Vt

3Republic of tbe ~bilippines

~upreme <!Court
;fManila
SECOND DIVISION
EDWARD C. DE CASTRO and G.R. No. 204261
MA. GIRLIE F. PLATON,
Present:
Petitioners,
CARPIO, J., Chairperson,
BRION,*
- versus - DEL CASTILLO,
MENDOZA, and
LEONEN,JJ
COURT OF APPEALS,
NATIONAL LABOR
RELATIONS COMMISSION,
SILVERICON, INC., and/or
NUVOLAND PHILS., INC.,
and/or RAUL MARTINEZ,
RAMON BIENVENIDA, and the
BOARD OF DIRECTORS OF
NUVOLAND, Promulgated:
Respondents. 0 5 OCT 20.
)( ---------------------------------------------------------------------------------------------
DECISION
MENDOZA, J.:

This is a Petition for Certiorari under Rule 65 of the Rules of Court

assailing the June 1, 2012 Decision 1 and the September 21, 2012 Resolution2
of the Court of Appeals (CA) in CA-G.R. SP No. 122415, for having been
issued with grave abuse of discretion, when it affirmed the July 29, 2011
Decision3 and the September 22, 2011 Resolution4 of the National Labor
Relations Commission (NLRC) in NLRC -NCR Case Nos. 11-16356-09 and
12-17308-09, consolidated cases for illegal dismissal filed against

On Leave.
1
Rollo, pp. 36-53. Penned by Associate Justice Franchito N. Diamante, with Associate Justice Mariflor P.
Punzalan-Castillo and Associate Justice Ramon A. Cruz, concurring.
2
Id. at 89-91.
3
Id. at 232-250.
4
Id. at 290-292.
 DECISION 2 G.R. No. 204261

respondent corporations, Nuvoland Phils., Inc. (Nuvoland) and Silvericon,

Inc. (Silvericon).

The July 29, 2011 NLRC Decision, in tum, reversed the March 15
2011 Decision5 of the Labor Arbiter (LA), finding that the petitioners were
illegally dismissed.

The Antecedents

Nuvoland, a corporation formed primarily "to own, use, improve,

develop, subdivide, sell, exchange, lease and hold for investment or
otherwise, real estate of all kinds, including buildings, houses, apartments
and other structures," was registered with the Securities and Exchange
Commission (SEC) on August 9, 2006. 6 Respondent Ramon Bienvenida
(Bienvenida) was the principal stockholder and member of the Board of
Directors while Raul Martinez (Martinez) was its President.

Silvericon, on the other hand, was registered with the SEC on

December 19, 2006. Its Articles of Incorporation described it as a
"corporation organized 'to own, use, improve, develop, subdivide, sell,
exchange, lease and hold for investment or otherwise, real estate of all kinds,
including buildings, houses, apartments and other structures. "' 7

Sometime in 2007, Martinez recruited petitioner Edward de Castro

(De Castro), a sales and marketing professional in the field of real estate, to
handle its sales and marketing operations, including the hiring and
supervision of the sales and marketing personnel. To formalize this
undertaking, De Castro was made to sign a Memorandum of Agreement
(MOA), denominated as Shareholders Agreement, 8 wherein Martinez
proposed to create a new corporation, through which the latter's
compensation, benefits and commissions, including those of other sales
personnel, would be coursed. It was stipulated in the said MOA that the new
corporation 9 would have an authorized capital stock of P4,000,000.00, of
which Pl,000,000.00 was subscribed and paid equally by the Martinez
Group and the De Castro Group. 10

As it turned out, the supposedly new corporation contemplated was

Silvericon. De Castro was appointed the President and majority stockholder
of Silvericon while Bienvenida and Martinez were named as stockholders
and incorporators thereof, each owning one ( 1) share of subscribed capital
stock.

5
Id. at 217-229.
6
Id. at 56.
7
Id. at 56-57.
8
Id. at 158-162.
9
Denominated therein as "NEWCO".
10
Rollo, p. 57.

~
 DECISION 3 G.R. No. 204261

In the same MOA, Martinez was designated as Chairman of the new

corporation to whom De Castro, as President and Chief Operating Officer,
would directly report. De Castro was tasked to manage the day to day
operations of the new corporation based on policies, procedures and
strategies set by Martinez. For their respective roles, Martinez was to
receive a monthly allowance of P125,000.00, while De Castro's monthly
salary was P400,000.00, with car plan and project income bonus, among
other perks. Both Martinez and De Castro were stipulated to receive override
commissions at 1% each, based on the net contract price of each
condominium unit sold.

During De Castro's tenure as Chief Operating Officer of the newly

created Silvericon, he recruited forty (40) sales and marketing personnel.
One of them was petitioner Ma. Girlie F. Platon (Platon) who occupied the
position of Executive Property Consultant. De Castro and his team of sales
personnel were responsible for the sale of 100% of the projects owned and
developed by Nuvoland. 11

Thereafter, the Sales and Marketing Agreement1 2 (SMA), dated

February 26, 2008, was purportedly executed by Nuvoland and Silvericon,
stipulating that all payments made for the condominium projects of
Nuvoland were to be given directly to it. Clients secured by the sales and
marketing personnel would issue checks payable to Nuvoland while the cash
payments, as the case may be, were deposited to Nuvoland's account.
Meanwhile, the corresponding sales commission of the sales personnel were
issued to them by Nuvoland, with Martinez signing on behalf of the said
company.

In a Letter, 13 dated December 12, 2008 and signed by Bienvenida,

Nuvoland terminated the SMA on the ground that Silvericon personnel
committed an unauthorized walkout and abandonment of the Nuvo City
Showroom for two (2) days. In the same letter, Nuvoland demanded that
Silvericon make a full accounting of all its uses of the marketing advances
from Nuvoland. It, however, assured that all sales commissions earned by
Silvericon personnel would be released as per existing policy.

After the issuance of the said termination letter, De Castro and all the
sales and marketing personnel of Silvericon were barred from entering the
office premises. Nuvoland, eventually, was able to secure the settlement of
all sales and marketing personnel's commissions and wages with the
exception of those of De Castro and Platon. The claims of one of

II Id.
12
Id. at 184-187.
13
Id. at 200.

t
 DECISION 4 G.R. No. 204261

Silvericon's senior manager were settled during the pendency of a complaint

with the LA. 14

Aggrieved, De Castro and Platon filed a complaint for illegal

dismissal before the LA, demanding the payment of their unpaid wages,
commissions and other benefits with prayer for the payment of moral and
exemplary damages and attorney's fees against Silvericon, Nuvoland,
Martinez, Bienvenida, and the Board of Directors of Nuvoland.

Nuvoland and its directors and officers denied a direct contractual

relationship with De Castro and Platon, and contended that if there was any
dispute at all, it was merely between the complainants and Silvericon.

For its part, Silvericon admitted that it had employed De Castro as

President and COO. It, however, asserted the application of Presidential
Decree (P.D.) No. 902-A to the case, arguing that the claims come within
the purview of corporate affairs and management, thus, falling within the
jurisdiction of the regular courts. 15

The Ruling of the Labor Arbiter

On March 15, 2011, after the filing of the parties' respective position
papers, the LA handed down his decision in favor of De Castro and Platon.
He concluded that Silvericon was a mere labor-only contractor and,
therefore, a mere agent ofNuvoland. Thus:

It should be noted that in the Sales and Marketing Agreement

between Silvericon and Nuvoland, the latter committed to advance
all the necessary amount of money up to the extent of P30 million
per building to fund the marketing expenses for the project. This
alone disqualifies respondent Silvericon as an independent
contractor as it could not undertake the contracted sales and
marketing work under its own account and under its own
responsibility. Not only that, tb.at respondent Nuvoland has to
bankroll the marketing expenses of respondent Silvericon up to the
extent of P30 million per building means that the latter does not
have substantial capital to undertake the contract work on its own
account and under its own responsibility. Thus, the argument by
the respondents that the paid-up capital of respondent Silvericon in
the amount of P1 million as shown by its Articles of Incorporation to
be substantial capital is simply puerile. If it were true that said
amount of Pl million would be substantial enough for Silvericon to
carry out its undertaking under Sales and Marketing Agreement,
then there was no need for respondent Nuvoland to advance the
amount of P30,ooo,ooo.oo for the marketing expenses of
Silvericon. Moreover, as argued by complainants, how can
P1,ooo,ooo.oo be deemed as substantial capitalization if

14
Id. at 219.
15
Id. at 220-221.

~
 DECISION 5 G.R. No. 204261

complainant De Castro's salary per month alone is already about

almost half of Silvericon's paid-up capitalization. This is not to
mention the salaries of the more than forty sales and marketing
staff. This means that after only one (1) month in operation,
Silvericon's capitalization would not have been enough to pay even
the salaries of its employees.

To be added to the foregoing findings is the admitted fact that

it was respondent Nuvoland which paid the sales commissions of
the sales personnel of respondent Silvericon. Even the power to
dismiss the complainants and the other sales personnel of
Silvericon was exercised by respondent Nuvoland. If indeed there
was an unauthorized walkout and abandonment by the sales
personnel of the Nuvo City showroom for a period of two (2) days,
then what Nuvoland could have done was to notify Silvericon to
institute appropriate disciplinary action against the erring
personnel, and not to take the cudgels for Silvericon in abruptly
terminating the entire sales force including the complainants
herein. 16

Nuvoland was adjudged as the direct employer of De Castro and

Platon and, thus, liable to pay their money claims as a consequence of their
illegal dismissal. According to the LA, the ground relied upon for the
termination of the employment of De Castro and Platon - abandonment of
the Nuvo City Showroom - was not at all proven. Mere suspicion that De
Castro instigated the walkout did not discharge the burden of proof which
heavily rested on the employer. Without an unequivocal showing that an
employee deliberately and unjustifiably refused his employment sans any
intention to return to work, abandonment as a cause for dismissal could not
stand. Worse, procedural due process could not be said to have been
observed through the expediency of a letter in contravention to Article 277,
paragraph 2 of the Labor Code. 17 Hence, the LA disposed:

WHEREFORE, all the foregoing premises being considered,

judgment is hereby rendered ordering respondent Nuvoland Phils.
Inc. and/ or Raul Martinez and Ramon Bienvenida to pay jointly
and solidarily the awarded claims in favor of the complainants, as
follows:

16
Id. at 223-224.
17
Art. 277 Par.2: Subject to the constitutional right of workers to security of tenure and their right to be
protected against dismissal except for a just and authorized cause and without prejudice to the requirement
of notice under Article 283 of this Code, the employer shall furnish the worker whose employment is
sought to be terminated a written notice containing a statement of the causes for termination and shall
afford the latter ample opportunity to be heard and to defend himself with the assistance of his
representative if he so desires in accordance with company rules and regulations promulgated pursuant to
guidelines set by the Department of Labor and Employment. Any decision taken by the employer shall be
without prejudice to the right of the worker to contest the validity or legality of his dismissal by filing a
complaint with the regional branch of the National Labor Relations Commission. The burden of proving
that the termination was for a valid or authorized cause shall rest on the employer. The Secretary of the
Department of Labor and Employment may suspend the effects of the termination pending resolution of the
dispute in the event of a prima facie finding by the appropriate official of the Department of Labor and
Employment before whom such dispute is pending that the termination may cause a serious labor dispute or
is in implementation of a mass lay-off. (As amended by Section 33, Republic Act No. 6715, March 21,
1989)

\
 DECISION 6 G.R. No. 204261

EDWARD DE CASTRO
Backwages ...................................... P10,800,ooo.oo
Separation pay.................................. 1,600,000.00
Unpaid Salaries................................... 146,667.00
13th Month Pay................................... 380,000.00
Unpaid Override Commissions ........ 26,454.839.88
TOTAL................................... P39,381,506.88
MA. GIRLIE PLATON
Backwages .......................................... P405,ooo.oo
Separation pay........................................ 60,000.00
Unpaid Salaries ......................................... 5,500.00
13th Month Pay....................................... 14,250.00
Unpaid Override Commissions .............. 530.231.93
TOTAL............................... P1,014,981.93

Not in conformity, Nuvoland, Bienvenida and Martinez interposed an

appeal before the NLRC, arguing that the LA gravely abused his discretion
in ruling that: 1) Silveri con was a labor-only contractor; 2) the case did not
involve an intra-corporate dispute; and 3) Martinez and Bienvenida were
solidarily liable for illegal dismissal.

The Ruling of the NLRC

In its July 29, 2011 Decision, the NLRC reversed the LA decision,
finding that Silvericon was an independent contractor, thus, the direct
employer of De Castro and Platon. In its view, in the SMA, Silvericon had
full discretion on how to perform and conduct its marketing and sales tasks;
and there was no showing that Nuvoland had exercised control over the
method of sales and marketing strategies used by Silvericon. The NLRC
further concluded that Silvericon had substantial capital. It pointed out that
in several cases decided by the Court, even an amount less than One Million
Pesos was sufficient to constitute substantial capital; and so to require
Silvericon to prove that it had investments in the form of tools, equipment,
machinery, and work premises would be going beyond what the law and
jurisprudence required. Hence, it could not consider Silvericon as a dummy
corporation of Nuvoland organized to effectively evade the latter's
obligation of providing employment benefits to its sales and marketing
agents. This being the case, the NLRC ruled that no employer-employee
relationship existed between Nuvoland, on one hand, and De Castro and
Platon, on the other. There was no evidence showing that Nuvoland hired,
paid wages, dismissed or controlled De Castro and Platon, or anyone of
Silvericon's employees. Resultantly, Martinez and Bienvenida could not be
held liable for they merely acted as officers ofNuvoland.
 DECISION 7 G.R. No. 204261

Unfazed, De Castro and Platon assailed the decision of the NLRC via
a petition for certiorari under Rule 65 with the CA.

The Ruling of the CA

In its June 1, 2012 Decision, the CA affirmed the findings of the

NLRC, pointing out that what was terminated was the SMA. As such, the
employment of the forty (40) personnel hired by Silvericon, as well as the
petitioners' employment, was not affected. Considering that there was no
employer-employee relationship between the petitioners and Nuvoland, the
CA deemed that the latter could not be held liable for the claim of illegal
dismissal. Even assuming that De Castro was illegally dismissed, the CA
opined that the NLRC was correct in refraining from taking cognizance of
the complaint because De Castro's employment with Silvericon put him
within the ambit of Section 5.2 of Republic Act (R.A.) No. 8799, otherwise
known as The Securities Regulation Code. As such, his claim should have
been brought before the Regional Trial Court (RTC) instead.

Upon the denial of their motion for reconsideration, the petitioners

filed this petition on the following

GROUNDS
I

THE HONORABLE COURT OF APPEALS GRAVELY ABUSED

ITS DISCRETION WHEN IT AGREED WITH THE NLRC THAT
SILVERICON IS NOT A LABOR-ONLY CONTRACTOR
II
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED
ITS DISCRETION WHEN IT AGREED WITH THE NLRC THAT
THE INSTANT CASE INVOLVES AN INTRA-CORPORATE
DISPUTE
III
THE HONORABLE COURT OF APPEALS GRAVELY ABUSED
ITS DISCRETION WHEN IT HELD THAT NO BAD FAITH WAS
ESTABLISHED ON THE PART OF RESPONDENTS RAUL
MARTINEZ AND RAMON BIENVENIDA. 18

Essentially, petitioners De Castro and Platon argue that Silvericon, far

from being an independent contractor, was engaged in labor-only
contracting as shown by: 1) its lack of a substantial capital necessary in the
conduct of its business; 2) its lack of investment on tools, equipment,
machineries, work premises, and other materials; and 3) its failure to secure
a certificate of authority to act as an independent contractor issued by the
18
Rollo, p. 21.

~
 DECISION 8 G.R. No. 204261

Department of Labor and Employment (DOLE); and 4) its services to

Nuvoland being exclusive in nature.

According to De Castro and Platon, the evaluation of the authorized

capital stock of Silvericon against the marketing and sales activities of its
sales personnel would readily show that it needed a huge amount of funds
for salaries and operating expenses, not to mention the funds for promotions
and advertisements for the Aspire Condominium Project and Infinity Office
and Residential Condominium Project. Suffice it to say, Silvericon's
authorized or paid up capital was deficient to cover its operations. This is the
reason why Nuvoland made advancements amounting to P30 Million per
building.

The petitioners contend that the CA gravely erred when it relied on

the eventual deduction of the said advances from the earned marketing fee
of Silvericon pursuant to the SMA. The advancements, whether or not at
cost on the part of Silvericon, only proved that the latter had no substantial
capital necessary for its business. Although jurisprudence was replete with
rulings considering an amount less than the paid-up capital of Silvericon as
substantial, the industry in which the respondent corporations were engaged,
that is, the sale and marketing of enormous condominium projects, should be
taken into account. In other words, the test of a substantial paid-up capital
for purposes of identifying an entity as an independent contractor should be
evaluated in light of the business it is undertaking. In the case of Silveri con,
the paid-up capital of Pl Million Pesos could hardly be considered
substantial.

Further, Silvericon had no investment in the form of tools and

equipment necessary in the conduct of its business, the sales and marketing
activities of which were conducted in the premises of Nuvoland. The latter
itself designed and constructed the model units used for the sales and
marketing of the condominium projects.

More significantly, the petitioners explained that Nuvoland created

Silvericon to serve, not any other clientele, but its creator. If Nuvoland
really wanted to engage a truly independent contractor to undertake its sales
and marketing needs, it should have engaged a more experienced one, not a
two-year old untested company. But then, they are one and the same. The
services of Silvericon were exclusively for Nuvoland. Hence, there was no
need for Nuvoland to require Silvericon to secure a certificate of authority
from the DOLE. Undeniably, De Castro was merely engaged to facilitate the
recruitment of sales and marketing personnel, who then performed functions
which were directly related to the main business of the principal, Nuvoland.

~
 DECISION 9 G.R. No. 204261

Position of the Respondents

In their Comment, 19 respondents Nuvoland, Martinez and Bienvenida

argued that the subject petition should be dismissed outright for having been
filed under a wrong mode of appeal. In other words, instead of being
captioned as a petition under Rule 45, the petitioners availed of the special
civil action under Rule 65, setting forth grave abuse of discretion on the part
of the CA as a main ground. The respondents pointed out that the petitioners
may not utilize a petition for certiorari as a pretext for a belated filing of a
petition for review.

Respondent Silvericon for its part, submitted its Manifestation, 20

dated December 12, 2013, praying that it be excused from filing a comment
as it did not see any need to be part of the appeal.

Reply of Petitioners

In their Reply, 21 the petitioners asserted that their petit10n was

strongly grounded on grave abuse of discretion due to the CA's deliberate
failure to consider material and undisputed facts showing that Silvericon
was indeed a labor-only contractor. They hinged their choice of remedy on
their view that the NLRC, as affirmed by the CA, acted in total disregard of
the evidence decisive of the present controversy.

The Court's Ruling

Initially, because of the divergence in the conclusions of the LA and

the NLRC, it appears that the issues surrounding the legal arrangements
between and among the parties are complicated. After a perusal of the
records, however, the Court comes to view the case as a simple question of
whether Silvericon was engaged in independent contracting or a labor-only
scheme. The answer to this issue would necessarily shape the conclusions as
to respondents' other contentions like jurisdiction. Before delving into these
matters, though, there is a need to first resolve the procedural issues.

Procedural Issues

After a careful review of the records, the Court decides to apply a

tempered relaxation of the procedural rules in accord with substantial
justice.

It is elementary that parties seeking the review of NLRC decisions

should file a Rule 65 petition for certiorari in the CA on the ground of grave

19
Id. at 327-346.
20
Id. at 457-458.
21
Id. at 434-450.

\
 DECISION 10 G.R. No. 204261

abuse of discretion amounting to lack or excess of jurisdiction. Thereafter,

the remedy of the aggrieved party from the CA decision is an appeal via a
Rule 45 petition for review on certiorari. 22 It is equally true, however, that
the Court, on several occasions, has relaxed the procedural application in
accordance with the liberal spirit and in the interest of substantial justice.
Where the exigencies of the case are such that the ordinary methods of
appeal may not prove adequate - either in point of promptness or
completeness, so that a partial if not a total failure of justice could result - a
writ of certiorari may still be issued. 23

In the broader interest of justice, the Court deems it proper to suspend

the rules and allow due course to the petition as one for certiorari under
Rule 65. As will be discussed hereafter, the Court has determined points of
contention that were disregarded by the authorities a quo, the outright
conclusion of which stripped off the petitioners of a remedy to demand their
claims which were founded on a legal obligation. The propriety of the mode
of appeal used by the petitioners pales in comparison with the alleged grave
errors of judgment committed by the CA. For said reason, matters deserving
clear resolution by the Court of last resort cannot be ignored lest a
miscarriage of justice come to pass.

Substantive Issues

As to the substantive issues, the Court is faced with divergent views in

the arguments raised. On one hand, the petitioners strongly urge the Court
to consider numerous factors that would justify the piercing of the corporate
veil showing that Silvericon was just a business conduit ofNuvoland. On the
other, the respondents vehemently deny the existence of an employer-
employee relationship between Nuvoland and the petitioners. This absence
of a juridical tie, according to Nuvoland, necessarily directs the claims of the
petitioners to Silvericon as their employer, being an independent contractor.

Pertinently, Article 106 of the Labor Code provides:

Article 106. Contractor or subcontractor. - Whenever an
employer enters into a contract with another person for the
performance of the farmer's work, the employees of the contractor
and of the latter's subcontractor, if any, shall be paid in
accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his contractor or
subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that
he is liable to employees directly employed by him.

22
St. Martin Funeral Homes v. National Labor Relations Commission, 537 Phil. 656, 661-662 (2006).
23
Land Bank of the Philippines v. Court of Appeals, 456 Phil. 755, 786 (2003).

\
DECISION II G.R. No. 20426I

The Secretary of Labor and Employment may, by

appropriate regulations, restrict or prohibit the contracting-out of
labor to protect the rights of workers established under this Code.
In so prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and jobcontracting as
well as differentiations within these types of contracting and
determine who among the parties involved shall be considered the
employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.
There is "labor-only" contracting where the person supplying
workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by
such person are performing activities which are directly related to
the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer
who shall be responsible to the workers in the same manner and
extent as if the latter were directly employed by him. [Emphasis and
underscoring supplied]

Corollary thereto, DOLE Department Order No. 18-02, Series of 2002

(D. 0. 18-02), implements the above provision of law:

Section 5. Prohibition against labor-only contracting. -

Labor-only contracting is hereby declared prohibited x x x labor-
only contracting shall refer to an arrangement where the contractor
or subcontractor merely recruits, supplies or places workers to
perform a job, work or service for a principal, and any of the
following elements are present:
i) The contractor or subcontractor does not have substantial capital
or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by such
contractor or subcontractor are performing activities which are
directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control over the
performance of the work of the contractual-employee.
xx xx

"Substantial capital or investment" refers to capital stocks and

subscribed capitalization in the case of corporations, tools or
equipment, implements, machineries and work premises, actually and
directly used by the contractor or subcontractor in the performance
or completion of the job, work or service contracted out.

The "right to control" shall refer to the right reserved to the

person for whom the services of the contractual parties are
performed to determine, not only the end to be achieved, but also
the manner and means to be used in reaching that end. [Emphasis
and underscoring supplied]

i
DECISION 12 G.R. No. 204261

At the outset it should be noted that a real estate company like

Nuvoland may opt to advertise and sell its real estate assets on its own, or
allow an independent contractor to market these developments in a manner
that does not violate aforesaid regulations. Basically, a legitimate job
contractor complies with the requirements on sufficient capitalization and
equipment to undertake the needs of its client. Although this is not the sole
determining factor of legitimate contracting, independent contractors are
likewise required to register with the DOLE. This is required by D.O. 18-
02. Thus:

Section 11. Registration of Contractors or Subcontractors. -

Consistent with the authority of the Secretary of Labor and
Employment to restrict or prohibit the contracting out of labor
through appropriate regulations, a registration system to govern
contracting arrangements and to be implemented by the Regional
Offices is hereby established.

The registration of contractors and subcontractors shall be

necessary for purposes of establishing an effective labor market
information and monitoring.
Failure to register shall give rise to the presumption that the
contractor is engaged in labor-only contracting. [Emphasis and
underscorings supplied]

In the present case, the Court is hounded by nagging doubts in its

review of the assailed decision. Several factors showing that Silvericon was
not an independent contractor were conveniently brushed aside resulting in
an unjust outcome. For clarity, the Court lists down these factors, most of
which were left unexplained by the respondents.

First. As earlier pointed out, D.O. 18-02 expressly provides for a

registration requirement. Remarkably, the respondents do not deny the
apparent non-compliance with the rules governing independent contractors.

This failure on the part of Silvericon reinforces the Court's view that
it was engaged in labor-only contracting. Nuvoland did not even bother to
make Silvericon comply with this vital requirement had it really entered into
a legitimate contracting arrangement with a truly independent outfit. The
efforts which the two corporations have put into the drafting of the SMA
belie mere inadvertence and heedlessness on this matter.

That the NLRC and the CA failed to consider this fact of non-
compliance confounds the Court. The tribunals below should have looked
into the cited provision, as non-compliance thereto gives rise to a
presumption completely opposite to their claim. The presumption finds more

\
 DECISION 13 G.R. No. 204261

significance especially when the respondents have nothing but silence to

rebut the same.

All they could say was that what Nuvoland terminated was the SMA,
the termination of which produced no effect whatsoever on the personnel of
Silvericon. The sweeping conclusion might have been the simplest and
easiest way to dismiss the case but this certainly failed to rebut the fact that
Silvericon was a labor-only contracting entity. To the Court's mind, this is a
clear attribute of grave abuse of discretion on the part of the CA.

Second. D.O. No. 18-A, series of 2011, defines substantial capital as

the paid-up capital stocks/shares of at least P3,000,000.00 in the case of
corporations, partnerships and cooperatives. This amount was set with
specifity to avoid the subterfuge resorted to by entities with the intention to
circumvent the law. As things now stand, even the subscribed capital of
Silvericon was a far cry from the amount set by the rules. It is important to
note that at the time Nuvoland engaged the services of Silvericon, the latter's
authorized stock capital was P4,000,000.00, out of which only
Pl ,000,000.00 was subscribed.

In Vinoya v. National Labor Relations Commission, 24 the Court

tackled the insufficiency of paid-in capitalization taking into account the
"current economic atmosphere in the country." 25 In other words, the
determination of sufficient capital stock for independent contractors must be
assessed in a broad and extensive manner with consideration of the industry
involved.

In this case, the sufficiency of a subscribed capital of Pl ,000,000.00

for independent contracting must be assessed taking into consideration the
extent of the undertaking relative to the nature of the industry in which
Nuvoland was engaged.

Nuvoland was one of the prominent corporations in the real estate

industry. It is safe to assume then that the marketing of its condominium
projects would entail a substantially high amount in what was typically a
capital intensive industry. The undertaking covered not just one but two
considerably huge condominium projects located in prime spots in the
metropolis.

For the sale and marketing of two condominium buildings, it would

require massive funds for promotions, advertisements, shows, salaries, and
operating expenses of its more or less 40 personnel. In light of this vast
business undertaking, it is obvious that the P 1 million subscribed capital of
Silvericon would hardly suffice to satisfy this huge engagement. Nuvoland
24
381 Phil. 460 (2000).
25
Id. at 475-476.

,
 DECISION 14 G.R. No. 204261

was apparently aware of this that it had to fund the marketing expenses of
the project in an amount not exceeding P30 million per building. This was
even provided in paragraph 6 of the SMA.

This being the case, the paid-in capitalization of Silvericon amounting

to Pl million was woefully inadequate to be considered as substantial
capital. Thus, Silvericon could not qualify as an independent contractor.

The CA finding that Silvericon's capital was sufficient for

independent contracting due to the agreement that Nuvoland would advance
the amount of J!30,000,000.00 for marketing expenses, though deductible
from Silvericon's earned marketing fees at a later time, was a strained
reasoning. The Court agrees with the observation of the LA that this set-up
would not have been resorted to if Silvericon's capital was substantial
enough from the start of the business venture. It is logical to presume that an
established corporation like Nuvoland would select an independent
contractor, which had the financial resources to adequately undertake its
marketing and advertising requirements, and not an under capitalized
company like Silvericon. It perplexes the Court that the CA disregarded this
set-up as it certainly shows that Silvericon, from the beginning, did not have
substantial capital to service the needs of Nuvoland.

Third. Silvericon had no substantial equipment in the form of tools,

equipment, machinery, and work premises. Records reveal that Nuvoland
itself designed and constructed the model units used in the sales and
marketing of its condominium units. This indisputably proves that at the
time of its engagement, Silvericon had no such investment necessary for the
conduct of its business.

Fourth. Although it is true that the respondents had explicitly assailed

the authenticity of the MOA attached with the petition, their faint denial fails
to explain the exclusivity which had characterized the relationship between
Nuvoland and Silvericon. If Silvericon was an independent contractor, it is
only but logical that it should have also offered its services to the public.

The respondents claim that they had presented a contract tending to

show that Silvericon had catered its services to one LNC (SPV-AMC)
Corporation in 2007. In their own words, the respondents assert that the
relationship of Nuvoland with Silvericon, particularly as to its contractual
rights and obligations, was exactly the same as the transaction of Silvericon
with LNC (SPV-AMC) Corporation. Unfortunately for the respondents, this
allegation alone could not override the other tell-tale indicators of labor-only
contracting present in this case.

Fifth. The respondents do not deny that Nuvoland and Silvericon

shared the same officers and employees: respondents Bienvenida and

t
 DECISION 15 G.R. No. 204261

Martinez were stockholders and incorporators thereof while De Castro was

the President and majority stockholder of Silvericon. At the same time,
Bienvenida was a principal stockholder and member of the Board of
Directors of Nuvoland while Martinez was Nuvoland's President.
Admittedly, this fact alone does not give rise to an inference that Nuvoland
and Silvericon are one and the same. It effectively sows doubt, however,
when taken together with the other indicators of labor-only contracting, as
previously discussed.

If Nuvoland and Silvericon were indeed separate entities, out of all

other Nuvoland officers, why did Bienvenida, as an incorporator of both
corporations, choose to authorize the purported termination of the SMA
without at least calling for an investigation of the incident? As a stockholder
of Silvericon, he possessed an interest in the said corporation. Curiously
though, Nuvoland's decision to part with Silvericon as expressed in
Bienvenida's letter was reached without consultation or, at the least, a
preliminary notice. Had there really been a breach of contract, Nuvoland
would have demanded an explanation from Silvericon before barring the
personnel's entry in their work premises to think that the latter was engaged
in an important aspect of its business.

Further, with Nuvoland having advanced a huge amount of money for

Silvericon, it could have at least exercised caution before terminating the
SMA with a meager request for an accounting of funds. A closer scrutiny of
the events that transpired would show that the termination of the SMA was
one and the same with the termination of all Silvericon personnel. This
conclusion proceeded from the irrefutable fact that Silvericon was actually a
creation of Nuvoland. As a labor-only contractor, for all intents and
purposes, Silvericon was a mere mock-up.

In truth, the termination of the SMA was actually a ruse to make it

appear that Silvericon was an independent entity. It was simply a way to
terminate the employment of several employees altogether and escape
liability as an employer. True enough, Nuvoland insisted that the petitioners
direct their claims to Silvericon.

The conclusion that Silvericon was a mere labor-only contractor and a

business conduit of Nuvoland warrants the piercing of its corporate veil. At
this point, it is apt to restate the Court's ruling in Sarona v. National Labor
Relations Commission: 26

The doctrine of piercing the corporate veil applies only in

three (3) basic areas, namely: 1) defeat of public convenience as
when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; 2) fraud cases or when the corporate entity is

26
679 Phil. 394 (2012).

\
 DECISION 16 G.R. No. 204261

used to justify a wrong, protect fraud, or defend a crime; or 3) alter

ego cases, where a corporation is merely a farce since it is a mere
alter ego or business conduit of a person, or where the corporation
is so organized and controlled and its affairs are so conducted as to
make it merely an instrumentality, agency, conduit or adjunct of
another corporation.

As ruled in Prince Transport, Inc. v. Garcia, 27 it is the act of hiding

behind the separate and distinct personalities of juridical entities to
perpetuate fraud, commit illegal acts and evade one's obligations, that the
equitable piercing doctrine was formulated to address and prevent: Thus:

x x x A settled formulation of the doctrine of piercing the

corporate veil is that when two business enterprises are owned,
conducted and controlled by the same parties, both law and equity
will, when necessary to protect the rights of third parties, disregard
the legal fiction that these two entities are distinct and treat them as
identical or as one and the same. xxx However, petitioners' attempt
to isolate themselves from and hide behind the supposed separate
and distinct personality of Lubas so as to evade their liabilities is
precisely what the classical doctrine of piercing the veil of corporate
entity seeks to prevent and remedy. 28

Consequently, the piercing of the corporate veil disregards the

seemingly separate and distinct personalities of Nuvoland and Silvericon
with the aim of preventing the anomalous situation abhorred by prevailing
labor laws. That Silvericon was independent from Nuvoland's personality
could not be given legal imprimatur as the same would pave the way for
Nuvoland's complete exoneration from liability after a circumvention of the
law. Besides, a contrary proposition would leave the petitioners without any
recourse notwithstanding the unquestioned fact that Nuvoland eventually
assented to the settlement of all the sales and marketing personnel's
commissions and wages before the LA, except the petitioners. The
respondents in their comment were strikingly silent on this point.

In the interest of justice and equity, that veil of corporate fiction must
be pierced, and Nuvoland and Silvericon be regarded as one and the same
entity to prevent a denial of what the petitioners are entitled to. In a
situation like this, an employer-employee relationship between the principal
and the dismissed employees arises by operation of law. Silvericon being
merely an agent, its employees were in fact those of Nuvoland. Stated
differently, Nuvoland was the principal employer of the petitioners.

Sixth. As additional basis of this outcome, the Court highlights the

presence of the elements of an employer-employee relationship between the
parties. In determining the presence or absence of an employer-employee

27
654 Phil. 296 (2011 ).
28
Id. at 312

't
 DECISION 17 G.R. No. 204261

relationship, the Court has consistently looked for the following incidents, to
wit: (a) the selection and engagement of the employee; (b) the payment of
wages; (c) the power of dismissal; and (d) the employer's power to control
the employee on the means and methods by which the work is accomplished.
The last element, the so-called control test, is the most important element. 29
Jurisprudentially speaking, there is no hard and fast rule designed to
establish the aforesaid elements. It depends on the peculiar facts of each
case. 30 Here, the Court acknowledges the findings of the LA since the
inception of this legal controversy -

To be added to the foregoing findings is the admitted fact that

it was respondent Nuvoland which paid the sales commissions of
the sales personnel of respondent Silvericon. Even the power to
dismiss the complainants and the other sales personnel of
Silvericon was exercised by respondent Nuvoland. If indeed there
was an unauthorized walkout and abandonment by the sales
personnel of the Nuvo City showroom for a period of two (2) days,
then what Nuvoland could have done was to notify Silvericon to
institute appropriate disciplinary action against the erring
personnel, and not to take the cudgels for Silvericon in abruptly
terminating the entire sales force including the complainants
herein. 31

Not to be excluded from this pronouncement is the observation that

the subject termination letter itself mentioned the release of all the
commissions earned by Silvericon personnel after the impetuous decision of
Nuvoland to physically bar the personnel from entry to their workplace. If
these are not indicators of the power of engagement, payment of wages and
power of dismissal, the Court is at a loss as to what to call this authority.
Astonishingly, Nuvoland did not refute its conformity to the payment of
commissions, as if it was oblivious to an admission that all commissions
were taken directly from Nuvoland, and not from Silvericon. Verily, this
reflects Nuvoland's exercise of the power to compensate Silvericon
personnel. The power to terminate employees had also been exercised by
Nuvoland when it clearly dispensed with the cancellation clause in the SMA
providing a 30-day period for grievance resolution. Instead, Nuvoland
utilized the alleged abandonment of the showroom as a ground for unilateral
termination of the simulated agreement.

As regards the power of control, the only argument raised by the

respondents was the inclusion of a provision in the SMA which stated that
Silvericon, as its agent, "shall be responsible for all advertisements,
promotions, public relations, special events, marketing collaterals, road
shows, open houses, etc. as part of its marketing efforts." 32 For Nuvoland,

29
Jao v. BCC Products Sales, Inc., 686 Phil. 36, 45 (2012), citing Abante, Jr. v. Lamadrid Bearing & Parts
Corp., 474 Phil. 414, 426 (2004).
30
Meteoro v. Creative Creatures, Inc., 610 Phil. 150 162 (2009).
31
Rollo, pp. 210-21 l.
32
Id. at 223-224.

~
 DECISION 18 G.R. No. 204261

this provision in the SMA showed that Silvericon exercised full and
exclusive control over all levels of work, especially as to the means
thereof. 33 Regrettably, the existence of the subject provision would not
cause an automatic proposition that Silvericon exercised control over the
work of its personnel. A clear showing of Silvericon's control over its day-
to-day operations and ultimate work performance would have dispelled any
doubt, but Nuvoland fell short on this score. Worse, it again opted for
silence when the petitioners alleged that Nuvoland provided the work
premises of the sales and marketing personnel of Silvericon; that Nuvoland
dictated the end result of the undertaking, that is, to sell at least eighty
percent of the condominium project within a period of twenty-four months;
that Nuvoland decided on the models, designs and prices of the units; that
Nuvoland was the ultimate recipient of all amounts collected by the sales
and marketing team; and lastly, Nuvoland determined the maximum amount
of marketing expenses for the accomplishment of the goal.

On Jurisdiction

Anent the issue on jurisdiction, Article 217 of the Labor Code, as

amended by Section 9 of R.A. No. 6715 is instructive:

ART. 217. Jurisdiction of the Labor Arbiters and the

Commission-- (a) Except as otherwise provided under this Code,
the Labor Arbiter shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without extension,
even in the absence of stenographic notes, the following cases
involving all workers, whether agricultural or nonagricultural:
1. Unfair labor practice cases;
2. Termination disputes;
3. If accompanied with a claim for reinstatement, those
cases that workers may file involving wages, rates of
pay, hours of work and other terms and conditions of
employment;
4. Claims for actual, moral, exemplary and other forms of
damages arising from the employer-employee
relations;
5. Cases arising from any violation of Article 264 of this
Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other
claims arising from employer-employee relations,
including those of persons in domestic or household
service, involving an amount exceeding five thousand
pesos (.PS,000.00) regardless of whether accompanied

33
Id. at 337.

v
 DECISION 19 G.R. No. 204261

with a claim for reinstatement. [Emphases and

underscoring supplied]

Taking the foregoing into consideration, the Court finds that the LA
properly took cognizance of the existence of an employer-employee
relationship between the parties. The NLRC's position that the case
belonged to the RTC as an "intra-corporate dispute" could not be applied to
Platon as she was merely a rank-and-file personnel raising illegal dismissal
as her main cause of action.

With respect to De Castro, the Court recalls the pronouncement in

Viray v. Court of Appeals, 34 which provided for the policy in determining
jurisdiction in similar cases. In order to determine whether a dispute
constitutes an intra-corporate controversy or not, the Court considers two
elements instead, namely: (a) the status or relationship of the parties; and (b)
the nature of their controversy. Concurrence of these two renders a case as
an intra-corporate dispute.

Under the nature-of-the-controversy test, the dispute must not only be

rooted in the existence of an intra-corporate relationship, but must also refer
to the enforcement of the parties' correlative rights and obligations under the
Corporation Code, as well as the internal and intra-corporate regulatory rules
of the corporation. 35 The combined application of the relationship test and
the nature-of-the-controversy test has, consequently, become the norm in
determining whether a case is an intra-corporate controversy or purely civil
in character. 36 In the absence of any one of these factors, the case cannot be
considered an intra-corporate dispute and the RTC acting as a special
commercial court cannot acquire any jurisdiction. The criteria for
distinguishing between corporate officers who may be ousted from office at
will, on one hand, and ordinary corporate employees, who may only be
terminated for just cause, on the other hand, do not depend on the nature of
the services performed, but on the manner of creation of the office.

As it had been determined that Silvericon was a mere subterfuge for

Nuvoland's sales and marketing activities, the circumstances surrounding
the nature of De Castro's hiring and the very nature of his claims must be
fully considered to determine jurisdiction. It must be remembered that De
Castro was hired by Martinez and Bienvenida to be the President and COO
of Silvericon. This appears in the SMA, which the Court has interpreted as a
ruse to conceal Nuvoland's labor-contracting activities. As previously
discussed, the contrived cancellation of the SMA was, in effect, a
termination of its personnel assigned to Silvericon.

34
269 Phil. 324 ( 1990).
35
Reyes v. Regional Trial Court of Makati, Branch 142, 583 Phil. 591, 608 (2008).
36
Strategic Alliance Development Corporation v. Star Infrastructure Development Corporation, 649 Phil.
669, 681 (2010).

~
 DECISION 20 G.R. No. 204261

Equally important for contemplation is the nature of the petitioners'

claims and arguments which not only demonstrates a firm avowal of labor-
only contracting on the part of Nuvoland and Silvericon but also shows that
the ultimate issue to be resolved is not rooted in a corporate issue governed
by the Corporation Code and its implementing rules, but a labor problem,
the resolution of which is covered by labor laws and DOLE issuances.

The Court reiterates the odd silence that pervaded Nuvoland despite
the allegation that it was able to settle the payment of all the sales and
marketing personnel's commissions and wages with the exception of the
petitioners and one Amy Rose Palileo, whose claims were settled during the
pendency of her complaint with LA Fe Cellan. 37 This information raised
serious doubts as to Nuvoland's refutation of the jurisdiction of the LA over
the case. The Court, in fact, expected a denial or, at the least, an explanation
of this matter on the part of Nuvoland but all it got was silence. Certainly,
this distinctive treatment of the petitioners influences the Court to take a
position against any attempt to sidestep legal obligations under a pretense of
a jurisdictional challenge.

In view of the foregoing, the complete resolution of this case now

boils down to the determination of the: 1) corporate liability ofNuvoland as
the principal employer of the petitioners; and 2) individual liabilities of the
respondents, as officers thereof, if any.

Solidary liability is imposed by law on the principal who is deemed as

the direct employer of the employees as provided in Section 19 of D.O. No.
18-02-
Section 19. Solidary liability. - The principal shall be
deemed as the direct employer of the contractual employees and
therefore, solidarily liable with the contractor or subcontractor for
whatever monetary claims the contractual employees may have
against the former in the case of violations as provided for in
Sections 5 (Labor-Only contracting), 6 (Prohibitions), 8 (Rights of
Contractual Employees) and 16 (Delisting) of these Rules. In
addition, the principal shall also be solidarily liable in case the
contract between the principal and contractor or subcontractor is
preterminated for reasons not attributable to the fault of the
contractor or subcontractor.

Based on the said provision, Nuvoland is solidarily liable with

Silvericon for the monetary claims of the petitioners who were clearly their
employees. Further, the application of law and jurisprudence on illegal
dismissal becomes relevant. In Skippers United Pacific, Inc. v. Daza, 38 the
Court held that for a worker's dismissal to be considered valid, it must
comply with both procedural and substantive due process, viz.:

37
Rollo, p. 18.
38
681Phil.427(2012).

t
 DECISION 21 G.R. No. 204261

For a worker's dismissal to be considered valid, it must

comply with both procedural and substantive due process. The
legality of the manner of dismissal constitutes procedural due process,
while the legality of the act of dismissal constitutes substantive due
process.39 [Emphasis and underscoring supplied]

Procedural due process in dismissal cases consists of the twin

requirements of notice and hearing. The employer must furnish the
employee with two written notices before the termination of employment
can be effected: ( 1) the first notice apprises the employee of the particular
acts or omissions for which his dismissal is sought; and (2) the second notice
informs the employee of the employer's decision to dismiss him. Before the
issuance of the second notice, the requirement of a hearing must be complied
with by giving the worker an opportunity to be heard. It is not necessary
though that an actual hearing be conducted. 40 Substantive due process, on
the other hand, requires that the dismissal by the employer be made for a just
or authorized cause under Articles 282 to 284 of the Labor Code. 41

As correctly observed by the LA, the respondents failed to show any

valid or just cause under the Labor Code on which it may justify the
termination of services of the petitioners. There was no iota of evidence to
substantiate their story of staged walkout and abandonment which caused
them to terminate the employment of the petitioners. After the issuance of
the termination letter, De Castro and all the sales and marketing personnel of
Nuvoland were barred from entering the premises of their office and
payment of wages, commissions and all other benefits were withheld. The
respondents also failed to comply with the rudimentary requirement of
notifying the petitioners why they were being dismissed, as well as giving
them ample opportunity to contest the legality of their dismissal. Failing to
show compliance with the requirements of termination of employment under
the Labor Code, the respondents were found liable for illegal dismissal. A
contrary ruling would serve as a wallop on the very principles of labor -
justice and equity for a man to be made to work and thereafter be denied of
his due as to the fruits of his labor.

Corporate Directors and Officers,

Not Liable

A corporation, being a juridical entity, may act only through its

directors, officers and employees. Obligations incurred by them, acting as
such corporate agents, are not theirs but the direct accountabilities of the
corporation they represent. 42 Pursuant to this principle, a director, officer or

39
Id. at 439.
4
First Philippine Industrial Corporation v. Calimhas, 713 Phil. 608, 621-622 (2013 ).
41
Id. at 622.
42
Penaflor v. Outdoor Clothing Manu.facturing Corporation, 632 Phil. 219 (2010).

'
 DECISION 22 G.R. No. 204261

employee of a corporation is generally not held personally liable for

obligations incurred by the corporation; it is only in exceptional
circumstances that solidary liability will attach to them. 43 Thus, in labor
cases, the Court has held that corporate directors and officers are solidarily
liable with the corporation for the employee's termination only when the
same is done with malice or in bad faith. 44

"Xxx. Bad faith is never presumed. Bad faith does not simply
connote bad judgment or negligence - it imports a dishonest purpose or some
moral obliquity and conscious doing of wrong. It means a breach of a known
duty through some motive or interest or ill will that partakes of the nature of
fraud." 45

The records are bereft of any evidence at all that respondents Martinez
and Bienvenida acted with malice, ill will or bad faith when the SMA was
terminated. Hence, the said individual officers cannot be held solidarily
liable for the money claims due the petitioners.

WHEREFORE, the petition is GRANTED. The June 1, 2012

Decision and the September 21, 2012 Resolution of the Court of Appeals in
CA-G.R. SP No. 122415 are REVERSED and SET ASIDE.

The March 15, 2011 Decision of the Labor Arbiter declaring

Nuvoland as a labor-only contractor is REINSTATED, but the
pronouncement on the solidary liability of Ramon Bienvenida and Raul
Martinez is ordered DELETED.

The case is hereby REMANDED to the Labor Arbiter for the

computation of the separation pay, back wages and other monetary awards
that the petitioners deserve to receive.

No pronouncement as to costs.

SO ORDERED.

JOSE CA~,..ENDOZA
Ass~~ ;~~tice

43
WPM International Trading, Inc. v. Labayen, G.R. No. 182770, September 17, 2014, 735 SCRA 297.
44
MAM Realty Development Corporation v. NLRC, 314 Phil. 838, 845 ( 1995); Polymer Rubber
Corporation vs. Salamuding, 715 Phil. 141, 150 (2013).
45
So/idbank Corp. v. Gamier, 649 Phil. 54 (2010).
DECISION 23 G.R. No. 204261

WE CONCUR:

~!~
ANTONIO T. CARPIO
Associate Justice
Chairperson

(On Leave)
ARTURO D. BRION MARIANO C. DEL CASTILLO
Associate Justice Associate Justice

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that

the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's
Division.

ANTONIO T. Cftf
Acting Chief Justice