3 of 37
2

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-7349 July 19, 1955
ATOK-BIG WEDGE MUTUAL BENEFIT ASSOCIATION, petitioner,
vs.
ATOK-BIG WEDGE MINING COMPANY, INCORPORATED, respondents.
Pablo C. Sanidad for petitioner.
Roxas and Sarmiento for respondents.
REYES, J. B. L., J.:
On September 4, 1950, the petitioner labor union, the Atok-Big Wedge Mutual Benefit Association,
submitted to the Atok-Big Wedge Mining Co., Inc. (respondent herein) several demands, among which was
an increase of P0.50 in daily wage. The matter was referred by the mining company to the Court of
Industrial Relations for arbitration and settlement (Case No. 523-V). In the course of conciliatory measures
taken by the Court, some of the demands were granted, and others (including the demand for increased
wages) rejected, and so, hearings proceeded and evidence submitted on the latter. On July 14, 1951, the
Court rendered a decision (Record, pp. 25-32) fixing the minimum wage at P2.65 a day with the rice ration,
or P3.20 without rice ration; denying the deduction from such minimum wage, of the value of housing
facilities furnished by the company to the laborers, as well as the efficiency bonus given to them by the
company; and ordered that the award be made effective retroactively from the date of the demand,
September 4, 1950, as agreed by the parties. From this decision, the mining company appealed to this
Court (G.R. No. L-5276).
Subsequently, an urgent petition was presented in Court on October 15, 1952 by the Atok-Big Wedge
Mining Company for authority to stop operations and lay off employees and laborers, for the reason that
due to the heavy losses, increased taxes, high cost of materials, negligible quantity of ore deposits, and the
enforcement of the Minimum Wage Law, the continued operation of the company would lead to its
immediate bankruptcy and collapse (Rec. pp. 100-109). To avert the closure of the company and the
consequent lay-off of hundreds of laborers and employees, the Court, instead of hearing the petition on the
merits, convened the parties for voluntary conciliation and mediation. After lengthy discussions and
exchange of views, the parties on October 29, 1952 reached an agreement effective from August 4, 1952
to December 31, 1954 (Rec. pp. 18-23). The Agreement in part provides:
I
That the petitioner, Atok-Big Wedge Mining Company, Incorporated, agrees to abide by whatever
decision that the Supreme Court may render with respect to Case No. 523-V (G.R. 5276) and Case
No. 523-1 (10) (G.R. 5594).
xxx xxx xxx
III
xxx xxx xxx
That the petitioner, Atok-Big Wedge Mining Company, Incorporated, and the respondent, Atok-Big
Wedge Mutual Benefit Association, agree that the following facilities heretofore given or actually
being given by the petitioner to its workers and laborers, and which constitute as part of their wages,
be valued as follows:
P.55 per
Rice ration day
40 per
Housing facility day
All other facilities such as
recreation facilities, medical
treatment to dependents of
laborers, school facilities,
rice ration during off-days,
water, light, fuel, etc., 85 per
equivalent to at least day

Page 4 of 37
It is understood that the said amount of facilities valued at the abovementioned prices, may be charged in
full or partially by the Atok-Big Wedge Mining Company, Inc., against laborer or employee, as it may see fit
pursuant to the exigencies of its operation.
The agreement was submitted to the Court for approval and on December 26, 1952, was approved by the
Court in an order giving it effect as an award or decision in the case (Rec., p. 24).
Later, Case No. G.R. No. L-5276 was decided by this Court (promulgated March 3, 1953), affirming the
decision of the Court of Industrial Relations fixing the minimum cash wage of the laborers and employees
of the Atok-Big Wedge Mining Co. at P3.20 cash, without rice ration, or P2.65, with rice ration. On June 13,
1953, the labor union presented to the Court a petition for the enforcement of the terms of the agreement of
October 29, 1952, as allegedly modified by the decision of this Court in G.R. No. L-5276 and the provisions
of the Minimum Wage Law, which has since taken effect, praying for the payment of the minimum cash
wage of P3.45 a day with rice ration, or P4.00 without rice ration, and the payment of differential pay from
August 4, 1952, when the award became effective. The mining company opposed the petition claiming that
the Agreement of October 29, 1952 was entered into by the parties with the end in view that the company's
cost of production be not increased in any way, so that it was intended to supersede whatever decision the
Supreme Court would render in G.R. No. L-5276 and the provisions of the Minimum Wage Law with
respect to the minimum cash wage payable to the laborers and employees. Sustaining the opposition, the
Court of Industrial Relations, in an order issued on September 22, 1953 (Rec. pp. 44-49), denied the
petition, upon the ground that when the Agreement of the parties of October 29, 1952 was entered into by
them, they already knew the decision of said Court (although subject to appeal to the Supreme Court) fixing
the minimum cash wage at P3.20 without rice ration, or P2.65 with rice ration, as well as the provisions of
the Minimum Wage Law requiring the payment of P4 minimum daily wage in the provinces effective August
4, 1952; so that the parties had intended to be regulated by their Agreement of October 29, 1952. On the
same day, the Court issued another order (Rec. pp. 50-55), denying the claim of the labor union for
payment of an additional 50 per cent based on the basic wage of P4 for work on Sundays and holidays,
holding that the payments being made by the company were within the requirements of the law. Its motion
for the reconsideration of both orders having been denied, the labor union filed this petition for review
by certiorari.
The first issue submitted to us arises from an apparent contradiction in the Agreement of October 29, 1952.
By paragraph III thereof, the parties by common consent evaluated the facilities furnished by the Company
to its laborers (rice rations, housing, recreation, medical treatment, water, light, fuel, etc.) at P1.80 per day,
and authorized the company to have such value "charge in full or partially — against any laborer or
employee as it may see fit"; while in paragraph I, the Company agreed to abide by the decision of this Court
(pending at the time the agreement was had) in G.R. No. L-5594; and as rendered, the decision was to the
effect that the Company could deduct from the minimum wage only the value of the rice ration.
It is contended by the petitioner union that the two provisions should be harmonized by holding paragraph
III (deduction of all facilities) to be merely provisional, effective only while this Court had not rendered its
decision in G.R. No. L-5594; and that the terms of said paragraph should be deemed superseded by the
decision from the time the latter became final, some four or five months after the agreement was entered
into; in consequence, (it is claimed), the laborers became entitled by virtue of said decision to the prevailing
P4.00 minimum wage with no other deduction than that of the rice ration, or a net cash wage of P3.45.
This contention, in our opinion, is untenable. The intention of the parties could not have been to make the
arrangement in paragraph III a merely provisional arrangement pending the decision of the Supreme Court
for "this agreement" was expressly made retroactive and effective as of August 4, 1952, and to be in force
up to and including December 31, 1954" (Par. IV). When concluded on October 29, 1952, neither party
could anticipate the date when the decision of the Supreme Court would be rendered; nor is any reason
shown why the parties should desire to limit the effects of the decision to the period 1952-1954 if it was to
supersede the agreement of October 29, 1952.
To ascertain the true import of paragraph I of said Agreement providing that the respondent company
agreed to abide by whatever decision the Supreme Court would render in G.R. No. L-5276, it is important
to remember that, as shown by the records, the agreement was prompted by an urgent petition filed by the
respondent mining company to close operations and lay-off laborers because of heavy losses and the full
enforcement of the Minimum Wage Law in the provinces, requiring it to pay its laborers the minimum wage
of P4; to avoid such eventuality, through the mediation of the Court of Industrial Relations, a compromise
was reached whereby it was agreed that the company would pay the minimum wage fixed by the law, but
the facilities then being received by the laborers would be evaluated and charged as part of the wage, but
without in any way reducing the P2.00 cash portion of their wages which they were receiving prior to the
agreement (hearing of Oct. 28, 1952, CIR, t.s.n. 47). In other words, while it was the objective of the parties
to comply with the requirements of the Minimum Wage Law, it was also deemed important that the mining
company should not have to increase the cash wages it was then paying its laborers, so that its cost of
Page 5 of 37
production would not also be increased, in order to prevent its closure and the lay-off of employees and
laborers. And as found by the Court below in the order appealed from (which finding is conclusive upon us),
"it is this eventuality that the parties did not like to happen, when they have executed the said agreement"
(Rec. p. 49). Accordingly, after said agreement was entered into, the Company started paying its laborers a
basic cash or "take-home" wage of P2.20 (Rec. p. 9), representing the difference between P4 (minimum
wage) and P1.80 (value of all facilities).
With this background, the provision to abide by our decision in G.R. No. L-5276 can only be interpreted
thus: That the company agreed to pay whatever award this Court would make in said case from the date
fixed by the decision (which was that of the original demand, September 4, 1950) up to August 3, 1952 (the
day previous to the effectivity of the Compromise Agreement) and from August 4, 1954 to December 31,
1954, they are to be bound by their agreement of October 29, 1952.
This means that during the first period (September 4, 1950 to August 3, 1952), only rice rations given to the
laborers are to be regarded as forming part of their wage and deductible therefrom. The minimum wage
was then fixed (by the Court of Industrial Relations, and affirmed by this Court) at P3.20 without rice ration,
or P2.65 with rice ration. Since the respondent company had been paying its laborers the basic cash or
"take-home" wage of P2 prior to said decision and up to August 3, 1952, the laborers are entitled to a
differential pay of P0.65 per working day from September 4, 1950 (the date of the effectivity of the award in
G.R. L-5276) up to August 3, 1952.
From August 4, 1952, the date when the Agreement of the parties of October 29, 1952 became effective
(which was also the date when the Minimum Wage Law became fully enforceable in the provinces), the
laborers should be paid a minimum wage of P4 a day. From this amount, the respondent mining company
is given the right to charge each laborer "in full or partially", the facilities enumerated in par. III of the
Agreement; i.e., rice ration at P0.55 per day, housing facility at P0.40 per day, and other facilities
"constitute part of his wages". It appears that the company had actually been paying its laborers the
minimum wage of P2.20 since August 4, 1952; hence they are not entitled to any differential pay from this
date.
Petitioner argues that to allow the deductions stipulated in the Agreement of October 29, 1952 from the
minimum daily wage of P4 would be a waiver of the minimum wage fixed by the law and hence null and
void, since Republic Act No. 602, section 20, provides that "no agreement or contract, oral or written, to
accept a lower wage or less than any other under this Act, shall be valid". An agreement to deduct certain
facilities received by the laborers from their employer is not a waiver of the minimum wage fixed by the law.
Wage, as defined by section 2 of Republic Act No. 602, "includes the fair and reasonable value as
determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the
employer to the employee." Thus, the law permits the deduction of such facilities from the laborer's
minimum wage of P4, as long as their value is "fair and reasonable". It is not here claimed that the
valuations fixed in the Agreement of October 29, 1952 are not fair and reasonable. On the contrary, the
agreement expressly states that such valuations:
"have been arrived at after careful study and deliberation by both representatives of both parties,
with the assistance of their respective counsels, and in the presence of the Honorable Presiding
Judge of the Court of Industrial Relations" (Rec. p. 2).
Neither is it claimed that the parties, with the aid of the Court of Industrial Relations in a dispute pending
before it, may not fix by agreement the valuation of such facilities, without referring the matter to the
Department of Labor.
Petitioner also argues that to allow the deductions of the facilities appearing in the Agreement
referred to, would be contrary to the mandate of section 19 of the law, that "nothing in this Act . . .
justify an employer . . . in reducing supplements furnished on the date of enactment.
The meaning of the term "supplements" has been fixed by the Code of Rules and Regulations promulgated
by the Wage Administration Office to implement the Minimum Wage Law (Ch. 1, [c]), as:
extra renumeration or benefits received by wage earners from their employees and include but are
not restricted to pay for vacation and holidays not worked; paid sick leave or maternity leave;
overtime rate in excess of what is required by law; sick, pension, retirement, and death benefits;
profit-sharing; family allowances; Christmas, war risk and cost-of-living bonuses; or other bonuses
other than those paid as a reward for extra output or time spent on the job.
"Supplements", therefore, constitute extra renumeration or special privileges or benefits given to or
received by the laborers over and above their ordinary earnings or wages. Facilities, on the other hand, are
items of expense necessary for the laborer's and his family's existence and subsistence, so that by express
provision of the law (sec. 2 [g]) they form part of the wage and when furnished by the employer are
deductible therefrom since if they are not so furnished, the laborer would spend and pay for them just the
same. It is thus clear that the facilities mentioned in the agreement of October 29, 1952 do not come within
the term "supplements" as used in Art. 19 of the Minimum Wage Law.
Page 6 of 37
For the above reasons, we find the appeal from the Order of the Court a quo of September 22, 1953
denying the motion of the petitioner labor union for the payment of the minimum wage of P3.45 per day
plus rice ration, or P4 without rice ration, to be unmeritorious and untenable.
The second question involved herein relates to the additional compensation that should be paid by the
respondent company to its laborers for work rendered on Sundays and holidays. It is admitted that the
respondent company is paying an additional compensation of 50 per cent based on the basic "cash portion"
of the laborer's wage of P2.20 per day; i.e., P1.10 additional compensation for each Sunday or holiday's
work. Petitioner union insists, however, that this 50 per cent additional compensation should be computed
on the minimum wage of P400 and not on the "cash portion" of the laborer's wage of P2.20, under the
provisions of the Agreement of October 29, 1952 and the Minimum Wage Law.
SEC. 4. Commonwealth Act No. 444 (otherwise known as the Eight Hour Labor Law) provides:
No person, firm, or corporations, business establishment or place or center of labor shall compel an
employee or laborer to work during Sundays and holidays, unless he is paid an additional sum of at
least twenty-five per centum of his regular renumeration:
The minimum legal additional compensation for work on Sundays and legal holidays is, therefore, 25 per
cent of the laborer's regular renumeration. Under the Minimum Wage Law, this minimum additional
compensation is P1 a day (25 per cent of P4, the minimum daily wage).
While the respondent company computes the additional compensation given to its laborers for work on
Sundays and holidays on the "cash portion" of their wages of P2.20, it is giving them 50 per cent thereof, or
P1.10 a day. Considering that the minimum additional compensation fixed by the law is P1 (25 per cent of
P4), the compensation being paid by the respondent company to its laborers is even higher than such
minimum legal additional compensation. We, therefore, see no error in the holding of the Court a quo that
the respondent company has not violated the law with respect to the payment of additional compensation
for work rendered by its laborers on Sundays and legal holidays.
Finding no reason to sustain the present petition for review, the same is, therefore, dismissed, with costs
against the petitioner Atok-Big Wedge Mutual Benefit Association.
Bengzon, Acting C.J., Padilla, Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, and Concepcion,
JJ.,concur.

3
SECOND DIVISION
[G.R. No. 146530. January 17, 2005]
PEDRO CHAVEZ, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, SUPREME
PACKAGING, INC. and ALVIN LEE, Plant Manager, respondents.
DECISION
CALLEJO, SR., J.:
Before the Court is the petition for review on certiorari of the Resolution [1] dated December 15, 2000 of
the Court of Appeals (CA) reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485. The
assailed resolution reinstated the Decision dated July 10, 1998 of the National Labor Relations Commission
(NLRC), dismissing the complaint for illegal dismissal filed by herein petitioner Pedro Chavez. The said
NLRC decision similarly reversed its earlier Decision dated January 27, 1998 which, affirming that of the
Labor Arbiter, ruled that the petitioner had been illegally dismissed by respondents Supreme Packaging,
Inc. and Mr. Alvin Lee.
The case stemmed from the following facts:
The respondent company, Supreme Packaging, Inc., is in the business of manufacturing cartons and
other packaging materials for export and distribution. It engaged the services of the petitioner, Pedro
Chavez, as truck driver on October 25, 1984. As such, the petitioner was tasked to deliver the respondent
companys products from its factory in Mariveles, Bataan, to its various customers, mostly in Metro Manila.
The respondent company furnished the petitioner with a truck. Most of the petitioners delivery trips were
made at nighttime, commencing at 6:00 p.m. from Mariveles, and returning thereto in the afternoon two or
three days after. The deliveries were made in accordance with the routing slips issued by respondent
company indicating the order, time and urgency of delivery. Initially, the petitioner was paid the sum
of P350.00 per trip. This was later adjusted to P480.00 per trip and, at the time of his alleged dismissal, the
petitioner was receiving P900.00 per trip.
Sometime in 1992, the petitioner expressed to respondent Alvin Lee, respondent companys plant
manager, his (the petitioners) desire to avail himself of the benefits that the regular employees were
receiving such as overtime pay, nightshift differential pay, and 13th month pay, among others. Although he
promised to extend these benefits to the petitioner, respondent Lee failed to actually do so.
On February 20, 1995, the petitioner filed a complaint for regularization with the Regional Arbitration
Branch No. III of the NLRC in San Fernando, Pampanga. Before the case could be heard, respondent
Page 7 of 37
company terminated the services of the petitioner. Consequently, on May 25, 1995, the petitioner filed an
amended complaint against the respondents for illegal dismissal, unfair labor practice and non-payment of
overtime pay, nightshift differential pay, 13th month pay, among others. The case was docketed as NLRC
Case No. RAB-III-02-6181-95.
The respondents, for their part, denied the existence of an employer-employee relationship between
the respondent company and the petitioner. They averred that the petitioner was an independent contractor
as evidenced by the contract of service which he and the respondent company entered into. The said
contract provided as follows:
That the Principal [referring to Supreme Packaging, Inc.], by these presents, agrees to hire and the
Contractor [referring to Pedro Chavez], by nature of their specialized line or service jobs, accepts the
services to be rendered to the Principal, under the following terms and covenants heretofore mentioned:
1. That the inland transport delivery/hauling activities to be performed by the contractor to the
principal, shall only cover travel route from Mariveles to Metro Manila. Otherwise, any change
to this travel route shall be subject to further agreement by the parties concerned.
2. That the payment to be made by the Principal for any hauling or delivery transport services fully
rendered by the Contractor shall be on a per trip basis depending on the size or classification of
the truck being used in the transport service, to wit:
a) If the hauling or delivery service shall require a truck of six wheeler, the payment on a per trip
basis from Mariveles to Metro Manila shall be THREE HUNDRED PESOS (P300.00) and
EFFECTIVE December 15, 1984.
b) If the hauling or delivery service require a truck of ten wheeler, the payment on a per trip basis,
following the same route mentioned, shall be THREE HUNDRED FIFTY (P350.00) Pesos
and Effective December 15, 1984.
3. That for the amount involved, the Contractor will be to [sic] provide for [sic] at least two (2)
helpers;
4. The Contractor shall exercise direct control and shall be responsible to the Principal for the cost
of any damage to, loss of any goods, cargoes, finished products or the like, while the same are
in transit, or due to reckless [sic] of its men utilized for the purpose above mentioned;
5. That the Contractor shall have absolute control and disciplinary power over its men working for
him subject to this agreement, and that the Contractor shall hold the Principal free and
harmless from any liability or claim that may arise by virtue of the Contractors non-compliance
to the existing provisions of the Minimum Wage Law, the Employees Compensation Act, the
Social Security System Act, or any other such law or decree that may hereafter be enacted, it
being clearly understood that any truck drivers, helpers or men working with and for the
Contractor, are not employees who will be indemnified by the Principal for any such claim,
including damages incurred in connection therewith;
6. This contract shall take effect immediately upon the signing by the parties, subject to renewal on
a year-to-year basis.[2]
This contract of service was dated December 12, 1984. It was subsequently renewed twice, on July 10,
1989 and September 28, 1992. Except for the rates to be paid to the petitioner, the terms of the contracts
were substantially the same. The relationship of the respondent company and the petitioner was allegedly
governed by this contract of service.
The respondents insisted that the petitioner had the sole control over the means and methods by which
his work was accomplished. He paid the wages of his helpers and exercised control over them. As such,
the petitioner was not entitled to regularization because he was not an employee of the respondent
company. The respondents, likewise, maintained that they did not dismiss the petitioner. Rather, the
severance of his contractual relation with the respondent company was due to his violation of the terms and
conditions of their contract. The petitioner allegedly failed to observe the minimum degree of diligence in
the proper maintenance of the truck he was using, thereby exposing respondent company to unnecessary
significant expenses of overhauling the said truck.
After the parties had filed their respective pleadings, the Labor Arbiter rendered the Decision dated
February 3, 1997, finding the respondents guilty of illegal dismissal. The Labor Arbiter declared that the
petitioner was a regular employee of the respondent company as he was performing a service that was
necessary and desirable to the latters business. Moreover, it was noted that the petitioner had discharged
his duties as truck driver for the respondent company for a continuous and uninterrupted period of more
than ten years.
The contract of service invoked by the respondents was declared null and void as it constituted a
circumvention of the constitutional provision affording full protection to labor and security of tenure. The
Labor Arbiter found that the petitioners dismissal was anchored on his insistent demand to be regularized.
Hence, for lack of a valid and just cause therefor and for their failure to observe the due process
Page 8 of 37
requirements, the respondents were found guilty of illegal dismissal. The dispositive portion of the Labor
Arbiters decision states:
WHEREFORE, in the light of the foregoing, judgment is hereby rendered declaring respondent SUPREME
PACKAGING, INC. and/or MR. ALVIN LEE, Plant Manager, with business address at BEPZ, Mariveles,
Bataan guilty of illegal dismissal, ordering said respondent to pay complainant his separation pay
equivalent to one (1) month pay per year of service based on the average monthly pay of P10,800.00 in
lieu of reinstatement as his reinstatement back to work will not do any good between the parties as the
employment relationship has already become strained and full backwages from the time his compensation
was withheld on February 23, 1995 up to January 31, 1997 (cut-off date) until compliance, otherwise, his
backwages shall continue to run. Also to pay complainant his 13th month pay, night shift differential pay
and service incentive leave pay hereunder computed as follows:
a) Backwages .. P248,400.00
b) Separation Pay .... P140,400.00
c) 13th month pay .P 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL P401,640.00
Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorneys fees.
SO ORDERED.[3]
The respondents seasonably interposed an appeal with the NLRC. However, the appeal was
dismissed by the NLRC in its Decision[4] dated January 27, 1998, as it affirmed in toto the decision of the
Labor Arbiter. In the said decision, the NLRC characterized the contract of service between the respondent
company and the petitioner as a scheme that was resorted to by the respondents who, taking advantage of
the petitioners unfamiliarity with the English language and/or legal niceties, wanted to evade the effects and
implications of his becoming a regularized employee.[5]
The respondents sought reconsideration of the January 27, 1998 Decision of the NLRC. Acting
thereon, the NLRC rendered another Decision[6] dated July 10, 1998, reversing its earlier decision and, this
time, holding that no employer-employee relationship existed between the respondent company and the
petitioner. In reconsidering its earlier decision, the NLRC stated that the respondents did not exercise
control over the means and methods by which the petitioner accomplished his delivery services. It upheld
the validity of the contract of service as it pointed out that said contract was silent as to the time by which
the petitioner was to make the deliveries and that the petitioner could hire his own helpers whose wages
would be paid from his own account. These factors indicated that the petitioner was an independent
contractor, not an employee of the respondent company.
The NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor
Code on the regularization of employees. Said contract, including the fixed period of employment contained
therein, having been knowingly and voluntarily entered into by the parties thereto was declared valid
citing Brent School, Inc. v. Zamora.[7] The NLRC, thus, dismissed the petitioners complaint for illegal
dismissal.
The petitioner sought reconsideration of the July 10, 1998 Decision but it was denied by the NLRC in
its Resolution dated September 7, 1998. He then filed with this Court a petition for certiorari, which was
referred to the CA following the ruling in St. Martin Funeral Home v. NLRC.[8]
The appellate court rendered the Decision dated April 28, 2000, reversing the July 10, 1998 Decision
of the NLRC and reinstating the decision of the Labor Arbiter. In the said decision, the CA ruled that the
petitioner was a regular employee of the respondent company because as its truck driver, he performed a
service that was indispensable to the latters business. Further, he had been the respondent companys
truck driver for ten continuous years. The CA also reasoned that the petitioner could not be considered an
independent contractor since he had no substantial capital in the form of tools and machinery. In fact, the
truck that he drove belonged to the respondent company. The CA also observed that the routing slips that
the respondent company issued to the petitioner showed that it exercised control over the latter. The
routing slips indicated the chronological order and priority of delivery, the urgency of certain deliveries and
the time when the goods were to be delivered to the customers.
The CA, likewise, disbelieved the respondents claim that the petitioner abandoned his job noting that
he just filed a complaint for regularization. This actuation of the petitioner negated the respondents
allegation that he abandoned his job. The CA held that the respondents failed to discharge their burden to
show that the petitioners dismissal was for a valid and just cause. Accordingly, the respondents were
declared guilty of illegal dismissal and the decision of the Labor Arbiter was reinstated.
In its April 28, 2000 Decision, the CA denounced the contract of service between the respondent
company and the petitioner in this wise:
In summation, we rule that with the proliferation of contracts seeking to prevent workers from attaining the
status of regular employment, it is but necessary for the courts to scrutinize with extreme caution their
Page 9 of 37
legality and justness. Where from the circumstances it is apparent that a contract has been entered into to
preclude acquisition of tenurial security by the employee, they should be struck down and disregarded as
contrary to public policy and morals. In this case, the contract of service is just another attempt to exploit
the unwitting employee and deprive him of the protection of the Labor Code by making it appear that the
stipulations of the parties were governed by the Civil Code as in ordinary transactions.[9]
However, on motion for reconsideration by the respondents, the CA made a complete turn around as it
rendered the assailed Resolution dated December 15, 2000 upholding the contract of service between the
petitioner and the respondent company. In reconsidering its decision, the CA explained that the extent of
control exercised by the respondents over the petitioner was only with respect to the result but not to the
means and methods used by him. The CA cited the following circumstances: (1) the respondents had no
say on how the goods were to be delivered to the customers; (2) the petitioner had the right to employ
workers who would be under his direct control; and (3) the petitioner had no working time.
The fact that the petitioner had been with the respondent company for more than ten years was,
according to the CA, of no moment because his status was determined not by the length of service but by
the contract of service. This contract, not being contrary to morals, good customs, public order or public
policy, should be given the force and effect of law as between the respondent company and the petitioner.
Consequently, the CA reinstated the July 10, 1998 Decision of the NLRC dismissing the petitioners
complaint for illegal dismissal.
Hence, the recourse to this Court by the petitioner. He assails the December 15, 2000 Resolution of
the appellate court alleging that:
(A)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
EXCESS OF JURISDICTION IN GIVING MORE CONSIDERATION TO THE CONTRACT OF
SERVICE ENTERED INTO BY PETITIONER AND PRIVATE RESPONDENT THAN ARTICLE 280 OF
THE LABOR CODE OF THE PHILIPPINES WHICH CATEGORICALLY DEFINES A REGULAR
EMPLOYMENT NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE CONTRARY AND
REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;
(B)
THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
EXCESS OF JURISDICTION IN REVERSING ITS OWN FINDINGS THAT PETITIONER IS A
REGULAR EMPLOYEE AND IN HOLDING THAT THERE EXISTED NO EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE
CONTROL TEST WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN DETERMINING
THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT.[10]
The threshold issue that needs to be resolved is whether there existed an employer-employee
relationship between the respondent company and the petitioner. We rule in the affirmative.
The elements to determine the existence of an employment relationship are: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the employers
power to control the employees conduct.[11] The most important element is the employers control of the
employees conduct, not only as to the result of the work to be done, but also as to the means and methods
to accomplish it.[12] All the four elements are present in this case.
First. Undeniably, it was the respondents who engaged the services of the petitioner without the
intervention of a third party.
Second. Wages are defined as remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service rendered or to be
rendered.[13] That the petitioner was paid on a per trip basis is not significant. This is merely a method of
computing compensation and not a basis for determining the existence or absence of 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.[14] In this case, it cannot be gainsaid that the petitioner received compensation from the
respondent company for the services that he rendered to the latter.
Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll.[15] The payroll should show, among other things, the employees rate of
pay, deductions made, and the amount actually paid to the employee. Interestingly, the respondents did not
present the payroll to support their claim that the petitioner was not their employee, raising speculations
whether this omission proves that its presentation would be adverse to their case.[16]
Third. The respondents power to dismiss the petitioner was inherent in the fact that they engaged the
services of the petitioner as truck driver. They exercised this power by terminating the petitioners services
Page 10 of 37
albeit in the guise of severance of contractual relation due allegedly to the latters breach of his contractual
obligation.
Fourth. As earlier opined, of the four elements of the 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.[17] Hence, while an independent contractor enjoys independence and freedom from the control and
supervision of his principal, an employee is subject to the employers power to control the means and
methods by which the employees work is to be performed and accomplished.[18]
Although the respondents denied that they exercised control over the manner and methods by which
the petitioner accomplished his work, a careful review of the records shows that the latter performed his
work as truck driver under the respondents supervision and control. Their right of control was manifested by
the following attendant circumstances:
1. The truck driven by the petitioner belonged to respondent company;
2. There was an express instruction from the respondents that the truck shall be used exclusively to deliver
respondent companys goods; [19]
3. Respondents directed the petitioner, after completion of each delivery, to park the truck in either of two
specific places only, to wit: at its office in Metro Manila at 2320 Osmea Street, Makati City or at BEPZ,
Mariveles, Bataan;[20]and
4. Respondents determined how, where and when the petitioner would perform his task by issuing to him
gate passes and routing slips. [21]
a. The routing slips indicated on the column REMARKS, the chronological order and priority of delivery
such as 1st drop, 2nd drop, 3rd drop, etc. This meant that the petitioner had to deliver the same according to
the order of priority indicated therein.
b. The routing slips, likewise, showed whether the goods were to be delivered urgently or not by the word
RUSH printed thereon.
c. The routing slips also indicated the exact time as to when the goods were to be delivered to the
customers as, for example, the words tomorrow morning was written on slip no. 2776.
These circumstances, to the Courts mind, prove that the respondents exercised control over the
means and methods by which the petitioner accomplished his work as truck driver of the respondent
company. On the other hand, the Court is hard put to believe the respondents allegation that the petitioner
was an independent contractor engaged in providing delivery or hauling services when he did not even own
the truck used for such services. Evidently, he did not possess substantial capitalization or investment in
the form of tools, machinery and work premises. Moreover, the petitioner performed the delivery services
exclusively for the respondent company for a continuous and uninterrupted period of ten years.
The contract of service to the contrary notwithstanding, the factual circumstances earlier discussed
indubitably establish the existence of an employer-employee relationship between the respondent company
and the petitioner. It bears stressing that the existence of an employer-employee relationship cannot be
negated by expressly repudiating it in a contract and providing therein that the employee is an independent
contractor when, as in this case, the facts clearly show otherwise. Indeed, the employment status of a
person is defined and prescribed by law and not by what the parties say it should be.[22]
Having established that there existed an employer-employee relationship between the respondent
company and the petitioner, the Court shall now determine whether the respondents validly dismissed the
petitioner.
As a rule, the employer bears the burden to prove that the dismissal was for a valid and just
cause.[23] In this case, the respondents failed to prove any such cause for the petitioners dismissal. They
insinuated that the petitioner abandoned his job. To constitute abandonment, these two factors must
concur: (1) the failure to report for work or absence without valid or justifiable reason; and (2) a clear
intention to sever employer-employee relationship.[24] Obviously, the petitioner did not intend to sever his
relationship with the respondent company for at the time that he allegedly abandoned his job, the petitioner
just filed a complaint for regularization, which was forthwith amended to one for illegal dismissal. A charge
of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so
when it includes a prayer for reinstatement.[25]
Neither can the respondents claim that the petitioner was guilty of gross negligence in the proper
maintenance of the truck constitute a valid and just cause for his dismissal. Gross negligence implies a
want or absence of or failure to exercise slight care or diligence, or the entire absence of care. It evinces a
thoughtless disregard of consequences without exerting any effort to avoid them. [26] The negligence, to
warrant removal from service, should not merely be gross but also habitual.[27] The single and isolated act

Page 11 of 37
of the petitioners negligence in the proper maintenance of the truck alleged by the respondents does not
amount to gross and habitual neglect warranting his dismissal.
The Court agrees with the following findings and conclusion of the Labor Arbiter:
As against the gratuitous allegation of the respondent that complainant was not dismissed from the service
but due to complainants breach of their contractual relation, i.e., his violation of the terms and conditions of
the contract, we are very much inclined to believe complainants story that his dismissal from the service
was anchored on his insistent demand that he be considered a regular employee. Because complainant in
his right senses will not just abandon for that reason alone his work especially so that it is only his job
where he depends chiefly his existence and support for his family if he was not aggrieved by the
respondent when he was told that his services as driver will be terminated on February 23, 1995.[28]
Thus, the lack of a valid and just cause in terminating the services of the petitioner renders his
dismissal illegal. Under Article 279 of the Labor Code, an employee who is unjustly dismissed is entitled to
reinstatement, without loss of seniority rights and other privileges, and to the payment of full backwages,
inclusive of allowances, and other benefits or their monetary equivalent, computed from the time his
compensation was withheld from him up to the time of his actual reinstatement. [29] However, as found by
the Labor Arbiter, the circumstances obtaining in this case do not warrant the petitioners reinstatement. A
more equitable disposition, as held by the Labor Arbiter, would be an award of separation pay equivalent to
one month for every year of service from the time of his illegal dismissal up to the finality of this judgment in
addition to his full backwages, allowances and other benefits.
WHEREFORE, the instant petition is GRANTED. The Resolution dated December 15, 2000 of the
Court of Appeals reversing its Decision dated April 28, 2000 in CA-G.R. SP No. 52485 is REVERSED and
SET ASIDE. The Decision dated February 3, 1997 of the Labor Arbiter in NLRC Case No. RAB-III-02-6181-
5, finding the respondents guilty of illegally terminating the employment of petitioner Pedro Chavez, is
REINSTATED.
SO ORDERED.

4
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 111744 September 8, 1995

LOURDES G. MARCOS, ALEJANDRO T. ANDRADA, BALTAZARA J. LOPEZ AND VILMA L.
CRUZ, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and INSULAR LIFE ASSURANCE CO.,
LTD., respondents.

REGALADO, J.:
This petition for certiorari seeks the nullification of the decision1 of the National Labor Relations
Commission (NLRC) promulgated on May 31, 1992 in NLRC NCR CA No. 004120-92, and its resolution
dated August 27, 1993 denying petitioner's motion for reconsideration thereof. The said decision set aside
on appeal, the decision of Labor Arbiter Alex Arcadio Lopez ordering private respondent to pay petitioners
their service awards, anniversary bonus and prorated performance bonus in the amount of P144,579.00
and 10% attorney's fees in the amount of P14,457.90.2
First, the undisputed facts.
Petitioners were regular employees of private respondent Insular Life Assurance Co:, Ltd., but they were
dismissed on November 1, 1990 when their positions were declared redundant. A special redundancy
benefit was paid to them, which included payment of accrued vacation leave and fifty percent (50%) of
unused current sick leave, special redundancy benefit, equivalent to three (3) months salary for every year
of service; and additional cash benefits, in lieu of other benefits provided by the company or required by
law.3
Before the termination of their services, petitioner Marcos had been in the employ of private respondent for
more than twenty (20) years, from August 26, ]970; petitioner Andrada, more than twenty-five (25) years,
from July 26, 1965; petitioner Lopez, exactly thirty (30) years, from October 31, 1960; and petitioner Cruz,
more than twenty (20) years, from March 1, 1970.4
Petitioners, particularly Baltazara J. Lopez, sent a letter dated October 23, 1990 to respondent company
questioning the redundancy package, She claimed that they should receive their respective service awards
and other prorated bonuses which they had earned at the time they were dismissed. In addition, Lopez
Page 12 of 37
argued that "the cash service awards have already been budgeted in a fund distinct and apart from
redundancy fund.5
Thereafter, private respondent required petitioners to execute a "Release and Quitclaim," 6 and petitioners
complied but with a written protest reiterating their previous demand that they were nonetheless entitled to
receive their service awards.
On March 21, 1991, petitioners inquired from the Legal Service of the Department of Labor and
Employment7whether respondent corporation could legally refuse the payment of their service awards as
mandated in their Employee's Manual.
About three months later the labor department issued its opinion, with pertinent authorities, responding to
petitioners' query as follows:
xxx xxx xxx
This Department believes that your query presents several issues. These shall be addressed
point by point, thus:
First, the Department deems the service award to be part of the benefits of
the employees of Insular Life. Company policies and practices are fertile
sources of employee's rights. These must be applied uniformly as
interpretation cannot vary from one employee to another. . . .
xxx xxx xxx
While it may be argued that the above-cited case applies only to retirement benefits, we find
solace in the cases of Liberation Steamship Co., Inc. vs. CIR and National Development
Company vs. Unlicensed Crew members of Three Dons vessels (23 SCRA 1105) where the
Supreme Court held that a gratuity or bonus, by reason of its long and regular concession
indicating company practice, may become regarded as part of regular compensation and
thus demandable.
xxx xxx xxx
Second, the award is earned at the pertinent anniversary date. At this time, entitlement to
the award becomes vested. The anniversary date is the only crucial determining factor.
Since the award accrues on that date, it is of no moment that the entitled employee is
separated from service (for whatever cause) before the awards are physically handed out.
xxx xxx xxx
Third, even if the award has not accrued — as when an employee is separated from service
because of redundancy before the applicable 5th year anniversary, the material benefits of
the award must be given, prorated, by Insular Life. This is especially true (in) redundancy,
wherein he/she had no control.
xxx xxx xxx
Fourth, the fact that you were required to sign "Release and Quitclaim" does not affect your
right to the material benefits of the service award. . . .8
Meanwhile, in the same year, private respondent celebrated its 80th anniversary wherein the management
approved the grant of an anniversary bonus equivalent to one (1) month salary only to permanent and
probationary employees as of November 15, 1990.9
On March 26, 1991, respondent company announced the grant of performance bonus to both rank and file
employees and supervisory specialist grade and managerial staff equivalent to two (2) months salary and
2.75 basic salary, respectively, as of December 30, 1990. The performance bonus, however, would be
given only to permanent employees as of March 30, 1991. 10
Despite the aforequoted opinion of the Department of Labor and Employment, private respondent refused
to pay petitioners service awards. This prompted the latter to file a consolidated complaint, which was
assigned to NLRC Labor Arbiter Lopez, for payment of their service awards, including performance and
anniversary bonuses.
In their complaint, petitioners contended that they are likewise entitled to the performance and anniversary
bonuses because, at the time the performance bonus was announced to be given, they were only short of
two (2) months service to be entitled to the full amount thereof as they had already served the company for
ten (10) months prior to the declaration of the grant of said benefit. Also, they lacked only fifteen (15) days
to be entitled to the full amount of the anniversary bonus when it was announced to be given to employees
as of November 15, 1990.
In a decision dated October 8, 1992, the labor arbiter ordered respondent company to pay petitioners their
service awards, anniversary bonuses and prorated performance bonuses, including ten percent (10%)
thereof as attorney's fees.
Respondent company appealed to public respondent NLRC claiming grave abuse of discretion committed
by the labor arbiter in holding it liable to pay said service award, performance and anniversary bonuses,

Page 13 of 37
and in not finding that petitioners were estopped from claiming the same as said benefits had already been
given to them.
In setting aside the decision of the labor arbiter, respondent NLRC upheld the validity of the quitclaim
document executed by petitioners. For this conclusion, it rationalized that "(c)ertainly, before complainants
signed the quitclaim and release, they are aware of the nature of such document. In fact, they never
assailed the genuineness and due execution of the same. Hence, we can safely say that they were not
placed under duress or were compelled by means of force to sign the document." 11
Furthermore, the NLRC held that "(n)either was there any unwritten agreement between complainants and
respondent upon separation, which entitled the former to other renumerations or benefits. On the contrary,
they voluntarily accepted the redundancy benefit package, otherwise, they would not have been separated
from employment." 12
Hence, this petition wherein it is postulated that the basic issue is whether or not respondent NLRC
committed reversible error or grave abuse of discretion in affirming the validity of the "Release and
Quitclaim" and, consequently, that petitioners are not entitled to payment of service awards and other
bonuses. 13 The Solicitor General public respondent NLRC and private respondent company duly filed their
respective comments. 14
In their petition, petitioners stress that they have actually devoted much, if not all, of their employable life
with private respondent; that given their length of service, their loyalty to the latter is easily demonstrable;
and that the same length of service had rendered slim, if not eliminated, their chances of getting employed
somewhere else." 15
On the other hand, respondent company reiterates its basic contention that the consideration for the
settlement of petitioners' claim is credible and reasonable, more than satisfies the legal requirement
therefor, and that petitioners, in executing the release and quitclaim, did so voluntarily and with full
knowledge of the consequences thereof. 16
The petition being meritorious, we find for petitioners.
Under prevailing jurisprudence, the fact that an employee has signed a satisfaction receipt for his claims
does not necessarily result in the waiver thereof. The law does not consider as valid any agreement
whereby a worker agrees to receive less compensation than what he is entitled to recover. A deed of
release or quitclaim cannot bar an employee from demanding benefits to which he is legally entitled. 17
We have heretofore explained that the reason why quitclaims commonly frowned upon as contrary to public
policy, and why they are held to be ineffective to bar claims for the full measure of the workers' legal rights,
is the fact that the employer and the employee obviously do not stand on the same footing. The employer
drove the employee to the wall. The latter must have harsh necessities of life. He thus found himself in no
position to resist money proffered. His, then, is a case of adherence, not of choice. One thing sure,
however, is that petitioners did not relent on their claim. They pressed it. They are deemed not have waived
any of their rights. Renuntiatio non praesumitur. 18
Along this line, we have more trenchantly declared that quitclaims and/or complete releases executed by
the employees do not estop them from pursuing their claims arising from unfair labor practices of the
employer. The basic reason for this is that such quitclaims and/or complete releases are against public
policy and, therefore, null and void. The acceptance of termination does not divest a laborer of the right to
prosecute his employer for unfair labor practice acts. 19 While there maybe possible exceptions to this
holding, we do not perceive any in the case at bar.
Furthermore, in the instant case, it is an undisputed fact that when petitioners signed the instrument of
release and quitclaim, they made a written manifestation reserving their right to demand the payment of
their service awards. 20The element of total voluntariness in executing that instrument is negated by the fact
that they expressly stated therein their claim for the service awards, a manifestation equivalent to a protest
and a disavowal of any waiver thereof.
As earlier stated, petitioners even sought the opinion of the Department of Labor and Employment to
determine where and how they stood in the controversy. This act only shows their adamant desire to obtain
their service awards and to underscore their disagreement with the "Release and Quitclaim" they were
virtually forced to sign in order to receive their separation pay.
We have pointed out in Veloso, et al., vs. Department of Labor and Employment, et al.,21 that:
While rights may be waived, the same must not be contrary to law, public order, public
policy, morals or good customs or prejudicial to a third person with a right recognized by law.
Article 6 of the Civil Code renders a quitclaim agreement void ab initio where the quitclaim
obligates the workers concerned to forego their benefits while at the same time exempting
the employer from any liability that it may choose to reject. This runs counter to Art. 22 of the
Civil Code which provides that no one shall be unjustly enriched at the expense of another.
We agree with the further observations of the Solicitor General who, in recommending the
setting aside of the decision of respondent NLRC, called attention to the fact that "contrary to
Page 14 of 37
 private respondent's contention, the "additional" redundancy package does not and could
not have covered the payment of the service awards, performance and anniversary bonuses
since the private respondent company has initially maintained the position that petitioners
are not legally entitled to the same. . . . Surprisingly, in a sudden turnabout, private
respondent now claims . . . that the subject awards and bonuses are integrated in the
redundancy package. It is evident, therefore, that private respondent has not truly
consolidated the payment of the subject awards and bonuses in the redundancy package
paid to the petitioners. 22
We are likewise in accord with the findings of the labor arbiter that petitioners are indeed
entitled to receive service awards and other benefits, thus:
Since each of the complainants have rendered services to respondent in multiple(s) of five
years prior to their separation from employment, respondent should be paid their service
awards for 1990.
We are not impressed with the contention of the respondent that service award is a bonus
and therefore is an act of gratuity which the complainants have no right to demand. Service
awards are governed by respondent's employee's manual and (are) therefore contractual in
nature.
On the matter of anniversary and performance bonuses, it is not disputed that it is
respondent's practice to give an anniversary bonus every five years from its incorporation;
that pursuant to this practice, respondent declared an anniversary bonus for its 80th
Anniversary in 1990; that per terms of this declaration, only the employees of respondent as
of 15 November 1990 will be given the bonus; and that complainants were separated from
respondent only 25 days before :the respondent's anniversary. On the other hand, it is also
(not) disputed that respondent regularly gives performance bonuses; that for its
commendable performance in 1990, respondent declared a performance bonus; that per
terms of this declaration, only permanent employees of respondent as of March 30, 1991 will
be given this bonus; and that complainants were employees of respondents for the first 10
months of 1990.
We cannot see any cogent reason why an anniversary bonus which respondent gives only
once in every five years were given to all employees of respondent as of 15 November 1990
(pro rata even to probationary employees; Annex 9) and not to complainants who have
rendered service to respondent for most of the five year cycle. This is also true in the case of
performance bonus which were given to permanent employees of respondent as of 30
March 1991 and not to employees who have been connected with respondent for most of
1990 but were separated prior to 30 March 1991.
We believe that the prerogative of the employer to determine who among its employee shall
be entitled to receive bonuses which are, as a matter of practice, given periodically cannot
be exercised arbitrarily. 23 (Emphasis and corrections in parentheses supplied.)
The grant of service awards in favor of petitioners is more importantly underscored in the precedent case
of Insular Life Assurance Co., Ltd., et al. vs. NLRC, et al., 24 where this Court ruled that "as to the service
award differentials claimed by some respondent union members, the company policy shall likewise prevail,
the same being based on the employment contracts or collective bargaining agreements between the
parties. As the petitioners had explained, pursuant to their policies on the matter, the service award
differential is given at the end of the year to an employee who has completed years of service divisible by
5.
A bonus is not a gift or gratuity, but is paid for some services or consideration and is in addition to what
would ordinarily be given. 25 The term "bonus" as used in employment contracts, also conveys an idea of
something which is gratuitous, or which may be claimed to be gratuitous, over and above the prescribed
wage which the employer agrees to pay.
While there is a conflict of opinion as to the validity of an agreement to pay additional sums for the
performance of that which the promisee is already under obligation to perform, so as to give the latter the
right to enforce such promise after performance, the authorities hold that if one enters into a contract of
employment under an agreement that he shall be paid a certain salary by the week or some other stated
period and, in addition, a bonus, in case he serves for a specified length of time, there is no reason for
refusing to enforce the promise to pay the bonus, if the employee has served during the stipulated time, on
the ground that it was a promise of a mere gratuity.
This is true if the contract contemplates a continuance of the employment for a definite term, and the
promise of the bonus is made at the time the contract is entered into. If no time is fixed for the duration of
the contract of employment, but the employee enters upon or continues in service under an offer of a bonus
if he remains therein for a certain time, his service, in case he remains for the required time, constitutes an
Page 15 of 37
acceptance of the offer of the employer to pay the bonus and, after that acceptance, the offer cannot be
withdrawn, but can be enforced by the employee. 26
The weight of authority in American jurisprudence, with which we are persuaded to agree, is that after the
acceptance of a promise by an employer to pay the bonus, the same cannot be withdrawn, but may be
enforced by the employee. 27 However, in the case at bar, equity demands that the performance and
anniversary bonuses should be prorated to the number of months that petitioners actually served
respondent company in the year 1990. This observation should be taken into account in the computation of
the amounts to be awarded to petitioners.
WHEREFORE, the assailed decision and resolution of respondent National Labor Relations Commission
are hereby SET ASIDE and the decision of Labor Arbiter Alex Arcadio Lopez is REINSTATED.
SO ORDERED.

5
SECOND DIVISION
[G.R. No. 152456. April 28, 2004]
SEVILLA TRADING COMPANY, petitioner, vs. A.V.A. TOMAS E. SEMANA, SEVILLA TRADING
WORKERS UNIONSUPER, respondents.
DECISION
PUNO, J.:
On appeal is the Decision[1] of the Court of Appeals in CA-G.R. SP No. 63086 dated 27 November
2001 sustaining the Decision[2] of Accredited Voluntary Arbitrator Tomas E. Semana dated 13 November
2000, as well as its subsequent Resolution[3] dated 06 March 2002 denying petitioners Motion for
Reconsideration.
The facts of the case are as follows:
For two to three years prior to 1999, petitioner Sevilla Trading Company (Sevilla Trading, for short), a
domestic corporation engaged in trading business, organized and existing under Philippine laws, added to
the base figure, in its computation of the 13th-month pay of its employees, the amount of other benefits
received by the employees which are beyond the basic pay. These benefits included:
(a) Overtime premium for regular overtime, legal and special holidays;
(b) Legal holiday pay, premium pay for special holidays;
(c) Night premium;
(d) Bereavement leave pay;
(e) Union leave pay;
(f) Maternity leave pay;
(g) Paternity leave pay;
(h) Company vacation and sick leave pay; and
(i) Cash conversion of unused company vacation and sick leave.
Petitioner claimed that it entrusted the preparation of the payroll to its office staff, including the
computation and payment of the 13th-month pay and other benefits. When it changed its person in charge
of the payroll in the process of computerizing its payroll, and after audit was conducted, it allegedly
discovered the error of including non-basic pay or other benefits in the base figure used in the computation
of the 13th-month pay of its employees. It cited the Rules and Regulations Implementing P.D. No. 851 (13th-
Month Pay Law), effective December 22, 1975, Sec. 2(b) which stated that:
Basic salary shall include all remunerations or earnings paid by an employer to an employee for services
rendered but may not include cost-of-living allowances granted pursuant to P.D. No. 525 or Letter of
Instruction No. 174, profit-sharing payments, and all allowances and monetary benefits which are not
considered or integrated as part of the regular or basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.
Petitioner then effected a change in the computation of the thirteenth month pay, as follows:
13th-month pay = net basic pay
12 months
where:
net basic pay = gross pay (non-basic pay or other benefits)
Now excluded from the base figure used in the computation of the thirteenth month pay are the following:
a) Overtime premium for regular overtime, legal and special holidays;
b) Legal holiday pay, premium pay for special holidays;
c) Night premium;
d) Bereavement leave pay;
e) Union leave pay;
f) Maternity leave pay;
Page 16 of 37
g) Paternity leave pay;
h) Company vacation and sick leave pay; and
i) Cash conversion of unused vacation/sick leave.
Hence, the new computation reduced the employees thirteenth month pay. The daily piece-rate workers
represented by private respondent Sevilla Trading Workers Union SUPER (Union, for short), a duly
organized and registered union, through the Grievance Machinery in their Collective Bargaining Agreement,
contested the new computation and reduction of their thirteenth month pay. The parties failed to resolve the
issue.
On March 24, 2000, the parties submitted the issue of whether or not the exclusion of leaves and other
related benefits in the computation of 13th-month pay is valid to respondent Accredited Voluntary Arbitrator
Tomas E. Semana (A.V.A. Semana, for short) of the National Conciliation and Mediation Board, for
consideration and resolution.
The Union alleged that petitioner violated the rule prohibiting the elimination or diminution of
employees benefits as provided for in Art. 100 of the Labor Code, as amended. They claimed that paid
leaves, like sick leave, vacation leave, paternity leave, union leave, bereavement leave, holiday pay and
other leaves with pay in the CBA should be included in the base figure in the computation of their 13 th-
month pay.
On the other hand, petitioner insisted that the computation of the 13th-month pay is based on basic
salary, excluding benefits such as leaves with pay, as per P.D. No. 851, as amended. It maintained that, in
adjusting its computation of the 13th-month pay, it merely rectified the mistake its personnel committed in
the previous years.
A.V.A. Semana decided in favor of the Union. The dispositive portion of his Decision reads as follows:
WHEREFORE, premises considered, this Voluntary Arbitrator hereby declared that:
1. The company is hereby ordered to include sick leave and vacation leave, paternity leave, union leave,
bereavement leave and other leave with pay in the CBA, premium for work done on rest days and special
holidays, and pay for regular holidays in the computation of the 13th-month pay to all covered and entitled
employees;
2. The company is hereby ordered to pay corresponding backwages to all covered and entitled employees
arising from the exclusion of said benefits in the computation of 13th-month pay for the year 1999.
Petitioner received a copy of the Decision of the Arbitrator on December 20, 2000. It filed before the
Court of Appeals, a Manifestation and Motion for Time to File Petition for Certiorari on January 19, 2001. A
month later, on February 19, 2001, it filed its Petition for Certiorari under Rule 65 of the 1997 Rules of Civil
Procedure for the nullification of the Decision of the Arbitrator. In addition to its earlier allegations, petitioner
claimed that assuming the old computation will be upheld, the reversal to the old computation can only be
made to the extent of including non-basic benefits actually included by petitioner in the base figure in the
computation of their 13th-month pay in the prior years. It must exclude those non-basic benefits which, in
the first place, were not included in the original computation. The appellate court denied due course to, and
dismissed the petition.
Hence, this appeal. Petitioner Sevilla Trading enumerates the grounds of its appeal, as follows:
1. THE DECISION OF THE RESPONDENT COURT TO REVERT TO THE OLD COMPUTATION
OF THE 13TH-MONTH PAY ON THE BASIS THAT THE OLD COMPUTATION HAD RIPENED
INTO PRACTICE IS WITHOUT LEGAL BASIS.
2. IF SUCH BE THE CASE, COMPANIES HAVE NO MEANS TO CORRECT ERRORS IN
COMPUTATION WHICH WILL CAUSE GRAVE AND IRREPARABLE DAMAGE TO
EMPLOYERS.[4]
First, we uphold the Court of Appeals in ruling that the proper remedy from the adverse decision of the
arbitrator is a petition for review under Rule 43 of the 1997 Rules of Civil Procedure, not a petition
for certiorari under Rule 65. Section 1 of Rule 43 states:
RULE 43
Appeals from the Court of Tax Appeals and
Quasi-Judicial Agencies to the Court of Appeals
SECTION 1. Scope. This Rule shall apply to appeals from judgments or final orders of the Court of Tax
Appeals and from awards, judgments, final orders or resolutions of or authorized by any quasi-judicial
agency in the exercise of its quasi-judicial functions. Among these agencies are the Civil Service
Commission, Central Board of Assessment Appeals, Securities and Exchange Commission, Office of the
President, Land Registration Authority, Social Security Commission, Civil Aeronautics Board, Bureau of
Patents, Trademarks and Technology Transfer, National Electrification Administration, Energy Regulatory
Board, National Telecommunications Commission, Department of Agrarian Reform under Republic Act No.
6657, Government Service Insurance System, Employees Compensation Commission, Agricultural
Inventions Board, Insurance Commission, Philippine Atomic Energy Commission, Board of Investments,
Page 17 of 37
Construction Industry Arbitration Commission, and voluntary arbitrators authorized by law. [Emphasis
supplied.]
It is elementary that the special civil action of certiorari under Rule 65 is not, and cannot be a substitute
for an appeal, where the latter remedy is available, as it was in this case. Petitioner Sevilla Trading failed to
file an appeal within the fifteen-day reglementary period from its notice of the adverse decision of A.V.A.
Semana. It received a copy of the decision of A.V.A. Semana on December 20, 2000, and should have filed
its appeal under Rule 43 of the 1997 Rules of Civil Procedure on or before January 4, 2001. Instead,
petitioner filed on January 19, 2001 a Manifestation and Motion for Time to File Petition for Certiorari, and
on February 19, 2001, it filed a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure. Clearly, petitioner Sevilla Trading had a remedy of appeal but failed to use it.
A special civil action under Rule 65 of the Rules of Court will not be a cure for failure to timely file a
petition for review on certiorari under Rule 45 (Rule 43, in the case at bar) of the Rules of Court. Rule 65 is
an independent action that cannot be availed of as a substitute for the lost remedy of an ordinary appeal,
including that under Rule 45 (Rule 43, in the case at bar), especially if such loss or lapse was occasioned
by ones own neglect or error in the choice of remedies.[5]
Thus, the decision of A.V.A. Semana had become final and executory when petitioner Sevilla Trading
filed its petition for certiorari on February 19, 2001. More particularly, the decision of A.V.A. Semana
became final and executory upon the lapse of the fifteen-day reglementary period to appeal, or on January
5, 2001. Hence, the Court of Appeals is correct in holding that it no longer had appellate jurisdiction to alter,
or much less, nullify the decision of A.V.A. Semana.
Even assuming that the present petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure is a proper action, we still find no grave abuse of discretion amounting to lack or excess of
jurisdiction committed by A.V.A. Semana. Grave abuse of discretion has been interpreted to mean such
capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, or, in other words
where the power is exercised in an arbitrary or despotic manner by reason of passion or personal hostility,
and it must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law.[6] We find nothing of that sort in the case at
bar.
On the contrary, we find the decision of A.V.A. Semana to be sound, valid, and in accord with law and
jurisprudence. A.V.A. Semana is correct in holding that petitioners stance of mistake or error in the
computation of the thirteenth month pay is unmeritorious. Petitioners submission of financial statements
every year requires the services of a certified public accountant to audit its finances. It is quite impossible to
suggest that they have discovered the alleged error in the payroll only in 1999. This implies that in previous
years it does not know its cost of labor and operations. This is merely basic cost accounting. Also,
petitioner failed to adduce any other relevant evidence to support its contention. Aside from its bare claim of
mistake or error in the computation of the thirteenth month pay, petitioner merely appended to its petition a
copy of the 1997-2002 Collective Bargaining Agreement and an alleged corrected computation of the
thirteenth month pay. There was no explanation whatsoever why its inclusion of non-basic benefits in the
base figure in the computation of their 13th-month pay in the prior years was made by mistake, despite the
clarity of statute and jurisprudence at that time.
The instant case needs to be distinguished from Globe Mackay Cable and Radio Corp. vs.
NLRC,[7] which petitioner Sevilla Trading invokes. In that case, this Court decided on the proper
computation of the cost-of-living allowance (COLA) for monthly-paid employees. Petitioner Corporation,
pursuant to Wage Order No. 6 (effective 30 October 1984), increased the COLA of its monthly-paid
employees by multiplying the P3.00 daily COLA by 22 days, which is the number of working days in the
company. The Union disagreed with the computation, claiming that the daily COLA rate of P3.00 should be
multiplied by 30 days, which has been the practice of the company for several years. We upheld the
contention of the petitioner corporation. To answer the Unions contention of company practice, we ruled
that:
Payment in full by Petitioner Corporation of the COLA before the execution of the CBA in 1982 and in
compliance with Wage Orders Nos. 1 (26 March 1981) to 5 (11 June 1984), should not be construed as
constitutive of voluntary employer practice, which cannot now be unilaterally withdrawn by petitioner. To be
considered as such, it should have been practiced over a long period of time, and must be shown to have
been consistent and deliberate . . . The test of long practice has been enunciated thus:
. . . Respondent Company agreed to continue giving holiday pay knowing fully well that said employees are
not covered by the law requiring payment of holiday pay. (Oceanic Pharmacal Employees Union [FFW] vs.
Inciong, 94 SCRA 270 [1979])
Moreover, before Wage Order No. 4, there was lack of administrative guidelines for the implementation of
the Wage Orders. It was only when the Rules Implementing Wage Order No. 4 were issued on 21 May
1984 that a formula for the conversion of the daily allowance to its monthly equivalent was laid down.
Page 18 of 37
Absent clear administrative guidelines, Petitioner Corporation cannot be faulted for erroneous application of
the law . . .
In the above quoted case, the grant by the employer of benefits through an erroneous application of
the law due to absence of clear administrative guidelines is not considered a voluntary act which cannot be
unilaterally discontinued. Such is not the case now. In the case at bar, the Court of Appeals is correct when
it pointed out that as early as 1981, this Court has held in San Miguel Corporation vs. Inciong[8] that:
Under Presidential Decree 851 and its implementing rules, the basic salary of an employee is used as the
basis in the determination of his 13th-month pay. Any compensations or remunerations which are deemed
not part of the basic pay is excluded as basis in the computation of the mandatory bonus.
Under the Rules and Regulations Implementing Presidential Decree 851, the following compensations are
deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to Presidential Decree 525 and Letter of Instruction No. 174;
b) Profit sharing payments;
c) All allowances and monetary benefits which are not considered or integrated as part of the regular basic
salary of the employee at the time of the promulgation of the Decree on December 16, 1975.
Under a later set of Supplementary Rules and Regulations Implementing Presidential Decree 851 issued
by the then Labor Secretary Blas Ople, overtime pay, earnings and other remunerations are excluded as
part of the basic salary and in the computation of the 13th-month pay.
The exclusion of cost-of-living allowances under Presidential Decree 525 and Letter of Instruction No. 174
and profit sharing payments indicate the intention to strip basic salary of other payments which are properly
considered as fringe benefits. Likewise, the catch-all exclusionary phrase all allowances and monetary
benefits which are not considered or integrated as part of the basic salary shows also the intention to strip
basic salary of any and all additions which may be in the form of allowances or fringe benefits.
Moreover, the Supplementary Rules and Regulations Implementing Presidential Decree 851 is even more
empathic in declaring that earnings and other remunerations which are not part of the basic salary shall not
be included in the computation of the 13th-month pay.
While doubt may have been created by the prior Rules and Regulations Implementing Presidential Decree
851 which defines basic salary to include all remunerations or earnings paid by an employer to an
employee, this cloud is dissipated in the later and more controlling Supplementary Rules and Regulations
which categorically, exclude from the definition of basic salary earnings and other remunerations paid by
employer to an employee. A cursory perusal of the two sets of Rules indicates that what has hitherto been
the subject of a broad inclusion is now a subject of broad exclusion. The Supplementary Rules and
Regulations cure the seeming tendency of the former rules to include all remunerations and earnings within
the definition of basic salary.
The all-embracing phrase earnings and other remunerations which are deemed not part of the basic salary
includes within its meaning payments for sick, vacation, or maternity leaves, premium for works performed
on rest days and special holidays, pay for regular holidays and night differentials. As such they are deemed
not part of the basic salary and shall not be considered in the computation of the 13th-month pay. If they
were not so excluded, it is hard to find any earnings and other remunerations expressly excluded in the
computation of the 13th-month pay. Then the exclusionary provision would prove to be idle and with no
purpose.
In the light of the clear ruling of this Court, there is, thus no reason for any mistake in the construction
or application of the law. When petitioner Sevilla Trading still included over the years non-basic benefits of
its employees, such as maternity leave pay, cash equivalent of unused vacation and sick leave, among
others in the computation of the 13th-month pay, this may only be construed as a voluntary act on its
part.Putting the blame on the petitioners payroll personnel is inexcusable.
In Davao Fruits Corporation vs. Associated Labor Unions, we likewise held that:[9]
The Supplementary Rules and Regulations Implementing P.D. No. 851 which put to rest all doubts in the
computation of the thirteenth month pay, was issued by the Secretary of Labor as early as January 16,
1976, barely one month after the effectivity of P.D. No. 851 and its Implementing Rules. And yet, petitioner
computed and paid the thirteenth month pay, without excluding the subject items therein until
1981. Petitioner continued its practice in December 1981, after promulgation of the aforequoted San
Miguel decision on February 24, 1981, when petitioner purportedly discovered its mistake.
From 1975 to 1981, petitioner had freely, voluntarily and continuously included in the computation of its
employees thirteenth month pay, without the payments for sick, vacation and maternity leave, premium for
work done on rest days and special holidays, and pay for regular holidays. The considerable length of time
the questioned items had been included by petitioner indicates a unilateral and voluntary act on its part,
sufficient in itself to negate any claim of mistake.
A company practice favorable to the employees had indeed been established and the payments made
pursuant thereto, ripened into benefits enjoyed by them. And any benefit and supplement being enjoyed by
Page 19 of 37
the employees cannot be reduced, diminished, discontinued or eliminated by the employer, by virtue of
Sec. 10 of the Rules and Regulations Implementing P.D. No. 851, and Art. 100 of the Labor Code of
the Philippines which prohibit the diminution or elimination by the employer of the employees existing
benefits. [Tiangco vs. Leogardo, Jr., 122 SCRA 267 (1983)]
With regard to the length of time the company practice should have been exercised to constitute
voluntary employer practice which cannot be unilaterally withdrawn by the employer, we hold that
jurisprudence has not laid down any rule requiring a specific minimum number of years. In the above
quoted case of Davao Fruits Corporation vs. Associated Labor Unions,[10] the company practice lasted
for six (6) years.In another case, Davao Integrated Port Stevedoring Services vs. Abarquez,[11] the
employer, for three (3) years and nine (9) months, approved the commutation to cash of the unenjoyed
portion of the sick leave with pay benefits of its intermittent workers. While in Tiangco vs. Leogardo,
Jr.,[12] the employer carried on the practice of giving a fixed monthly emergency allowance from November
1976 to February 1980, or three (3) years and four (4) months. In all these cases, this Court held that the
grant of these benefits has ripened into company practice or policy which cannot be peremptorily
withdrawn. In the case at bar, petitioner Sevilla Trading kept the practice of including non-basic benefits
such as paid leaves for unused sick leave and vacation leave in the computation of their 13th-month pay for
at least two (2) years.This, we rule likewise constitutes voluntary employer practice which cannot be
unilaterally withdrawn by the employer without violating Art. 100 of the Labor Code:
Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be construed to
eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the time of
promulgation of this Code.
IN VIEW WHEREOF, the petition is DENIED. The Decision of the Court of Appeals in CA-G.R. SP No.
63086 dated 27 November 2001 and its Resolution dated 06 March 2002 are hereby AFFIRMED.
SO ORDERED.

6
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 102132. March 19, 1993.

DAVAO INTEGRATED PORT STEVEDORING SERVICES, petitioner, vs. RUBEN V. ABARQUEZ, in his
capacity as an accredited Voluntary Arbitrator and THE ASSOCIATION OF TRADE UNIONS (ATU-TUCP),
respondents.
Libron, Gaspar & Associates for petitioner.
Bansalan B. Metilla for Association of Trade Unions (ATUTUCP).
SYLLABUS
1. LABOR LAWS AND SOCIAL LEGISLATION; LABOR RELATIONS; COLLECTIVE BARGAINING
AGREEMENT; DEFINED; NATURE THEREOF; CONSTRUCTION TO BE PLACED THEREON. — A
collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a contract
executed upon request of either the employer or the exclusive bargaining representative incorporating the
agreement reached after negotiations with respect to wages, hours of work and all other terms and
conditions of employment, including proposals for adjusting any grievances or questions arising under such
agreement. While the terms and conditions of a CBA constitute the law between the parties, it is not,
however, an ordinary contract to which is applied the principles of law governing ordinary contracts. A CBA,
as a labor contract within the contemplation of Article 1700 of the Civil Code of the Philippines which
governs the relations between labor and capital, is not merely contractual in nature but impressed with
public interest, thus, it must yield to the common good. As such, it must be construed liberally rather than
narrowly and technically, and the courts must place a practical and realistic construction upon it, giving due
consideration to the context in which it is negotiated and purpose which it is intended to serve.
2. ID.; ID.; ID.; ID.; ID.; ID.; CASE AT BAR. — It is thus erroneous for petitioner to isolate Section 1, Article
VIII of the 1989 CBA from the other related section on sick leave with pay benefits, specifically Section 3
thereof, in its attempt to justify the discontinuance or withdrawal of the privilege of commutation or
conversion to cash of the unenjoyed portion of the sick leave benefit to regular intermittent workers. The
manner they were deprived of the privilege previously recognized and extended to them by petitioner-
company during the lifetime of the CBA of October 16, 1985 until three (3) months from its renewal on April
15, 1989, or a period of three (3) years and nine (9) months, is not only tainted with arbitrariness but
Page 20 of 37
likewise discriminatory in nature. It must be noted that the 1989 CBA has two (2) sections on sick leave
with pay benefits which apply to two (2) distinct classes of workers in petitioner's company, namely: (1) the
regular non-intermittent workers or those workers who render a daily eight-hour service to the company and
are governed by Section 1, Article VIII of the 1989 CBA; and (2) intermittent field workers who are members
of the regular labor pool and the present regular extra labor pool as of the signing of the agreement on April
15, 1989 or those workers who have irregular working days and are governed by Section 3, Article VIII of
the 1989 CBA. It is not disputed that both classes of workers are entitled to sick leave with pay benefits
provided they comply with the conditions set forth under Section 1 in relation to the last paragraph of
Section 3, to wit: (1) the employee-applicant must be regular or must have rendered at least one year of
service with the company; and (2) the application must be accompanied by a certification from a company-
designated physician. the phrase "herein sick leave privilege," as used in the last sentence of Section 1,
refers to the privilege of having a fixed 15-day sick leave with pay which, as mandated by Section 1, only
the non-intermittent workers are entitled to. This fixed 15-day sick leave with pay benefit should be
distinguished from the variable number of days of sick leave, not to exceed 15 days, extended to
intermittent workers under Section 3 depending on the number of hours of service rendered to the
company, including overtime pursuant to the schedule provided therein. It is only fair and reasonable for
petitioner-company not to stipulate a fixed 15-day sick leave with pay for its regular intermittent workers
since, as the term "intermittent" implies, there is irregularity in their work-days. Reasonable and practical
interpretation must be placed on contractual provisions. Interpetatio fienda est ut res magis valeat quam
pereat. Such interpretation is to be adopted, that the thing may continue to have efficacy rather than fail.
3. ID.; ID.; ID.; SICK LEAVE BENEFITS; NATURE AND PURPOSE. — Sick leave benefits, like other
economic benefits stipulated in the CBA such as maternity leave and vacation leave benefits, among
others, are by their nature, intended to be replacements for regular income which otherwise would not be
earned because an employee is not working during the period of said leaves. They are non-contributory in
nature, in the sense that the employees contribute nothing to the operation of the benefits. By their nature,
upon agreement of the parties, they are intended to alleviate the economic condition of the workers.
4. ID.; ID.; JURISDICTION OF VOLUNTARY ARBITRATOR; CASE AT BAR. — Petitioner-company's
objection to the authority of the Voluntary Arbitrator to direct the commutation of the unenjoyed portion of
the sick leave with pay benefits of intermittent workers in his decision is misplaced. Article 261 of the Labor
Code is clear. The questioned directive of the herein public respondent is the necessary consequence of
the exercise of his arbitral power as Voluntary Arbitrator under Article 261 of the Labor Code "to hear and
decide all unresolved grievances arising from the interpretation or implementation of the Collective
Bargaining Agreement." We, therefore, find that no grave abuse of discretion was committed by public
respondent in issuing the award (decision). Moreover, his interpretation of Sections 1 and 3, Article VIII of
the 1989 CBA cannot be faulted with and is absolutely correct.
5. ID.; CONDITIONS OF EMPLOYMENT; PROHIBITION AGAINST ELIMINATION OR DIMINUTION OF
BENEFITS; BENEFITS GRANTED PURSUANT TO COMPANY PRACTICE OR POLICY CANNOT BE
PEREMPTORILY WITHDRAWN. — Whatever doubt there may have been early on was clearly obliterated
when petitioner-company recognized the said privilege and paid its intermittent workers the cash equivalent
of the unenjoyed portion of their sick leave with pay benefits during the lifetime of the CBA of October 16,
1985 until three (3) months from its renewal on April 15, 1989. Well-settled is it that the said privilege of
commutation or conversion to cash, being an existing benefit, the petitioner-company may not unilaterally
withdraw, or diminish such benefits. It is a fact that petitioner-company had, on several instances in the
past, granted and paid the cash equivalent of the unenjoyed portion of the sick leave benefits of some
intermittent workers. Under the circumstances, these may be deemed to have ripened into company
practice or policy which cannot be peremptorily withdrawn.
DECISION
ROMERO, J p:
In this petition for certiorari, petitioner Davao Integrated Port Services Corporation seeks to reverse the
Award 1 issued on September 10, 1991 by respondent Ruben V. Abarquez, in his capacity as Voluntary
Arbitrator of the National Conciliation and Mediation Board, Regional Arbitration Branch XI in Davao City in
Case No. AC-211-BX1-10-003-91 which directed petitioner to grant and extend the privilege of
commutation of the unenjoyed portion of the sick leave with pay benefits to its intermittent field workers who
are members of the regular labor pool and the present regular extra pool in accordance with the Collective
Bargaining Agreement (CBA) executed between petitioner and private respondent Association of Trade
Unions (ATU-TUCP), from the time it was discontinued and henceforth.
The facts are as follows:
Petitioner Davao Integrated Port Stevedoring Services (petitioner-company) and private respondent ATU-
TUCP (Union), the exclusive collective bargaining agent of the rank and file workers of petitioner-company,
entered into a collective bargaining agreement (CBA) on October 16, 1985 which, under Sections 1 and 3,
Page 21 of 37
Article VIII thereof, provide for sick leave with pay benefits each year to its employees who have rendered
at least one (1) year of service with the company, thus:
"ARTICLE VIII
Section 1. Sick Leaves — The Company agrees to grant 15 days sick leave with pay each year to every
regular non-intermittent worker who already rendered at least one year of service with the company.
However, such sick leave can only be enjoyed upon certification by a company designated physician, and if
the same is not enjoyed within one year period of the current year, any unenjoyed portion thereof, shall be
converted to cash and shall be paid at the end of the said one year period. And provided however, that only
those regular workers of the company whose work are not intermittent, are entitled to the herein sick leave
privilege.
xxx xxx xxx
Section 3. — All intermittent field workers of the company who are members of the Regular Labor Pool
shall be entitled to vacation and sick leaves per year of service with pay under the following schedule
based on the number of hours rendered including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 — 825 6 days 6 days
826 — 900 7 7
901 — 925 8 8
926 — 1,050 9 9
1,051 — 1,125 10 10
1,126 — 1,200 11 11
1,201 — 1,275 12 12
1,276 — 1,350 13 13
1,351 — 1,425 14 14
1,426 — 1,500 15 15
The conditions for the availment of the herein vacation and sick leaves shall be in accordance with the
above provided Sections 1 and 2 hereof, respectively."
Upon its renewal on April 15, 1989, the provisions for sick leave with pay benefits were reproduced under
Sections 1 and 3, Article VIII of the new CBA, but the coverage of the said benefits was expanded to
include the "present Regular Extra Labor Pool as of the signing of this Agreement." Section 3, Article VIII,
as revised, provides, thus:
"Section 3. — All intermittent field workers of the company who are members of the Regular Labor Pool
and present Regular Extra Labor Pool as of the signing of this agreement shall be entitled to vacation and
sick leaves per year of service with pay under the following schedule based on the number of hours
rendered including overtime, to wit:
Hours of Service Per Vacation Sick Leave
Calendar Year Leave
Less than 750 NII NII
751 — 825 6 days 6 days
826 — 900 7 7
901 — 925 8 8
926 — 1,050 9 9
1,051 — 1,125 10 10
1,126 — 1,200 11 11
1,201 — 1,275 12 12
1,276 — 1,350 13 13
1,351 — 1,425 14 14
1,426 — 1,500 15 15
The conditions for the availment of the herein vacation and sick leaves shall be in accordance with the
above provided Sections 1 and 2 hereof, respectively."
During the effectivity of the CBA of October 16, 1985 until three (3) months after its renewal on April 15,
1989, or until July 1989 (a total of three (3) years and nine (9) months), all the field workers of petitioner
who are members of the regular labor pool and the present regular extra labor pool who had rendered at
least 750 hours up to 1,500 hours were extended sick leave with pay benefits. Any unenjoyed portion
thereof at the end of the current year was converted to cash and paid at the end of the said one-year period
pursuant to Sections 1 and 3, Article VIII of the CBA. The number of days of their sick leave per year
depends on the number of hours of service per calendar year in accordance with the schedule provided in
Section 3, Article VIII of the CBA.
Page 22 of 37
The commutation of the unenjoyed portion of the sick leave with pay benefits of the intermittent workers or
its conversion to cash was, however, discontinued or withdrawn when petitioner-company under a new
assistant manager, Mr. Benjamin Marzo (who replaced Mr. Cecilio Beltran, Jr. upon the latter's resignation
in June 1989), stopped the payment of its cash equivalent on the ground that they are not entitled to the
said benefits under Sections 1 and 3 of the 1989 CBA.
The Union objected to the said discontinuance of commutation or conversion to cash of the unenjoyed sick
leave with pay benefits of petitioner's intermittent workers contending that it is a deviation from the true
intent of the parties that negotiated the CBA; that it would violate the principle in labor laws that benefits
already extended shall not be taken away and that it would result in discrimination between the non-
intermittent and the intermittent workers of the petitioner-company.
Upon failure of the parties to amicably settle the issue on the interpretation of Sections 1 and 3, Article VIII
of the 1989 CBA, the Union brought the matter for voluntary arbitration before the National Conciliation and
Mediation Board, Regional Arbitration Branch XI at Davao City by way of complaint for enforcement of the
CBA. The parties mutually designated public respondent Ruben Abarquez, Jr. to act as voluntary arbitrator.
After the parties had filed their respective position papers, 2 public respondent Ruben Abarquez, Jr. issued
on September 10, 1991 an Award in favor of the Union ruling that the regular intermittent workers are
entitled to commutation of their unenjoyed sick leave with pay benefits under Sections 1 and 3 of the 1989
CBA, the dispositive portion of which reads:
"WHEREFORE, premises considered, the management of the respondent Davao Integrated Port
Stevedoring Services Corporation is hereby directed to grant and extend the sick leave privilege of the
commutation of the unenjoyed portion of the sick leave of all the intermittent field workers who are
members of the regular labor pool and the present extra pool in accordance with the CBA from the time it
was discontinued and henceforth.
SO ORDERED."
Petitioner-company disagreed with the aforementioned ruling of public respondent, hence, the instant
petition.
Petitioner-company argued that it is clear from the language and intent of the last sentence of Section 1,
Article VIII of the 1989 CBA that only the regular workers whose work are not intermittent are entitled to the
benefit of conversion to cash of the unenjoyed portion of sick leave, thus: ". . . And provided, however, that
only those regular workers of the Company whose work are not intermittent are entitled to the herein sick
leave privilege."
Petitioner-company further argued that while the intermittent workers were paid the cash equivalent of their
unenjoyed sick leave with pay benefits during the previous management of Mr. Beltran who misinterpreted
Sections 1 and 3 of Article VIII of the 1985 CBA, it was well within petitioner-company's rights to rectify the
error it had committed and stop the payment of the said sick leave with pay benefits. An error in payment,
according to petitioner-company, can never ripen into a practice.
We find the arguments unmeritorious.
A collective bargaining agreement (CBA), as used in Article 252 of the Labor Code, refers to a contract
executed upon request of either the employer or the exclusive bargaining representative incorporating the
agreement reached after negotiations with respect to wages, hours of work and all other terms and
conditions of employment, including proposals for adjusting any grievances or questions arising under such
agreement.
While the terms and conditions of a CBA constitute the law between the parties, 3 it is not, however, an
ordinary contract to which is applied the principles of law governing ordinary contracts. 4 A CBA, as a labor
contract within the contemplation of Article 1700 of the Civil Code of the Philippines which governs the
relations between labor and capital, is not merely contractual in nature but impressed with public interest,
thus, it must yield to the common good. As such, it must be construed liberally rather than narrowly and
technically, and the courts must place a practical and realistic construction upon it, giving due consideration
to the context in which it is negotiated and purpose which it is intended to serve. 5
It is thus erroneous for petitioner to isolate Section 1, Article VIII of the 1989 CBA from the other related
section on sick leave with pay benefits, specifically Section 3 thereof, in its attempt to justify the
discontinuance or withdrawal of the privilege of commutation or conversion to cash of the unenjoyed portion
of the sick leave benefit to regular intermittent workers. The manner they were deprived of the privilege
previously recognized and extended to them by petitioner-company during the lifetime of the CBA of
October 16, 1985 until three (3) months from its renewal on April 15, 1989, or a period of three (3) years
and nine (9) months, is not only tainted with arbitrariness but likewise discriminatory in nature. Petitioner-
company is of the mistaken notion that since the privilege of commutation or conversion to cash of the
unenjoyed portion of the sick leave with pay benefits is found in Section 1, Article VIII, only the regular non-
intermittent workers and no other can avail of the said privilege because of the proviso found in the last
sentence thereof.
Page 23 of 37
It must be noted that the 1989 CBA has two (2) sections on sick leave with pay benefits which apply to two
(2) distinct classes of workers in petitioner's company, namely: (1) the regular non-intermittent workers or
those workers who render a daily eight-hour service to the company and are governed by Section 1, Article
VIII of the 1989 CBA; and (2) intermittent field workers who are members of the regular labor pool and the
present regular extra labor pool as of the signing of the agreement on April 15, 1989 or those workers who
have irregular working days and are governed by Section 3, Article VIII of the 1989 CBA.
It is not disputed that both classes of workers are entitled to sick leave with pay benefits provided they
comply with the conditions set forth under Section 1 in relation to the last paragraph of Section 3, to wit: (1)
the employee-applicant must be regular or must have rendered at least one year of service with the
company; and (2) the application must be accompanied by a certification from a company-designated
physician.
Sick leave benefits, like other economic benefits stipulated in the CBA such as maternity leave and
vacation leave benefits, among others, are by their nature, intended to be replacements for regular income
which otherwise would not be earned because an employee is not working during the period of said leaves.
6 They are non-contributory in nature, in the sense that the employees contribute nothing to the operation
of the benefits. 7 By their nature, upon agreement of the parties, they are intended to alleviate the
economic condition of the workers.
After a careful examination of Section 1 in relation to Section 3, Article VIII of the 1989 CBA in light of the
facts and circumstances attendant in the instant case, we find and so hold that the last sentence of Section
1, Article VIII of the 1989 CBA, invoked by petitioner-company does not bar the regular intermittent workers
from the privilege of commutation or conversion to cash of the unenjoyed portion of their sick leave with pay
benefits, if qualified. For the phrase "herein sick leave privilege," as used in the last sentence of Section 1,
refers to the privilege of having a fixed 15-day sick leave with pay which, as mandated by Section 1, only
the non-intermittent workers are entitled to. This fixed 15-day sick leave with pay benefit should be
distinguished from the variable number of days of sick leave, not to exceed 15 days, extended to
intermittent workers under Section 3 depending on the number of hours of service rendered to the
company, including overtime pursuant to the schedule provided therein. It is only fair and reasonable for
petitioner-company not to stipulate a fixed 15-day sick leave with pay for its regular intermittent workers
since, as the term "intermittent" implies, there is irregularity in their work-days. Reasonable and practical
interpretation must be placed on contractual provisions. Interpetatio fienda est ut res magis valeat quam
pereat. Such interpretation is to be adopted, that the thing may continue to have efficacy rather than fail. 8
We find the same to be a reasonable and practical distinction readily discernible in Section 1, in relation to
Section 3, Article VIII of the 1989 CBA between the two classes of workers in the company insofar as sick
leave with pay benefits are concerned. Any other distinction would cause discrimination on the part of
intermittent workers contrary to the intention of the parties that mutually agreed in incorporating the
questioned provisions in the 1989 CBA.
Public respondent correctly observed that the parties to the CBA clearly intended the same sick leave
privilege to be accorded the intermittent workers in the same way that they are both given the same
treatment with respect to vacation leaves - non-commutable and non-cumulative. If they are treated equally
with respect to vacation leave privilege, with more reason should they be on par with each other with
respect to sick leave privileges. 9 Besides, if the intention were otherwise, during its renegotiation, why did
not the parties expressly stipulate in the 1989 CBA that regular intermittent workers are not entitled to
commutation of the unenjoyed portion of their sick leave with pay benefits?
Whatever doubt there may have been early on was clearly obliterated when petitioner-company recognized
the said privilege and paid its intermittent workers the cash equivalent of the unenjoyed portion of their sick
leave with pay benefits during the lifetime of the CBA of October 16, 1985 until three (3) months from its
renewal on April 15, 1989. Well-settled is it that the said privilege of commutation or conversion to cash,
being an existing benefit, the petitioner-company may not unilaterally withdraw, or diminish such benefits.
10 It is a fact that petitioner-company had, on several instances in the past, granted and paid the cash
equivalent of the unenjoyed portion of the sick leave benefits of some intermittent workers. 11 Under the
circumstances, these may be deemed to have ripened into company practice or policy which cannot be
peremptorily withdrawn. 12
Moreover, petitioner-company's objection to the authority of the Voluntary Arbitrator to direct the
commutation of the unenjoyed portion of the sick leave with pay benefits of intermittent workers in his
decision is misplaced. Article 261 of the Labor Code is clear. The questioned directive of the herein public
respondent is the necessary consequence of the exercise of his arbitral power as Voluntary Arbitrator
under Article 261 of the Labor Code "to hear and decide all unresolved grievances arising from the
interpretation or implementation of the Collective Bargaining Agreement." We, therefore, find that no grave
abuse of discretion was committed by public respondent in issuing the award (decision). Moreover, his

Page 24 of 37
interpretation of Sections 1 and 3, Article VIII of the 1989 CBA cannot be faulted with and is absolutely
correct.
WHEREFORE, in view of the foregoing, the petition is DISMISSED. The award (decision) of public
respondent dated September 10, 1991 is hereby AFFIRMED. No costs.
SO ORDERED.

623 Phil. 511

PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the
Decision[1] and Resolution[2] of the Court of Appeals (CA) dated August 21, 2003 and June 3, 2004,
respectively, in CA-G.R. SP No. 73789.
The factual and procedural antecedents of the case are as follows:
Petitioner RTG Construction, Inc. is a domestic corporation engaged in the construction business.
Petitioner Rolito Go is its principal stockholder.
In March 1982, private respondent Roberto Facto was employed by RTG Construction as helper mechanic.
In 1985, he was promoted to the position of junior mechanic. In the course of Facto's employment, RTG
Construction changed its corporate name to Russet Construction and Development Corporation.
During Facto's employment, more particularly between April 1997 and May 1998, he was suspended on
four occasions because of various infractions ranging from absenteeism to creating disturbance in the
workplace. Separate memoranda were issued on different dates apprising him of such suspensions.[3]
On June 7, 2000, Facto was again suspended on the ground that he went to work under the influence of
alcohol. Pertinent portions of the Memorandum which was issued to Facto on the same date by reason of
such offense read as follows:
Last Saturday June 03, 2000 you reported to work obviously under the influence of intoxicating liquor. As
per report of your immediate supervisor, you have some arguments and confrontation with regards to the
assigned works to you. To avoid prolonged arguments, you were advised by your supervisor to go back
home and return to work when you are on your normal condition, but you refused to do so. Your supervisor
instructed our company guard to escort you out of the company premises. Under Article No. 6 of our
company's rules and regulations "Any employee under the influence of liquor will not be permitted to work.
The mere fact that you have violated the above-mentioned rules and regulations, you are hereby
suspended for fourteen (14) working days without pay and will take effect tomorrow June 08 to June 24,
2000.
Repetition of same offense may cause your dismissal from the service.
Strict compliance is hereby enjoined.
(Sgd.)
ELSA A. GO
Officer-in-Charge[4]
On August 10, 2000, Facto again received a Memorandum of even date, this time informing him that he
was terminated from his employment effective that same day. The Memorandum reads, thus:
MEMORANDUM
DATE : August 10, 2000
TO : Mr. ROBERTO FACTO
Jr. Mechanic
FROM : THE MANAGEMENT
SUBJECT : "TERMINATION"
_____________________________________________________________________________________
________________________________________________
This is in view of the memorandum issued to you last June 07, 2000, wherein you were given a final
warning stating that repetition of same offense committed by you will cause your dismissal from service.
It seems that you had intentionally ignored said final warning and had committed the same offense again
yesterday August 09, 2000. Therefore, the management has decided to terminate your services effective
today, August 10, 2000.
(Sgd.)
ELSA A. GO
Officer-in-Charge[5]

Page 25 of 37
On August 24, 2000, Facto files a Complaint[6] for illegal dismissal against RTG Construction and Go. The
Complaint was later amended to implead Russet Construction.
Facto alleged in his Position Paper[7] that his termination was illegal, as the same was not based on just or
authorized cause. He also alleged that he was denied his right to due process because he was not given
the chance to explain his side.
Herein petitioners filed their Position Paper[8] contending that Facto's dismissal was not illegal. Petitioners
claimed that since 1994, Facto had continuously committed violations of company rules, and that his
termination from employment was due to this series of infractions.
Facto filed his Reply[9] asserting, among others, that the allegations of petitioners were all fabrications
concocted by his supervisor who was mad at him.
The case was then submitted for decision.
On May 31, 2001, the Labor Arbiter handling the case rendered a Decision in favor of Facto, the dispositive
portion of which reads as follows:
WHEREFORE, consistent with the foregoing tenor, judgment is hereby rendered finding the dismissal of
complainant from employment illegal. Respondents RTG Construction, Inc., Russet Construction and
Development Corporation and/or Rolito Go are ordered to pay complainant jointly and severally the amount
of P128,227.69 representing his backwages and separation pay in lieu of reinstatement.
Respondents are further ordered to pay the sum of P7,682.50 as and by way of complainant's service
incentive leave pay and proportionate 13th month pay for the year 2000, and an equivalent amount of
P13,591.01 as complainant's ten percent (10%) attorney's fees based on the total judgment award of
P135,910.19.
SO ORDERED.[10]
Aggrieved, petitioners filed an appeal with the National Labor Relations Commission (NLRC).
On February 21, 2002, the NLRC promulgated a Resolution[11] dismissing petitioners' appeal and affirming
the Labor Arbiter's Decision in toto.
Petitioners filed a Motion for Reconsideration, but the NLRC denied it in an Order[12] dated July 30, 2002.
Petitioners then filed a special civil action for certiorari with the CA assailing the February 21, 2002
Resolution and July 30, 2002 Order of the NLRC.[13]
On August 21, 2003, the CA rendered judgment, disposing as follows:
WHEREFORE, premises considered, the decision of the Labor Arbiter dated 31 May 2001 is MODIFIED in
that: (1) the dismissal of private respondent is LEGAL; (2) backwages, 13th month pay and service incentive
leave pay are hereby awarded; plus (3) five (5%) percent of the total amount awarded herein, as and for
attorney's fees.
For computing the amounts due, this case is REMANDED to the Labor Arbiter, who is directed to act with
dispatch.
SO ORDERED.[14]
Unsatisfied with the CA Decision, petitioners filed a Motion for Reconsideration, but the CA denied it in its
Resolution[15] dated June 3, 2004.
Hence, the instant petition raising the following assignment of errors:
1. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE NLRC DID NOT ABUSE
ITS DISCRETION AND THAT PETITIONERS FAILED TO ADDUCE CONVINCING EVIDENCE IN
SUPPORT THEREOF;
2. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT THE FACTS AND FINDINGS
OF THE NLRC ARE ALL IN ACCORDANCE WITH THE EVIDENCE; and
3. THE COURT OF APPEALS COMMITTED A GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OF OR IN EXCESS OF JURISDICTION IN AFFIRMING IN TOTO THE APPEALED
DECISION OF THE NLRC DESPITE THE PRESENCE OF PALPABLE AND PATENT ERRORS
THEREIN.[16]
Petitioners submit that the errors raised are interrelated; thus, these are jointly discussed.
Petitioners' main contention is that the CA erred in finding that they were guilty of violating respondent's
right to due process. They argue that the series of memoranda issued to Facto clearly satisfies the
requirements of fairness and due process.
The Court is not persuaded.
Procedural due process in the dismissal of employees requires notice and hearing.[17] The employer must
furnish the employee two written notices before termination may be effected.[18] The first notice apprises the
employee of the particular acts or omissions for which his dismissal is sought, while the second notice
informs the employee of the employer's decision to dismiss him.[19] The requirement of a hearing, on the
other hand, is complied with as long as there is an opportunity to be heard; an actual hearing need not
necessarily be conducted.[20]

Page 26 of 37
In the present case, while petitioners complied with the second notice, apprising Facto of petitioner's
decision to terminate him from his employment, the records are bereft of any evidence to prove that there
was compliance with the first notice as well as with the requirement of a hearing.
Undoubtedly, the various memoranda issued to Facto between April 1997 and May 1998 did not satisfy the
requirement of first notice, as these referred to different offenses and only served to inform him of his
suspension. Neither did the Memorandum dated June 7, 2000 serve as the first notice contemplated under
the law. The acts being referred to therein were committed on June 3, 2000, on the bases of which Facto
was suspended. On the other hand, the Memorandum dated August 10, 2000, informing Facto of his
dismissal, referred to a different act or violation that was allegedly committed only a day earlier or on
August 9, 2000. Thus, Facto was never given the first notice, required by law, of the particular act or
omission upon which his dismissal was based.
Moreover, petitioner failed to afford Facto his right to be heard in connection with the aforementioned
charge. Section 2(d), Rule 1, Book VI of the Omnibus Rules Implementing the Labor Code states that:
Sec. 2. Security of Tenure. x x x
(d) In all cases of termination of employment, the following standards of due process shall be substantially
observed:
For termination of employment based on just causes as defined in Article 282 of the Labor Code:
xxx xxx xxx
A written notice served on the employee specifying the ground or grounds for termination, and giving
(i)
said employee reasonable opportunity within which to explain his side.

A hearing or conference during which the employee concerned, with the assistance of counsel if he so
(ii) desires, is given opportunity to respond to the charge, present his evidence, or rebut the
evidence presented against him.

A written notice of termination served on the employee, indicating that upon due consideration of all
(iii)
the circumstances, grounds have been established to justify his termination. (Emphases supplied.)
From the afore-cited provision, it is implicit that these requirements afford the employee an opportunity to
explain his side, respond to the charge, present his or her evidence and rebut the evidence presented
against him or her. In the instant case, compliance with these requirements are absent.
Petitioners also question the award of backwages by the CA to Facto. In ruling that Facto was entitled to
backwages by reason of petitioners' denial of his right to due process, the CA cited Serrano v. National
Labor Relations Commission.[21] However, the doctrine in the said case has already been abandoned. The
prevailing rule now is enunciated in the leading case Agabon v. National Labor Relations
Commission,[22] wherein it was held that if the dismissal was for a just cause but procedural due process
was not observed, the dismissal should be upheld; however, in lieu of payment of backwages, the employer
shall be made liable to pay indemnity in the form of nominal damages, the amount of which is addressed to
the sound discretion of the court, taking into account relevant circumstances. Prevailing jurisprudence sets
the amount of nominal damages at P30,000.00, which the Court finds proper and sufficient in the present
case.[23]
Petitioners further contend that since Facto's dismissal was found by the CA to be legal, the appellate court
should not have awarded service incentive leave pay, 13th month pay and attorney's fees.
The Court does not agree.
The Court notes that although it has already been settled with finality that Facto's dismissal was based on a
just cause, this has no bearing on the issue of awarding him service incentive leave pay and 13th month
pay. Prior to his dismissal, Facto performed work as a regular employee of petitioners, and he is entitled to
the benefits provided under the law.[24] Thus, in Agabon,[25] even while the Court found that the dismissal
was for a just cause, the employee was still awarded his monetary claims.

With respect to the award of service incentive leave pay, the first paragraph of Article 95 of the Labor Code
provides that every employee who has rendered at least one year of service shall be entitled to a yearly
incentive leave of five days with pay. In the present case, since Facto had been in the employ of petitioners
for more than eight (8) years at the time that he was dismissed, he is undoubtedly entitled to service
incentive leave benefits.
As regards the 13th month pay, an employee who has resigned, or whose services were terminated at any
time before the payment of the 13th month pay, is entitled to this monetary benefit in proportion to the length
of time he worked during the year, reckoned from the time he started working during the calendar year up
to the time of his resignation or termination from the service.[26]
Facto claims that he was not paid the above-mentioned benefits for certain periods during his employment.
Where the employee alleges nonpayment, the general rule is that the burden rests on the employer to
Page 27 of 37
prove payment, rather than on the employee to prove nonpayment.[27] The reason for the rule is that the
pertinent personnel files, payrolls, records, remittances and similar documents which will show that the
13th month pay, service incentive leave and other claims of workers, have been paid are not in the
possession of the employee, but in the custody and absolute control of the employer.[28] Since, in the
instant case, petitioners have not shown any proof of payment of the correct amount of 13th month pay and
service incentive leave pay, the Court affirms the rulings of the Labor Arbiter, the NLRC and the CA,
awarding Facto's monetary claims.
Finally, we find no error committed by the CA in affirming the award of attorney's fees. Settled is the rule
that in actions for recovery of wages, or where an employee was forced to litigate and, thus, incur expenses
to protect his rights and interests, a monetary award by way of attorney's fees is justifiable under Article 111
of the Labor Code;[29] Section 8, Rule VIII, Book III of its Implementing Rules;[30] and paragraph 7, Article
2208 of the Civil Code.[31] The award of attorney's fees is proper, and there need not be any showing that
the employer acted maliciously or in bad faith when it withheld the wages.[32] There need only be a showing
that the lawful wages were not paid accordingly.[33]
WHEREFORE, the petition is PARTLY GRANTED. The Decision of the Court of Appeals dated August 21,
2003 is MODIFIED by deleting the award for backwages. In lieu thereof, petitioners are ORDERED to pay
respondent nominal damages in the amount of Thirty Thousand Pesos (P30,000.00). In all other respects,
the assailed Decision and Resolution of the Court of Appeals are AFFIRMED.
SO ORDERED.

8
Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

EMMANUEL BABAS, DANILO T. BANAG, G.R. No. 186091

ARTURO V. VILLARIN, SR., EDWIN JAVIER,
SANDI BERMEO, REX ALLESA, MAXIMO Present:
SORIANO, JR., ARSENIO ESTORQUE, and
FELIXBERTO ANAJAO, CARPIO, J.
Petitioners, Chairperson,
NACHURA,
PERALTA,
- versus - DEL CASTILLO,* and
MENDOZA, JJ.

LORENZO SHIPPING CORPORATION, Promulgated:

Respondent.
December 15, 2010

x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

Petitioners Emmanuel Babas, Danilo T. Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex
Allesa, Maximo Soriano, Jr., Arsenio Estorque, and Felixberto Anajao appeal by certiorariunder Rule 45 of
the Rules of Court the October 10, 2008 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP. No.
103804, and the January 21, 2009 Resolution,[2] denying its reconsideration.

Respondent Lorenzo Shipping Corporation (LSC) is a duly organized domestic corporation engaged in the
shipping industry; it owns several equipment necessary for its business. On September 29, 1997, LSC
entered into a General Equipment Maintenance Repair and Management Services
[3]
Agreement (Agreement) with Best Manpower Services, Inc. (BMSI). Under the Agreement, BMSI
Page 28 of 37
undertook to provide maintenance and repair services to LSCs container vans, heavy equipment, trailer
chassis, and generator sets. BMSI further undertook to provide checkers to inspect all containers received
for loading to and/or unloading from its vessels.

Simultaneous with the execution of the Agreement, LSC leased its equipment, tools, and tractors to
BMSI.[4] The period of lease was coterminous with the Agreement.

BMSI then hired petitioners on various dates to work at LSC as checkers, welders, utility men, clerks, forklift
operators, motor pool and machine shop workers, technicians, trailer drivers, and mechanics. Six years
later, or on May 1, 2003, LSC entered into another contract with BMSI, this time, a service contract. [5]

In September 2003, petitioners filed with the Labor Arbiter (LA) a complaint for regularization
against LSC and BMSI. On October 1, 2003, LSC terminated the Agreement, effective October 31,
2003. Consequently, petitioners lost their employment.

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

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

After due proceedings, the LA rendered a decision[6] dismissing petitioners complaint. The LA found that
petitioners were employees of BMSI. It was BMSI which hired petitioners, paid their wages, and exercised
control over them.

Petitioners appealed to the National Labor Relations Commission (NLRC), arguing that BMSI was engaged
in labor-only contracting. They insisted that their employer was LSC.

On January 16, 2008, the NLRC promulgated its decision.[7] Reversing the LA, the NLRC held:

We find from the records of this case that respondent BMSI is not engaged in legitimate job
contracting.

First, respondent BMSI has no equipment, no office premises, no capital and no investments
as shown in the Agreement itself which states:

xxxx

VI. RENTAL OF EQUIPMENT

[6.01.] That the CLIENT has several forklifts and truck tractor, and has offered
to the CONTRACTOR the use of the same by way of lease, the
monthly rental of which shall be deducted from the total monthly
billings of the CONTRACTOR for the services covered by this
Agreement.

6.02. That the CONTRACTOR has agreed to rent the CLIENTs forklifts and
truck tractor.

6.03. The parties herein have agreed to execute a Contract of Lease for
the forklifts and truck tractor that will be rented by the
CONTRACTOR. (p. 389, Records)
True enough, parties signed a Lease Contract (p. 392, Records) wherein respondent
BMSI leased several excess equipment of LSC to enable it to discharge its obligation under
Page 29 of 37
 the Agreement. So without the equipment which respondent BMSI leased from respondent
LSC, the former would not be able to perform its commitments in the Agreement.

In Phil. Fuji Xerox Corp. v. NLRC (254 SCRA 294) the Supreme Court held:

x x x. The phrase substantial capital and investment in the form of tools,

equipment, machineries, work premises, and other materials which are
necessary in the conduct of his business, in the Implementing Rules clearly
contemplates tools, equipment, etc., which are directly related to the service it
is being contracted to render. One who does not have an independent
business for undertaking the job contracted for is just an agent of the
employer. (underscoring ours)

Second, respondent BMSI has no independent business or activity or job to perform in

respondent LSC free from the control of respondent LSC except as to the results thereof. In
view of the absence of such independent business or activity or job to be performed by
respondent BMSI in respondent LSC [petitioners] performed work that was necessary and
desirable to the main business of respondent LSC. Respondents were not able to refute the
allegations of [petitioners] that they performed the same work that the regular workers of
LSC performed and they stood side by side with regular employees of respondent LSC
performing the same work.Necessarily, the control on the manner and method of doing the
work was exercised by respondent LSC and not by respondent BMSI since the latter had no
business of its own to perform in respondent LSC.

Lastly, respondent BMSI has no other client but respondent LSC. If respondent BMSI were a
going concern, it would have other clients to which to assign [petitioners] after its Agreement
with LSC expired. Since there is only one client, respondent LSC, it is easy to conclude that
respondent BMSI is a mere supplier of labor.

After concluding that respondent BMSI is engaged in prohibited labor-only contracting,

respondent LSC became the employer of [petitioners] pursuant to DO 18-02.

[Petitioners] therefore should be reinstated to their former positions or equivalent positions in

respondent LSC as regular employees with full backwages and other benefits without loss of
seniority rights from October 31, 2003, when they lost their jobs, until actual reinstatement
(Vinoya v. NLRC, 324 SCRA 469). If reinstatement is not feasible, [petitioners] then should
be paid separation pay of one month pay for every year of service or a fraction of six months
to be considered as one year, in addition to full backwages.

Concerning [petitioners] prayer to be paid wage differentials and benefits under the CBA, We
have no doubt that [petitioners] would be entitled to them if they are covered by the said
CBA. For this purpose, [petitioners] should first enlist themselves as union members if they
so desire, or pay agency fee. Furthermore, only [petitioners] who signed the appeal
memorandum are covered by this Decision. As regards the other complainants who did not
sign the appeal, the Decision of the Labor Arbiter dismissing this case became final and
executory.[8]

The NLRC disposed thus:

WHEREFORE, the appeal of [petitioners] is GRANTED. The Decision of the Labor Arbiter is
hereby REVERSED, and a NEW ONE rendered finding respondent Best Manpower
Services, Inc. is engaged in prohibited labor-only-contracting and finding respondent
Lorenzo Shipping Corp. as the employer of the following [petitioners]:

1. Emmanuel B. Babas
2. Danilo Banag
3. Edwin L. Javier
4. Rex Allesa
5. Arturo Villarin, [Sr.]
6. Felixberto C. Anajao
Page 30 of 37
 7. Arsenio Estorque
8. Maximo N. Soriano, Jr.
9. Sandi G. Bermeo

Consequently, respondent Lorenzo Shipping Corp. is ordered to reinstate [petitioners] to

their former positions as regular employees and pay their wage differentials and benefits
under the CBA.

If reinstatement is not feasible, both respondents Lorenzo Shipping Corp. and Best
Manpower Services are adjudged jointly and solidarily to pay [petitioners] separation pay of
one month for every year of service, a fraction of six months to be considered as one year.

In addition, respondent LSC and BMSI are solidarily liable to pay [petitioners] full backwages
from October 31, 2003 until actual reinstatement or, if reinstatement is not feasible, until
finality of this Decision.

Respondent LSC and respondent BMSI are likewise adjudged to be solidarily liable for
attorneys fees equivalent to ten (10%) of the total monetary award.

xxxx

SO ORDERED.[9]

LSC went to the CA via certiorari. On October 10, 2008, the CA rendered the now challenged
Decision,[10] reversing the NLRC. In holding that BMSI was an independent contractor, the CA relied on the
provisions of the Agreement, wherein BMSI warranted that it is an independent contractor, with adequate
capital, expertise, knowledge, equipment, and personnel necessary for the services rendered to
LSC. According to the CA, the fact that BMSI entered into a contract of lease with LSC did not ipso
facto make BMSI a labor-only contractor; on the contrary, it proved that BMSI had substantial capital. The
CA was of the view that the law only required substantial capital or investment. Since BMSI had substantial
capital, as shown by its ability to pay rents to LSC, then it qualified as an independent contractor. It added
that even under the control test, BMSI would be the real employer of petitioners, since it had assumed the
entire charge and control of petitioners services. The CA further held that BMSIs Certificate of Registration
as an independent contractor was sufficient proof that it was an independent contractor. Hence, the CA
absolved LSC from liability and instead held BMSI as employer of petitioners.

The fallo of the CA Decision reads:

WHEREFORE, premises considered, the instant petition is GRANTED and the assailed
decision and resolution of public respondent NLRC are REVERSED and SET
ASIDE. Consequently, the decision of the Labor Arbiter dated September 29, 2004
is REINSTATED.

SO ORDERED.[11]

Petitioners filed a motion for reconsideration, but the CA denied it on January 21, 2009.[12]

Hence, this appeal by petitioners, positing that:

THE HONORABLE COURT OF APPEALS ERRED IN IGNORING THE CLEAR EVIDENCE

OF RECORD THAT RESPONDENT WAS ENGAGED IN LABOR-ONLY CONTRACTING
TO DEFEAT PETITIONERS RIGHT TO SECURITY OF TENURE.[13]

Before resolving the petition, we note that only seven (7) of the nine petitioners signed
the Verification and Certification.[14] Petitioners Maximo Soriano, Jr. (Soriano) and Felixberto Anajao
(Anajao) did not sign the Verification and Certification, because they could no longer be located by their co-
petitioners.[15]
Page 31 of 37
 In Toyota Motor Phils. Corp. Workers Association (TMPCWA), et al. v. National Labor Relations
Commission,[16] citing Loquias v. Office of the Ombudsman,[17] we stated that the petition satisfies the
formal requirements only with regard to the petitioner who signed the petition, but not his co-petitioner who
did not sign nor authorize the other petitioner to sign it on his behalf. Thus, the petition can be given due
course only as to the parties who signed it. The other petitioners who did not sign the verification and
certificate against forum shopping cannot be recognized as petitioners and have no legal standing before
the Court. The petition should be dismissed outright with respect to the non-conforming petitioners.

Thus, we dismiss the petition insofar as petitioners Soriano and Anajao are concerned.

Petitioners vigorously insist that they were employees of LSC; and that BMSI is not an independent
contractor, but a labor-only contractor. LSC, on the other hand, maintains that BMSI is an independent
contractor, with adequate capital and investment. LSC capitalizes on the ratiocination made by the CA.

In declaring BMSI as an independent contractor, the CA, in the challenged Decision, heavily relied
on the provisions of the Agreement, wherein BMSI declared that it was an independent contractor, with
substantial capital and investment.

De Los Santos v. NLRC[18] instructed us that the character of the business, i.e., whether as labor-
only contractor or as job contractor, should

be measured in terms of, and determined by, the criteria set by statute. The parties cannot dictate by the
mere expedience of a unilateral declaration in a contract the character of their business.

In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito Remada, Alilgilan
Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,[19] this Court explained:

Despite the fact that the service contracts contain stipulations which are earmarks of
independent contractorship, they do not make it legally so. The language of a contract is
neither determinative nor conclusive of the relationship between the parties. Petitioner SMC
and AMPCO cannot dictate, by a declaration in a contract, the character of AMPCO's
business, that is, whether as labor-only contractor, or job contractor. AMPCO's character
should be measured in terms of, and determined by, the criteria set by statute.

Thus, in distinguishing between prohibited labor-only contracting and permissible job contracting, the
totality of the facts and the surrounding circumstances of the case are to be considered.

Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor

merely recruits, supplies, or places workers to perform a job, work, or service for a principal. In labor-only
contracting, the following elements are present: (a) the contractor or subcontractor does not have
substantial capital or investment to actually perform the job, work, or service under its own account and
responsibility; and (b) the employees recruited, supplied, or placed by such contractor or subcontractor
perform activities which are directly related to the main business of the principal.[20]

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby
a principal agrees to put out or farm out with the contractor or subcontractor the performance or completion
of a specific job, work, or service within a definite or predetermined period, regardless of whether such job,
work, or service is to be performed or completed within or outside the premises of the principal. [21]

A person is considered engaged in legitimate job contracting or subcontracting if the following

conditions concur:

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

(b) The contractor has substantial capital or investment; and

Page 32 of 37
 (c) The agreement between the principal and the contractor or subcontractor assures the
contractual employees' entitlement to all labor and occupational safety and health standards, free exercise
of the right to self-organization, security of tenure, and social welfare benefits.[22]

Given the above standards, we sustain the petitioners contention that BMSI is engaged in labor-only
contracting.

First, petitioners worked at LSCs premises, and nowhere else. Other than the provisions of
the Agreement, there was no showing that it was BMSI which established petitioners working procedure
and methods, which supervised petitioners in their work, or which evaluated the same. There was absolute
lack of evidence that BMSI exercised control over them or their work, except for the fact that petitioners
were hired by BMSI.

Second, LSC was unable to present proof that BMSI had substantial capital. The record before us is
bereft of any proof pertaining to the contractors capitalization, nor to its investment in tools, equipment, or
implements actually used in the performance or completion of the job, work, or service that it was
contracted to render. What is clear was that the equipment used by BMSI were owned by, and merely
rented from, LSC.

In Mandaue Galleon Trade, Inc. v. Andales,[23] we held:

The law casts the burden on the contractor to prove that it has substantial capital,
investment, tools, etc. Employees, on the other hand, need not prove that the contractor
does not have substantial capital, investment, and tools to engage in job-contracting.

Third, petitioners performed activities which were directly related to the main business of LSC. The work of
petitioners as checkers, welders, utility men, drivers, and mechanics could only be characterized as part of,
or at least clearly related to, and in the pursuit of, LSCs business. Logically, when petitioners were
assigned by BMSI to LSC, BMSI acted merely as a labor-only contractor.

Lastly, as found by the NLRC, BMSI had no other client except for LSC, and neither BMSI nor LSC
refuted this finding, thereby bolstering the NLRC finding that BMSI is a labor-only contractor.

The CA erred in considering BMSIs Certificate of Registration as sufficient proof that it is an

independent contractor. In San Miguel Corporation v. Vicente B. Semillano, Nelson Mondejas, Jovito
Remada, Alilgilan Multi-Purpose Coop (AMPCO), and Merlyn N. Policarpio,[24] we held that a Certificate of
Registration issued by the Department of Labor and Employment is not conclusive evidence of such status.
The fact of registration simply prevents the legal presumption of being a mere labor-only contractor from
arising.[25]

Indubitably, BMSI can only be classified as a labor-only contractor. The CA, therefore, erred when it
ruled otherwise. Consequently, the workers that BMSI supplied to LSC became regular employees of the
latter.[26] Having gained regular status, petitioners were entitled to security of tenure and could only be
dismissed for just or authorized causes and after they had been accorded due process.

Petitioners lost their employment when LSC terminated its Agreement with BMSI. However, the
termination of LSCs Agreement with BMSI cannot be considered a just or an authorized cause for
petitioners dismissal. In Almeda v. Asahi Glass Philippines. Inc. v. Asahi Glass Philippines, Inc.,[27] this
Court declared:

The sole reason given for the dismissal of petitioners by SSASI was the termination
of its service contract with respondent. But since SSASI was a labor-only contractor, and
petitioners were to be deemed the employees of respondent, then the said reason would not
constitute a just or authorized cause for petitioners dismissal. It would then appear that
petitioners were summarily dismissed based on the aforecited reason, without compliance
with the procedural due process for notice and hearing.

Page 33 of 37
 Herein petitioners, having been unjustly dismissed from work, are entitled to
reinstatement without loss of seniority rights and other privileges and to full back wages,
inclusive of allowances, and to other benefits or their monetary equivalents computed from
the time compensation was withheld up to the time of actual reinstatement. Their earnings
elsewhere during the periods of their illegal dismissal shall not be deducted therefrom.

Accordingly, we hold that the NLRC committed no grave abuse of discretion in its
decision. Conversely, the CA committed a reversible error when it set aside the NLRC ruling.

WHEREFORE, the petition is GRANTED. The Decision and the Resolution of the Court of Appeals
in CA-G.R. SP. No. 103804 are REVERSED and SET ASIDE. Petitioners Emmanuel Babas, Danilo T.
Banag, Arturo V. Villarin, Sr., Edwin Javier, Sandi Bermeo, Rex Allesa, and Arsenio Estorque are declared
regular employees of Lorenzo Shipping Corporation. Further, LSC is ordered to reinstate the seven
petitioners to their former position without loss of seniority rights and other privileges, and to pay full
backwages, inclusive of allowances, and other benefits or their monetary equivalent, computed from the
time compensation was withheld up to the time of actual reinstatement.

No pronouncement as to costs.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 178909 October 10, 2012
SUPERIOR PACKAGING CORPORATION, Petitioner,
vs.
ARNEL BALAGSA Y, ZALDY ALFORGNE, JAIME ANGELES, REY APURA, GERALD CABALAN,
JONALD CALENTENG, RAMIL CROIJERO, JUNREY CABALGUINTO, OSCAR DAYTO, RUFO
DIONOLA, DIONILO ESMERALDA, BOOTS LADRILLO, ELIEZER MAGHAMOY, LEO FLORES,
RENATOPAGADORA,REYNALDO PLAZA, H.OGER SJBNEAO, EDWIN TONALBA, .JOHN ACHARON,
RODERICK RAMAS, SALVADOR ACURATO, JULUIS BASUL, CARLOS RAYTA, LITO BELANO,
ROGER CASIMIRO, RENE CURADA, NESTRO ESTE, ROMMEL IMPELIOO, ZOILO ISLA, JHONIE
OGARDO, EDWIN POSADAS, ALEXANDER REGPALA, CHRISTOPHER SAMPIANO, RITCHIE
SANCHES, ROLANDO SORIANO, ROWELL ANCHETA, RICKY BORDAS, ANTONIO BEHEN, RONALD
DOMINGO, JERRY MORENO, ROLLY ROSALES, RENATO RESTANO and ISIDRO
SARIGNE, Respondents.
RESOLUTION
REYES, J.:
The main issue in this case is whether Superior Packaging Corporation (petitioner) may be held solidarily
liable with Lancer Staffing & Services Network, Inc. (Lancer) for respondents’ unpaid money claims.
The facts are undisputed.
The petitioner engaged the services of Lancer to provide reliever services to its business, which involves
the manufacture and sale of commercial and industrial corrugated boxes. According to petitioner, the
respondents were engaged for four (4) months – from February to June 1998 – and their tasks included
loading, unloading and segregation of corrugated boxes.
Pursuant to a complaint filed by the respondents against the petitioner and its President, Cesar Luz (Luz),
for underpayment of wages, non-payment of premium pay for worked rest, overtime pay and non-payment
of salary, the Department of Labor and Employment (DOLE) conducted an inspection of the petitioner’s
premises and found several violations, to wit: (1) non-presentation of payrolls and daily time records; (2)
non-submission of annual report of safety organization; (3) medical and accident/illness reports; (4) non-
registration of establishment under Rule 1020 of Occupational and Health Standards; and (5) no trained
first aide1 Due to the petitioner’s failure to appear in the summary investigations conducted by the DOLE, an
Order2 was issued on June 18, 2003 finding in favor of the respondents and adopting the computation of
the claims submitted. Petitioner and Luz were ordered, among others, to pay respondents their total claims

Page 34 of 37
in the amount of Eight Hundred Forty Thousand Four Hundred Sixty-Three Pesos and 38/100 (₱
840,463.38).3
They filed a motion for reconsideration on the ground that respondents are not its employees but of Lancer
and that they pay Lancer in lump sum for the services rendered. The DOLE, however, denied its motion in
its Resolution4dated February 16, 2004, ruling that the petitioner failed to support its claim that the
respondents are not its employees, and even assuming that they were employed by Lancer, the petitioner
still cannot escape liability as Section 13 of the Department Order No. 10, Series of 1997, makes a principal
jointly and severally liable with the contractor to contractual employees to the extent of the work performed
when the contractor fails to pay its employees’ wages.
Their appeal to the Secretary of DOLE was dismissed per Order5 dated July 30, 2004 and the Order dated
June 18, 2003 and Resolution dated February 16, 2004 were affirmed.6 Their motion for reconsideration
likewise having been dismissed by the Secretary of DOLE in an Order dated January 21, 2005,7 petitioner
and Luz filed a petition for certiorari with the Court of Appeals (CA).
On November 17, 2006, the CA affirmed the Secretary of DOLE’s orders, with the modification in that Luz
was absolved of any personal liability under the award.8 The petitioner filed a partial motion for
reconsideration insofar as the finding of solidary liability with Lancer is concerned but it was denied by the
CA in a Resolution9 dated July 10, 2007.
The petitioner is now before the Court on petition for review under Rule 45 of the Rules of Court, alleging
that:
I
THE COURT OF APPEALS SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN
AFFIRMING THE RULING OF THE SECRETARY OF LABOR AND EMPLOYMENT THAT THE
COMPANY IS SOLIDARILY LIABLE WITH THE CONTRACTOR NOTWITHSTANDING THE FACT THAT:
A. THE COMPANY CANNOT BE HELD SOLIDARILY LIABLE WITH THE CONTRACTOR
FOR THE PENALTY OR SANCTION IMPOSED BY WAY OF "DOUBLE INDEMNITY"
UNDER REPUBLIC ACT NO. 6727.
B. THERE IS NO EVIDENCE TO SHOW THAT PRIVATE RESPONDENTS RENDERED
OVERTIME WORK AND ACTUALLY WORKED ON THEIR RESTDAYS FOR THE
COMPANY FOR THE PERIOD IN QUESTION.
II
THE COURT OF APPEALS SERIOUSLY ERRED AND GRAVELY ABUSED ITS DISCRETION IN
AFFIRMING THE FINDINGS OF THE SECRETARY OF LABOR AND EMPLOYMENT THAT THE
CONTRACTOR IS ENGAGED IN LABOR-ONLY CONTRACTING.10
On the first ground, the petitioner argues that the DOLE erred in doubling respondents’ underpayment of
wages and regular holiday pay under Republic Act No. 6727 (Wage Rationalization Act) inasmuch as the
solidary liability of a principal does not extend to a punitive award against a contractor. 11 The petitioner also
contends that there is no evidence showing that the respondents rendered overtime work and that they
actually worked on their rest days for them to be entitled to such pay.12
On the second ground, the petitioner objects to the finding that it is engaged in labor-only contracting and is
consequently an indirect employer, considering that it is beyond the visitorial and enforcement power of the
DOLE to make such conclusion. According to the petitioner, such
conclusion may be made only upon consideration of evidentiary matters and cannot be determined solely
through a labor inspection.13 The petitioner also refutes respondents’ alleged belated argument that the
latter are its employees.14
The petition is bereft of merit.
To begin with, the Court will not resolve or dwell on the petitioner’s argument on the doubling of
respondents’ underpayment of wages and regular holiday pay by the DOLE for the simple reason that this
is the first time that the petitioner raised such contention. From its pleadings filed in the DOLE and all the
way up to the CA, the petitioner never questioned nor discussed such issue. It is only now before the Court
that the petitioner belatedly presented such argument. It is well-settled that points of law, theories, issues
and arguments not brought to the attention of the lower court, administrative agency or quasi-judicial body
need not be considered by a reviewing court, as they cannot be raised for the first time at that late
stage.15 To consider the alleged facts and arguments raised belatedly would amount to trampling on the
basic principles of fair play, justice and due process.16
With regard to the contention that there is no evidence to support the finding that the respondents rendered
overtime work and that they worked on their rest day, the resolution of this argument requires a review of
the factual findings and the evidence presented, which this Court will not do. This Court is not a trier of facts
and this applies with greater force in labor cases.17 Hence, where the factual findings of the labor tribunals
or agencies conform to, and are affirmed by, the CA, the same are accorded respect and finality, and are
binding upon this Court.18
Page 35 of 37
Petitioner also questions the authority of the DOLE to make a finding of an employer-employee relationship
concomitant to its visitorial and enforcement power. The Court notes at this juncture that the petitioner,
again, did not raise this question in the proceedings before the DOLE. At best, what the petitioner raised
was the sufficiency of evidence proving the existence of an employer-employee relationship and it was only
in its petition for certiorari with the CA that the petitioner sought to have this matter addressed. The CA
should have refrained from resolving said matter as the petitioner was deemed to have waived such
argument and was estopped from raising the same.19
At any rate, such argument lacks merit. The DOLE clearly acted within its authority when it determined the
existence of an employer-employee relationship between the petitioner and respondents as it falls within
the purview of its visitorial and enforcement power under Article 128(b) of the Labor Code, which provides:
Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the
relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly
authorized representatives shall have the power to issue compliance orders to give effect to the labor
standards provisions of this Code and other labor legislation based on the findings of labor employment
and enforcement officers or industrial safety engineers made in the course of inspection. The Secretary or
his duly authorized representative shall issue writs of execution to the appropriate authority for the
enforcement of their orders, except in cases where the employer contests the findings of the labor
employment and enforcement officer and raises issues supported by documentary proofs which were not
considered in the course of inspection.
In People’s Broadcasting (Bombo Radyo Phils., Inc.) v. Secretary of the Department of Labor and
Employment,20 the Court stated that it can be assumed that the DOLE in the exercise of its visitorial and
enforcement power somehow has to make a determination of the existence of an employer-employee
relationship. Such determination, however, is merely preliminary, incidental and collateral to the DOLE’s
primary function of enforcing labor standards provisions. Such power was further explained recently by the
Court in its Resolution21 dated March 6, 2012 issued in People’s Broadcasting, viz:
The determination of the existence of an employer-employee relationship by the DOLE must be respected.
The expanded visitorial and enforcement power of the DOLE granted by RA 7730 would be rendered
nugatory if the alleged employer could, by the simple expedient of disputing the employer-employee
relationship, force the referral of the matter to the NLRC. The Court issued the declaration that at least a
prima facie showing of the absence of an employer-employee relationship be made to oust the DOLE of
jurisdiction. But it is precisely the DOLE that will be faced with that evidence, and it is the DOLE that will
weigh it, to see if the same does successfully refute the existence of an employer-employee relationship.
xxxx
x x x The power of the DOLE to determine the existence of an employer-employee relationship need not
necessarily result in an affirmative finding.1âwphi1 The DOLE may well make the determination that no
employer-employee relationship exists, thus divesting itself of jurisdiction over the case. It must not be
precluded from being able to reach its own conclusions, not by the parties, and certainly not by this Court.
Under Art. 128(b) of the Labor Code, as amended by RA 7730, the DOLE is fully empowered to make a
determination as to the existence of an employer-employee relationship in the exercise of its visitorial and
enforcement power, subject to judicial review, not review by the NLRC.22
Also, the existence of an employer-employee relationship is ultimately a question of fact.23 The
determination made in this case by the DOLE, albeit provisional, and as affirmed by the Secretary of DOLE
and the CA is beyond the ambit of a petition for review on certiorari.24
The Court now comes to the issue regarding the nature of the relationship between the petitioner and
respondents, and the consequent liability of the petitioner to the respondents under the latter’s claim.
It was the consistent conclusion of the DOLE and the CA that Lancer was not an independent contractor
but was engaged in "labor-only contracting"; hence, the petitioner was considered an indirect employer of
respondents and liable to the latter for their unpaid money claims.
At the time of the respondents’ employment in 1998, the applicable regulation was DOLE Department
Order No. 10, Series of 1997.25 Under said Department Order, labor-only contracting was defined as
follows:
Sec. 9. Labor-only contracting. – (a) Any person who undertakes to supply workers to an employer shall be
deemed to be engaged in labor-only contracting where such person:
(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises and other materials; and
(2) The workers recruited and placed by such persons are performing activities which are directly related to
the principal business or operations of the employer in which workers are habitually employed.
Labor-only contracting is prohibited and the person acting as contractor shall be considered merely as an
agent or intermediary of the employer who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him.26
Page 36 of 37
According to the CA, the totality of the facts and surrounding circumstances of this case point to such
conclusion. The Court agrees.
The ratio of Lancer’s authorized capital stock of ₱ 400,000.00 as against its subscribed and paid-up capital
stock of ₱ 25,000.00 shows the inadequacy of its capital investment necessary to maintain its day-to-day
operations. And while the Court does not set an absolute figure for what it considers substantial capital for
an independent job contractor, it measures the same against the type of work which the contractor is
obligated to perform for the principal.27 Moreover, the nature of respondents’ work was directly related to the
petitioner’s business. The marked disparity between the petitioner’s actual capitalization (₱ 25,000.00) and
the resources needed to maintain its business, i.e., "to establish, operate and manage a personnel service
company which will conduct and undertake services for the use of offices, stores, commercial and industrial
services of all kinds," supports the finding that Lancer was, indeed, a labor-only contractor. Aside from
these is the undisputed fact that the petitioner failed to produce any written service contract that might
serve as proof of its alleged agreement with Lancer.28
Finally, a finding that a contractor is a "labor-only" contractor is equivalent to declaring that there is an
employer-employee relationship between the principal and the employees of the supposed contractor, and
the "labor only" contractor is considered as a mere agent of the principal, the real employer.29 The former
becomes solidarily liable for all the rightful claims of the employees.30 The petitioner therefore, being the
principal employer and Lancer, being the labor-only contractor, are solidarily liable for respondents’ unpaid
money claims.
WHEREFORE, the petition for review is DENIED.
SO ORDERED.

Page 37 of 37