JOSE Y. SONZA vs JOSE Y.

SONZA

The Case

Before this Court is a petition for review on certiorari 1 assailing the 26 March 1999 Decision 2 of the Court of Appeals in
CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza ("SONZA"). The Court of Appeals affirmed the
findings of the National Labor Relations Commission ("NLRC"), which affirmed the Labor Arbiter’s dismissal of the case
for lack of jurisdiction. 

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an Agreement ("Agreement") with the
Mel and Jay Management and Development Corporation ("MJMDC"). ABS-CBN was represented by its corporate officers
while MJMDC was represented by SONZA, as President and General Manager, and Carmela Tiangco ("TIANGCO"), as
EVP and Treasurer. Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZA’s services exclusively
to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as
follows: 

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays; 

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays. 3

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of ₱310,000 for the first year and ₱317,000 for the
second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month. 

On 1 April 1996, SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalf of
ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and
career. We consider these acts of the station violative of the Agreement and the station as in breach thereof. In
this connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in
paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)
JOSE Y. SONZA
President and Gen. Manager4

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment, National
Capital Region in Quezon City. SONZA complained that ABS-CBN did not pay his salaries, separation pay, service
incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock
Option Plan ("ESOP").

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed
between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at PCIBank, Quezon Avenue
Branch, Quezon City. In July 1996, ABS-CBN opened a new account with the same bank where ABS-CBN deposited
SONZA’s talent fees and other payments due him under the Agreement.
In his Order dated 2 December 1996, the Labor Arbiter 5 denied the motion to dismiss and directed the parties to file their
respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of respondent company until
April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction over the
instant case in this Office. And as to whether or not such claim would entitle complainant to recover upon the
causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, the respondent’s
plea of lack of employer-employee relationship may be pleaded only as a matter of defense. It behooves upon it
the duty to prove that there really is no employer-employee relationship between it and the complainant. 

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on 24
February 1997. 

On 11 March 1997, SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge Respondent’s Annex 4
and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s witnesses Soccoro Vidanes and Rolando V.
Cruz. These witnesses stated in their affidavits that the prevailing practice in the television and broadcast industry is to
treat talents like SONZA as independent contractors. 

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of jurisdiction. 6 The pertinent
parts of the decision read as follows:

xxx

While Philippine jurisprudence has not yet, with certainty, touched on the "true nature of the contract of a talent," it
stands to reason that a "talent" as above-described cannot be considered as an employee by reason of the
peculiar circumstances surrounding the engagement of his services. 

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as
a TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he
undertook to render in accordance with his own style. The benefits conferred to complainant under the May
1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant
Sonza’s monthly talent fees amount to a staggering ₱317,000. Moreover, his engagement as a talent was
covered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as he worked
only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to an
employee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by the
parties and not by reason of employer-employee relationship. As correctly put by the respondent, "All these
benefits are merely talent fees and other contractual benefits and should not be deemed as ‘salaries, wages
and/or other remuneration’ accorded to an employee, notwithstanding the nomenclature appended to these
benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is not controlling,
but the intent of the parties to the Agreement conferring such benefit."

The fact that complainant was made subject to respondent’s Rules and Regulations, likewise, does not
detract from the absence of employer-employee relationship. As held by the Supreme Court, "The line should
be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result
without dictating the means or methods to be employed in attaining it, and those that control or fix the
methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the
result, create no employer-employee relationship unlike the second, which address both the result and the means
to achieve it." (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)7

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirming the Labor Arbiter’s
decision. SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appeals assailing the decision and
resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered a Decision dismissing the case. 8
Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed between SONZA and
ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent of
complainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of the
principal itself. This fact is made particularly true in this case, as admittedly MJMDC ‘is a management company
devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’
(Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and not
between ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement which specifically
referred to MJMDC as the ‘AGENT’. As a matter of fact, when complainant herein unilaterally rescinded said May
1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed
the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties to the
said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest
Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent
of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN such that there exist[s]
employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find it indubitable, that
MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter
and MJMDC in the May 1994 Agreement. 

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the
same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-
appellee. As squarely apparent from complainant-appellant’s Position Paper, his claims for compensation for
services, ‘13th month pay’, signing bonus and travel allowance against respondent-appellee are not based on the
Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock
Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears
perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay
complainant a signing bonus consisting of shares of stocks…with FIVE HUNDRED THOUSAND PESOS
(₱500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than the
amount he was receiving prior to effectivity of (the) Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit
amounting to at least One Hundred Fifty Thousand Pesos (₱150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his contractual relations
with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merely resigning
from ABS-CBN, complainant-appellant served upon the latter a ‘notice of rescission’ of Agreement with the
station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he
is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but
reserves the right to such recovery of the other benefits under said Agreement.’ (Annex 3 of the respondent ABS-
CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock Purchase
Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellant’s claims
being anchored on the alleged breach of contract on the part of respondent-appellee, the same can be resolved
by reference to civil law and not to labor law. Consequently, they are within the realm of civil law and, thus, lie with
the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267, 21
 November 1994, an action for breach of contractual obligation is intrinsically a civil dispute .9 (Emphasis
supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABS-CBN is a
factual question that is within the jurisdiction of the NLRC to resolve. 10 A special civil action for certiorari extends only to
issues of want or excess of jurisdiction of the NLRC. 11 Such action cannot cover an inquiry into the correctness of the
evaluation of the evidence which served as basis of the NLRC’s conclusion. 12 The Court of Appeals added that it could not
re-examine the parties’ evidence and substitute the factual findings of the NLRC with its own. 13

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that: 

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION AND REFUSING TO
FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN,
DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A
FINDING.14

The Court’s Ruling

We affirm the assailed decision. 

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which
upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction. 

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence define clearly the
elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the
relationship between a television and radio station and one of its "talents." There is no case law stating that a radio and
television program host is an employee of the broadcast station. 

The instant case involves big names in the broadcast industry, namely Jose "Jay" Sonza, a known television and radio
personality, and ABS-CBN, one of the biggest television and radio networks in the country. 

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of ABS-CBN. On the
other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA was an independent contractor. 

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord the factual findings of
the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence. 15 Substantial
evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. 16 A
party cannot prove the absence of substantial evidence by simply pointing out that there is contrary evidence on record,
direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining where the
weight of evidence lies or what evidence is credible.17

SONZA maintains that all essential elements of an employer-employee relationship are present in this case. Case law has
consistently held that the elements of an employer-employee relationship are: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer’s power to control the employee on
the means and methods by which the work is accomplished. 18 The last element, the so-called "control test", is the most
important element.19

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of SONZA’s peculiar skills,
talent and celebrity status. SONZA contends that the "discretion used by respondent in specifically selecting and hiring
complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondent’s
claim of independent contractorship."
Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from
ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity
status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent
contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not
have entered into the Agreement with SONZA but would have hired him through its personnel department just like any
other employee. 

In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider
all the circumstances of the relationship, with the control test being the most important element. 

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this
mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him
benefits and privileges "which he would not have enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were
ABS-CBN’s employee, there would be no need for the parties to stipulate on benefits such as "SSS, Medicare, x x x and
13th month pay"20 which the law automatically incorporates into every employer-employee contract. 21Whatever benefits
SONZA enjoyed arose from contract and not because of an employer-employee relationship. 22

SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and out of the ordinary
that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN
agreed to pay SONZA such huge talent fees precisely because of SONZA’s unique skills, talent and celebrity status not
possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and
receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary
employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an
independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the
AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement. 

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA failed to show that
ABS-CBN could terminate his services on grounds other than breach of contract, such as retrenchment to prevent losses
as provided under labor laws.23

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as "AGENT and Jay Sonza shall
faithfully and completely perform each condition of this Agreement." 24 Even if it suffered severe business losses, ABS-
CBN could not retrench SONZA because ABS-CBN remained obligated to pay SONZA’s talent fees during the life of the
Agreement. This circumstance indicates an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his talent fees.
Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZA’s talent fees during the
remaining life of the Agreement even if ABS-CBN cancelled SONZA’s programs through no fault of SONZA. 25

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission that he is not an
employee of ABS-CBN. The Labor Arbiter stated that "if it were true that complainant was really an employee, he would
merely resign, instead." SONZA did actually resign from ABS-CBN but he also, as president of MJMDC, rescinded the
Agreement. SONZA’s letter clearly bears this out. 26 However, the manner by which SONZA terminated his relationship
with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his
status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or an independent
contractor, we refer to foreign case law in analyzing the present case. The United States Court of Appeals, First Circuit,
recently held in Alberty-Vélez v. Corporación De Puerto Rico Para La Difusión Pública ("WIPR") 27 that a television
program host is an independent contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled
position requiring talent and training not available on-the-job. x x x In this regard, Alberty possesses a
master’s degree in public communications and journalism; is trained in dance, singing, and modeling; taught with
the drama department at the University of Puerto Rico; and acted in several theater and television productions
prior to her affiliation with "Desde Mi Pueblo." Second, Alberty provided the "tools and instrumentalities"
necessary for her to perform. Specifically, she provided, or obtained sponsors to provide, the costumes,
jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this
factor favors independent contractor status because WIPR provided the "equipment necessary to tape the show."
Alberty’s argument is misplaced. The equipment necessary for Alberty to conduct her job as host of "Desde Mi
Pueblo" related to her appearance on the show. Others provided equipment for filming and producing the show,
but these were not the primary tools that Alberty used to perform her particular function. If we accepted this
argument, independent contractors could never work on collaborative projects because other individuals often
provide the equipment required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming "Desde Mi Pueblo." Alberty’s contracts with
WIPR specifically provided that WIPR hired her "professional services as Hostess for the Program Desde Mi
Pueblo." There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x
x28 (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an independent contractor. The
control test is the most important test our courts apply in distinguishing an employee from an independent
contractor.29 This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and
control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well – the less
control the hirer exercises, the more likely the worker is considered an independent contractor. 30

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work. 

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the "Mel & Jay" programs.
ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How
SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBN’s control. SONZA did
not have to render eight hours of work per day. The Agreement required SONZA to attend only rehearsals and tapings of
the shows, as well as pre- and post-production staff meetings. 31 ABS-CBN could not dictate the contents of SONZA’s
script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests. 32 The clear
implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or
its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZA’s
work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the
program format and airtime schedule "for more effective programming." 34 ABS-CBN’s sole concern was the quality of the
shows and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of
performance of SONZA’s work. 

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over the means and
methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZA’s show, ABS-
CBN was still obligated to pay SONZA’s talent fees... Thus, even if ABS-CBN was completely dissatisfied with the means
and methods of SONZA’s performance of his work, or even with the quality or product of his work, ABS-CBN could not
dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN must still
pay his talent fees in full.35

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to continue paying in full
SONZA’s talent fees, did not amount to control over the means and methods of the performance of SONZA’s work. ABS-
CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he
delivered his lines and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control
was limited only to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-CBN
must still pay SONZA’s talent fees in full until the expiry of the Agreement. 
In Vaughan, et al. v. Warner, et al.,36 the United States Circuit Court of Appeals ruled that vaudeville performers were
independent contractors although the management reserved the right to delete objectionable features in their shows.
Since the management did not have control over the manner of performance of the skills of the artists, it could only control
the result of the work by deleting objectionable features. 37

SONZA further contends that ABS-CBN exercised control over his work by supplying all equipment and crew. No doubt,
ABS-CBN supplied the equipment, crew and airtime needed to broadcast the "Mel & Jay" programs. However, the
equipment, crew and airtime are not the "tools and instrumentalities" SONZA needed to perform his job. What SONZA
principally needed were his talent or skills and the costumes necessary for his appearance. 38Even though ABS-CBN
provided SONZA with the place of work and the necessary equipment, SONZA was still an independent contractor since
ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for SONZA to display his talent during the
airing of the programs.39

A radio broadcast specialist who works under minimal supervision is an independent contractor. 40 SONZA’s work as
television and radio program host required special skills and talent, which SONZA admittedly possesses. The records do
not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected him to its rules and
standards of performance. SONZA claims that this indicates ABS-CBN’s control "not only [over] his manner of work but
also the quality of his work." 

The Agreement stipulates that SONZA shall abide with the rules and standards of performance "covering talents"41 of
ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for
employees of ABS-CBN. The code of conduct imposed on SONZA under the Agreement refers to the "Television and
Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-
CBN) as its Code of Ethics."42 The KBP code applies to broadcasters, not to employees of radio and television stations.
Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and standards of
performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN. 

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the
former.43 In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules
are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio
programs that comply with standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the
services being rendered may be accorded the effect of establishing an employer-employee relationship. The facts of this
case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim
only to promote the result, create no employer-employee relationship unlike the second, which address both the
result and the means used to achieve it.44

The Vaughan case also held that one could still be an independent contractor although the hirer reserved certain
supervision to insure the attainment of the desired result. The hirer, however, must not deprive the one hired from
performing his services according to his own initiative. 45

Lastly, SONZA insists that the "exclusivity clause" in the Agreement is the most extreme form of control which ABS-CBN
exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN. Even
an independent contractor can validly provide his services exclusively to the hiring party. In the broadcast industry,
exclusivity is not necessarily the same as control. 

The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry. 46 This practice is not
designed to control the means and methods of work of the talent, but simply to protect the investment of the broadcast
station. The broadcast station normally spends substantial amounts of money, time and effort "in building up its talents as
well as the programs they appear in and thus expects that said talents remain exclusive with the station for a
commensurate period of time."47 Normally, a much higher fee is paid to talents who agree to work exclusively for a
particular radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in the present
case. 

MJMDC as Agent of SONZA 

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his services to ABS-CBN.
The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC
is a "labor-only" contractor and ABS-CBN is his employer. 

In a labor-only contract, there are three parties involved: (1) the "labor-only" contractor; (2) the employee who is ostensibly
under the employ of the "labor-only" contractor; and (3) the principal who is deemed the real employer. Under this
scheme, the "labor-only" contractor is the agent of the principal. The law makes the principal responsible to the
employees of the "labor-only contractor" as if the principal itself directly hired or employed the employees. 48 These
circumstances are not present in this case. 

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely
acted as SONZA’s agent. The Agreement expressly states that MJMDC acted as the "AGENT" of SONZA. The records do
not show that MJMDC acted as ABS-CBN’s agent. MJMDC, which stands for Mel and Jay Management and Development
Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President and General Manager of
MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and managed by
SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC.
That would make MJMDC the agent of both ABS-CBN and SONZA. 

As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of SONZA and his
broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not even job contracting. MJMDC does not
have any other function apart from acting as agent of SONZA or TIANGCO to promote their careers in the broadcast and
television industry.49

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8 January 1979 finally settled
the status of workers in the broadcast industry. Under this policy, the types of employees in the broadcast industry are the
station and program employees. 

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is no legal
presumption that Policy Instruction No. 40 determines SONZA’s status. A mere executive issuance cannot exclude
independent contractors from the class of service providers to the broadcast industry. The classification of workers in the
broadcast industry into only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the
classification has no basis either in law or in fact. 

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his
counsel the 

opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to attest on the prevailing
practice in the radio and television industry. SONZA views the affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying or refuting the
allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a formal (trial-type) hearing after the
submission of the position papers of the parties, thus: 

Section 3. Submission of Position Papers/Memorandum

xxx

These verified position papers shall cover only those claims and causes of action raised in the complaint
excluding those that may have been amicably settled, and shall be accompanied by all supporting documents
including the affidavits of their respective witnesses which shall take the place of the latter’s direct testimony. x x x
 Section 4. Determination of Necessity of Hearing. – Immediately after the submission of the parties of their
position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal
trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask
clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant
documentary evidence, if any from any party or witness. 50

The Labor Arbiter can decide a case based solely on the position papers and the supporting documents without a formal
trial.51 The holding of a formal hearing or trial is something that the parties cannot demand as a matter of right. 52 If the
Labor Arbiter is confident that he can rely on the documents before him, he cannot be faulted for not conducting a formal
trial, unless under the particular circumstances of the case, the documents alone are insufficient. The proceedings before
a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the technicalities of law and the
rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter. 

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like
SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to
security of tenure. 

The right of labor to security of tenure as guaranteed in the Constitution 53 arises only if there is an employer-employee
relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To
hold that every person who renders services to another for a fee is an employee - to give meaning to the security of
tenure clause - will lead to absurd results. 

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The
right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of
tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract
as an independent contractor. An individual like an artist or talent has a right to render his services without any one
controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to
security of tenure to compel artists and talents to render their services only as employees. If radio and television program
hosts can render their services only as employees, the station owners and managers can dictate to the radio and
television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters 

The National Internal Revenue Code ("NIRC") 54 in relation to Republic Act No. 7716, 55 as amended by Republic Act No.
8241,56 treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are subject to the
10% value-added tax ("VAT") on services they render. Exempted from the VAT are those under an employer-employee
relationship.57 This different tax treatment accorded to talents and broadcasters bolters our conclusion that they are
independent contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service incentive leave,
signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the findings of
the Labor Arbiter and the Court of Appeals that SONZA’s claims are all based on the May 1994 Agreement and stock
option plan, and not on the Labor Code. Clearly, the present case does not call for an application of the Labor Code
provisions but an interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of action is for
breach of contract which is intrinsically a civil dispute cognizable by the regular courts. 58

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26 March 1999 in CA-G.R. SP
No. 49190 is AFFIRMED. Costs against petitioner.
ABS-CBN BROADCASTING CORPORATION vs MARLYN NAZARENO

DECISION

CALLEJO, SR., J.:

Before us is a petition for review on certiorari of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 76582 and
the Resolution denying the motion for reconsideration thereof. The CA affirmed the Decision 2 and Resolution3 of the
National Labor Relations Commission (NLRC) in NLRC Case No. V-000762-2001 (RAB Case No. VII-10-1661-2001)
which likewise affirmed, with modification, the decision of the Labor Arbiter declaring the respondents Marlyn Nazareno,
Merlou Gerzon, Jennifer Deiparine and Josephine Lerasan as regular employees.

The Antecedents

Petitioner ABS-CBN Broadcasting Corporation (ABS-CBN) is engaged in the broadcasting business and owns a network
of television and radio stations, whose operations revolve around the broadcast, transmission, and relay of
telecommunication signals. It sells and deals in or otherwise utilizes the airtime it generates from its radio and television
operations. It has a franchise as a broadcasting company, and was likewise issued a license and authority to operate by
the National Telecommunications Commission.

Petitioner employed respondents Nazareno, Gerzon, Deiparine, and Lerasan as production assistants (PAs) on different
dates. They were assigned at the news and public affairs, for various radio programs in the Cebu Broadcasting Station,
with a monthly compensation of P4,000. They were issued ABS-CBN employees’ identification cards and were required to
work for a minimum of eight hours a day, including Sundays and holidays. They were made to perform the following tasks
and duties:

a) Prepare, arrange airing of commercial broadcasting based on the daily operations log and digicart of respondent ABS-
CBN;

b) Coordinate, arrange personalities for air interviews;

c) Coordinate, prepare schedule of reporters for scheduled news reporting and lead-in or incoming reports;

d) Facilitate, prepare and arrange airtime schedule for public service announcement and complaints;

e) Assist, anchor program interview, etc; and

f) Record, log clerical reports, man based control radio. 4

Their respective working hours were as follows:

Name Time No. of Hours

1. Marlene Nazareno 4:30 A.M.-8:00 A.M. 7 ½

8:00 A.M.-12:00 noon 

2. Jennifer Deiparine 4:30 A.M.-12:00M.N. (sic) 7 ½

3. Joy Sanchez 1:00 P.M.-10:00 P.M.(Sunday) 9 hrs.

9:00 A.M.-6:00 P.M. (WF) 9 hrs.

4. Merlou Gerzon 9:00 A.M.-6:00 P.M. 9 hrs.5

The PAs were under the control and supervision of Assistant Station Manager Dante J. Luzon, and News Manager Leo
Lastimosa. 
On December 19, 1996, petitioner and the ABS-CBN Rank-and-File Employees executed a Collective Bargaining
Agreement (CBA) to be effective during the period from December 11, 1996 to December 11, 1999. However, since
petitioner refused to recognize PAs as part of the bargaining unit, respondents were not included to the CBA. 6

On July 20, 2000, petitioner, through Dante Luzon, issued a Memorandum informing the PAs that effective August 1,
2000, they would be assigned to non-drama programs, and that the DYAB studio operations would be handled by the
studio technician. Thus, their revised schedule and other assignments would be as follows:

Monday – Saturday

4:30 A.M. – 8:00 A.M. – Marlene Nazareno.

Miss Nazareno will then be assigned at the Research Dept.

From 8:00 A.M. to 12:00

4:30 P.M. – 12:00 MN – Jennifer Deiparine

Sunday

5:00 A.M. – 1:00 P.M. – Jennifer Deiparine

1:00 P.M. – 10:00 P.M. – Joy Sanchez

Respondent Gerzon was assigned as the full-time PA of the TV News Department reporting directly to Leo Lastimosa.

On October 12, 2000, respondents filed a Complaint for Recognition of Regular Employment Status, Underpayment of
Overtime Pay, Holiday Pay, Premium Pay, Service Incentive Pay, Sick Leave Pay, and 13th Month Pay with Damages
against the petitioner before the NLRC. The Labor Arbiter directed the parties to submit their respective position papers.
Upon respondents’ failure to file their position papers within the reglementary period, Labor Arbiter Jose G. Gutierrez
issued an Order dated April 30, 2001, dismissing the complaint without prejudice for lack of interest to pursue the case.
Respondents received a copy of the Order on May 16, 2001. 7 Instead of re-filing their complaint with the NLRC within 10
days from May 16, 2001, they filed, on June 11, 2001, an Earnest Motion to Refile Complaint with Motion to Admit
Position Paper and Motion to Submit Case For Resolution. 8 The Labor Arbiter granted this motion in an Order dated June
18, 2001, and forthwith admitted the position paper of the complainants. Respondents made the following allegations:

1. Complainants were engaged by respondent ABS-CBN as regular and full-time employees for a continuous period of
more than five (5) years with a monthly salary rate of Four Thousand (P4,000.00) pesos beginning 1995 up until the filing
of this complaint on November 20, 2000.

Machine copies of complainants’ ABS-CBN Employee’s Identification Card and salary vouchers are hereto attached as
follows, thus:

I. Jennifer Deiparine:

Exhibit "A" - ABS-CBN Employee’s Identification Card

Exhibit "B", - ABS-CBN Salary Voucher from Nov.

Exhibit "B-1" & 1999 to July 2000 at P4,000.00

Exhibit "B-2" 

Date employed: September 15, 1995

Length of service: 5 years & nine (9) months

II. Merlou Gerzon - ABS-CBN Employee’s Identification Card

Exhibit "C"

Exhibit "D"

Exhibit "D-1" &

Exhibit "D-2" - ABS-CBN Salary Voucher from March

1999 to January 2001 at P4,000.00

Date employed: September 1, 1995

Length of service: 5 years & 10 months

III. Marlene Nazareno

Exhibit "E" - ABS-CBN Employee’s Identification Card

Exhibit "E" - ABS-CBN Salary Voucher from Nov.

Exhibit "E-1" & 1999 to December 2000

Exhibit :E-2"

Date employed: April 17, 1996

Length of service: 5 years and one (1) month

IV. Joy Sanchez Lerasan

Exhibit "F" - ABS-CBN Employee’s Identification Card

Exhibit "F-1" - ABS-CBN Salary Voucher from Aug.

Exhibit "F-2" & 2000 to Jan. 2001

Exhibit "F-3"

Exhibit "F-4" - Certification dated July 6, 2000

Acknowledging regular status of

Complainant Joy Sanchez Lerasan

Signed by ABS-CBN Administrative

Officer May Kima Hife

Date employed: April 15, 1998

Length of service: 3 yrs. and one (1) month9

Respondents insisted that they belonged to a "work pool" from which petitioner chose persons to be given specific
assignments at its discretion, and were thus under its direct supervision and control regardless of nomenclature. They
prayed that judgment be rendered in their favor, thus:
WHEREFORE, premises considered, this Honorable Arbiter is most respectfully prayed, to issue an order compelling
defendants to pay complainants the following:

1. One Hundred Thousand Pesos (P100,000.00) each 

and by way of moral damages;

2. Minimum wage differential;

3. Thirteenth month pay differential;

4. Unpaid service incentive leave benefits;

5. Sick leave;

6. Holiday pay;

7. Premium pay;

8. Overtime pay;

9. Night shift differential.

Complainants further pray of this Arbiter to declare them regular and permanent employees of respondent ABS-CBN as a
condition precedent for their admission into the existing union and collective bargaining unit of respondent company
where they may as such acquire or otherwise perform their obligations thereto or enjoy the benefits due therefrom.

Complainants pray for such other reliefs as are just and equitable under the premises. 10

For its part, petitioner alleged in its position paper that the respondents were PAs who basically assist in the conduct of a
particular program ran by an anchor or talent. Among their duties include monitoring and receiving incoming calls from
listeners and field reporters and calls of news sources; generally, they perform leg work for the anchors during a program
or a particular production. They are considered in the industry as "program employees" in that, as distinguished from
regular or station employees, they are basically engaged by the station for a particular or specific program broadcasted by
the radio station. Petitioner asserted that as PAs, the complainants were issued talent information sheets which are
updated from time to time, and are thus made the basis to determine the programs to which they shall later be called on to
assist. The program assignments of complainants were as follows:

a. Complainant Nazareno assists in the programs:

1) Nagbagang Balita (early morning edition)

2) Infor Hayupan

3) Arangkada (morning edition)

4) Nagbagang Balita (mid-day edition)

b. Complainant Deiparine assists in the programs:

1) Unzanith

2) Serbisyo de Arevalo

3) Arangkada (evening edition)

4) Balitang K (local version)

5) Abante Subu

6) Pangutana Lang

c. Complainant Gerzon assists in the program:

1) On Mondays and Tuesdays:

(a) Unzanith

(b) Serbisyo de Arevalo

(c) Arangkada (evening edition)

(d) Balitang K (local version)

(e) Abante Sugbu

(f) Pangutana Lang

2) On Thursdays

Nagbagang Balita

3) On Saturdays

(a) Nagbagang Balita

(b) Info Hayupan

(c) Arangkada (morning edition)

(d) Nagbagang Balita (mid-day edition)

4) On Sundays:

(a) Siesta Serenata

(b) Sunday Chismisan

(c) Timbangan sa Hustisya

(d) Sayri ang Lungsod

(e) Haranahan11

Petitioner maintained that PAs, reporters, anchors and talents occasionally "sideline" for other programs they produce,
such as drama talents in other productions. As program employees, a PA’s engagement is coterminous with the
completion of the program, and may be extended/renewed provided that the program is on-going; a PA may also be
assigned to new programs upon the cancellation of one program and the commencement of another. As such program
employees, their compensation is computed on a program basis, a fixed amount for performance services irrespective of
the time consumed. At any rate, petitioner claimed, as the payroll will show, respondents were paid all salaries and
benefits due them under the law.12

Petitioner also alleged that the Labor Arbiter had no jurisdiction to involve the CBA and interpret the same, especially
since respondents were not covered by the bargaining unit.
On July 30, 2001, the Labor Arbiter rendered judgment in favor of the respondents, and declared that they were regular
employees of petitioner; as such, they were awarded monetary benefits. The fallo of the decision reads:

WHEREFORE, the foregoing premises considered, judgment is hereby rendered declaring the complainants regular
employees of the respondent ABS-CBN Broadcasting Corporation and directing the same respondent to pay
complainants as follows:

I - Merlou A. Gerzon P12,025.00

II - Marlyn Nazareno 12,025.00

III - Jennifer Deiparine 12,025.00

IV - Josephine Sanchez Lerazan 12,025.00

_________

P48,100.00

plus ten (10%) percent Attorney’s Fees or a TOTAL aggregate amount of PESOS: FIFTY TWO THOUSAND NINE
HUNDRED TEN (P52,910.00).

Respondent Veneranda C. Sy is absolved from any liability.

SO ORDERED.13

However, the Labor Arbiter did not award money benefits as provided in the CBA on his belief that he had no jurisdiction
to interpret and apply the agreement, as the same was within the jurisdiction of the Voluntary Arbitrator as provided in
Article 261 of the Labor Code. 

Respondents’ counsel received a copy of the decision on August 29, 2001. Respondent Nazareno received her copy on
August 27, 2001, while the other respondents received theirs on September 8, 2001. Respondents signed and filed their
Appeal Memorandum on September 18, 2001. 

For its part, petitioner filed a motion for reconsideration, which the Labor Arbiter denied and considered as an appeal,
conformably with Section 5, Rule V, of the NLRC Rules of Procedure. Petitioner forthwith appealed the decision to the
NLRC, while respondents filed a partial appeal. 

In its appeal, petitioner alleged the following:

1. That the Labor Arbiter erred in reviving or re-opening this case which had long been dismissed without prejudice for
more than thirty (30) calendar days;

2. That the Labor Arbiter erred in depriving the respondent of its Constitutional right to due process of law;

3. That the Labor Arbiter erred in denying respondent’s Motion for Reconsideration on an interlocutory order on the
ground that the same is a prohibited pleading;

4. That the Labor Arbiter erred when he ruled that the complainants are regular employees of the respondent;

5. That the Labor Arbiter erred when he ruled that the complainants are entitled to 13th month pay, service incentive leave
pay and salary differential; and

6. That the Labor Arbiter erred when he ruled that complainants are entitled to attorney’s fees. 14

On November 14, 2002, the NLRC rendered judgment modifying the decision of the Labor Arbiter. The fallo of the
decision reads:
WHEREFORE, premises considered, the decision of Labor Arbiter Jose G. Gutierrez dated 30 July 2001 is SET ASIDE
and VACATED and a new one is entered ORDERING respondent ABS-CBN Broadcasting Corporation, as follows:

1. To pay complainants of their wage differentials and other benefits arising from the CBA as of 30 September 2002 in the
aggregate amount of Two Million Five Hundred, Sixty-One Thousand Nine Hundred Forty-Eight Pesos and 22/100
(P2,561,948.22), broken down as follows:

a. Deiparine, Jennifer - P 716,113.49

b. Gerzon, Merlou - 716,113.49

c. Nazareno, Marlyn - 716,113.49

d. Lerazan, Josephine Sanchez - 413,607.75

Total - P 2,561,948.22

2. To deliver to the complainants Two Hundred Thirty-Three (233) sacks of rice as of 30 September 2002 representing
their rice subsidy in the CBA, broken down as follows:

a. Deiparine, Jennifer - 60 Sacks

b. Gerzon, Merlou - 60 Sacks

c. Nazareno, Marlyn - 60 Sacks

d. Lerazan, Josephine Sanchez - 53 Sacks

Total 233 Sacks; and

3. To grant to the complainants all the benefits of the CBA after 30 September 2002.

SO ORDERED.15

The NLRC declared that the Labor Arbiter acted conformably with the Labor Code when it granted respondents’ motion to
refile the complaint and admit their position paper. Although respondents were not parties to the CBA between petitioner
and the ABS-CBN Rank-and-File Employees Union, the NLRC nevertheless granted and computed respondents’
monetary benefits based on the 1999 CBA, which was effective until September 2002. The NLRC also ruled that the
Labor Arbiter had jurisdiction over the complaint of respondents because they acted in their individual capacities and not
as members of the union. Their claim for monetary benefits was within the context of Article 217(6) of the Labor Code.
The validity of respondents’ claim does not depend upon the interpretation of the CBA. 

The NLRC ruled that respondents were entitled to the benefits under the CBA because they were regular employees who
contributed to the profits of petitioner through their labor. The NLRC cited the ruling of this Court in New Pacific Timber &
Supply Company v. National Labor Relations Commission.16

Petitioner filed a motion for reconsideration, which the NLRC denied.

Petitioner thus filed a petition for certiorari under Rule 65 of the Rules of Court before the CA, raising both procedural and
substantive issues, as follows: (a) whether the NLRC acted without jurisdiction in admitting the appeal of respondents; (b)
whether the NLRC committed palpable error in scrutinizing the reopening and revival of the complaint of respondents with
the Labor Arbiter upon due notice despite the lapse of 10 days from their receipt of the July 30, 2001 Order of the Labor
Arbiter; (c) whether respondents were regular employees; (d) whether the NLRC acted without jurisdiction in entertaining
and resolving the claim of the respondents under the CBA instead of referring the same to the Voluntary Arbitrators as
provided in the CBA; and (e) whether the NLRC acted with grave abuse of discretion when it awarded monetary benefits
to respondents under the CBA although they are not members of the appropriate bargaining unit.
On February 10, 2004, the CA rendered judgment dismissing the petition. It held that the perfection of an appeal shall be
upon the expiration of the last day to appeal by all parties, should there be several parties to a case. Since respondents
received their copies of the decision on September 8, 2001 (except respondent Nazareno who received her copy of the
decision on August 27, 2001), they had until September 18, 2001 within which to file their Appeal Memorandum.
Moreover, the CA declared that respondents’ failure to submit their position paper on time is not a ground to strike out the
paper from the records, much less dismiss a complaint. 

Anent the substantive issues, the appellate court stated that respondents are not mere project employees, but regular
employees who perform tasks necessary and desirable in the usual trade and business of petitioner and not just its
project employees. Moreover, the CA added, the award of benefits accorded to rank-and-file employees under the 1996-
1999 CBA is a necessary consequence of the NLRC ruling that respondents, as PAs, are regular employees.

Finding no merit in petitioner’s motion for reconsideration, the CA denied the same in a Resolution 17 dated June 16, 2004.

Petitioner thus filed the instant petition for review on certiorari and raises the following assignments of error:

1. THE HONORABLE COURT OF APPEALS ACTED WITHOUT JURISDICTION AND GRAVELY ERRED IN
UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION NOTWITHSTANDING THE PATENT NULLITY OF
THE LATTER’S DECISION AND RESOLUTION.

2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE NLRC FINDING
RESPONDENTS REGULAR EMPLOYEES.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE RULING OF THE NLRC
AWARDING CBA BENEFITS TO RESPONDENTS.18

Considering that the assignments of error are interrelated, the Court shall resolve them simultaneously.

Petitioner asserts that the appellate court committed palpable and serious error of law when it affirmed the rulings of the
NLRC, and entertained respondents’ appeal from the decision of the Labor Arbiter despite the admitted lapse of the
reglementary period within which to perfect the same. Petitioner likewise maintains that the 10-day period to appeal must
be reckoned from receipt of a party’s counsel, not from the time the party learns of the decision, that is, notice to counsel
is notice to party and not the other way around. Finally, petitioner argues that the reopening of a complaint which the
Labor Arbiter has dismissed without prejudice is a clear violation of Section 1, Rule V of the NLRC Rules; such order of
dismissal had already attained finality and can no longer be set aside. 

Respondents, on the other hand, allege that their late appeal is a non-issue because it was petitioner’s own timely appeal
that empowered the NLRC to reopen the case. They assert that although the appeal was filed 10 days late, it may still be
given due course in the interest of substantial justice as an exception to the general rule that the negligence of a counsel
binds the client. On the issue of the late filing of their position paper, they maintain that this is not a ground to strike it out
from the records or dismiss the complaint. 

We find no merit in the petition.

We agree with petitioner’s contention that the perfection of an appeal within the statutory or reglementary period is not
only mandatory, but also jurisdictional; failure to do so renders the assailed decision final and executory and deprives the
appellate court or body of the legal authority to alter the final judgment, much less entertain the appeal. However, this
Court has time and again ruled that in exceptional cases, a belated appeal may be given due course if greater injustice
may occur if an appeal is not given due course than if the reglementary period to appeal were strictly followed. 19 The Court
resorted to this extraordinary measure even at the expense of sacrificing order and efficiency if only to serve the greater
principles of substantial justice and equity.20

In the case at bar, the NLRC did not commit a grave abuse of its discretion in giving Article 223 21 of the Labor Code a
liberal application to prevent the miscarriage of justice. Technicality should not be allowed to stand in the way of equitably
and completely resolving the rights and obligations of the parties. 22 We have held in a catena of cases that technical rules
are not binding in labor cases and are not to be applied strictly if the result would be detrimental to the workingman. 23

Admittedly, respondents failed to perfect their appeal from the decision of the Labor Arbiter within the reglementary period
therefor. However, petitioner perfected its appeal within the period, and since petitioner had filed a timely appeal, the
NLRC acquired jurisdiction over the case to give due course to its appeal and render the decision of November 14, 2002.
Case law is that the party who failed to appeal from the decision of the Labor Arbiter to the NLRC can still participate in a
separate appeal timely filed by the adverse party as the situation is considered to be of greater benefit to both parties. 24

We find no merit in petitioner’s contention that the Labor Arbiter abused his discretion when he admitted respondents’
position paper which had been belatedly filed. It bears stressing that the Labor Arbiter is mandated by law to use every
reasonable means to ascertain the facts in each case speedily and objectively, without technicalities of law or procedure,
all in the interest of due process. 25 Indeed, as stressed by the appellate court, respondents’ failure to submit a position
paper on time is not a ground for striking out the paper from the records, much less for dismissing a complaint. 26 Likewise,
there is simply no truth to petitioner’s assertion that it was denied due process when the Labor Arbiter admitted
respondents’ position paper without requiring it to file a comment before admitting said position paper. The essence of
due process in administrative proceedings is simply an opportunity to explain one’s side or an opportunity to seek
reconsideration of the action or ruling complained of. Obviously, there is nothing in the records that would suggest that
petitioner had absolute lack of opportunity to be heard. 27 Petitioner had the right to file a motion for reconsideration of the
Labor Arbiter’s admission of respondents’ position paper, and even file a Reply thereto. In fact, petitioner filed its position
paper on April 2, 2001. It must be stressed that Article 280 of the Labor Code was encoded in our statute books to hinder
the circumvention by unscrupulous employers of the employees’ right to security of tenure by indiscriminately and
absolutely ruling out all written and oral agreements inharmonious with the concept of regular employment defined
therein.28

We quote with approval the following pronouncement of the NLRC:

The complainants, on the other hand, contend that respondents assailed the Labor Arbiter’s order dated 18 June 2001 as
violative of the NLRC Rules of Procedure and as such is violative of their right to procedural due process. That while
suggesting that an Order be instead issued by the Labor Arbiter for complainants to refile this case, respondents impliedly
submit that there is not any substantial damage or prejudice upon the refiling, even so, respondents’ suggestion
acknowledges complainants right to prosecute this case, albeit with the burden of repeating the same procedure, thus,
entailing additional time, efforts, litigation cost and precious time for the Arbiter to repeat the same process twice.
Respondent’s suggestion, betrays its notion of prolonging, rather than promoting the early resolution of the case.

Although the Labor Arbiter in his Order dated 18 June 2001 which revived and re-opened the dismissed case without
prejudice beyond the ten (10) day reglementary period had inadvertently failed to follow Section 16, Rule V, Rules
Procedure of the NLRC which states:

"A party may file a motion to revive or re-open a case dismissed without prejudice within ten (10) calendar days from
receipt of notice of the order dismissing the same; otherwise, his only remedy shall be to re-file the case in the arbitration
branch of origin."

the same is not a serious flaw that had prejudiced the respondents’ right to due process. The case can still be refiled
because it has not yet prescribed. Anyway, Article 221 of the Labor Code provides:

"In any proceedings before the Commission or any of the Labor Arbiters, the rules of evidence prevailing in courts of law
or equity shall not be controlling and it is the spirit and intention of this Code that the Commission and its members and
the Labor Arbiters shall use every and all reasonable means to ascertain the facts in each case speedily and objectively
and without regard to technicalities of law or procedure, all in the interest of due process."

The admission by the Labor Arbiter of the complainants’ Position Paper and Supplemental Manifestation which were
belatedly filed just only shows that he acted within his discretion as he is enjoined by law to use every reasonable means
to ascertain the facts in each case speedily and objectively, without regard to technicalities of law or procedure, all in the
interest of due process. Indeed, the failure to submit a position paper on time is not a ground for striking out the paper
from the records, much less for dismissing a complaint in the case of the complainant. (University of Immaculate
Conception vs. UIC Teaching and Non-Teaching Personnel Employees, G.R. No. 144702, July 31, 2001).

"In admitting the respondents’ position paper albeit late, the Labor Arbiter acted within her discretion. In fact, she is
enjoined by law to use every reasonable means to ascertain the facts in each case speedily and objectively, without
technicalities of law or procedure, all in the interest of due process". (Panlilio vs. NLRC, 281 SCRA 53).

The respondents were given by the Labor Arbiter the opportunity to submit position paper. In fact, the respondents had
filed their position paper on 2 April 2001. What is material in the compliance of due process is the fact that the parties are
given the opportunities to submit position papers.
"Due process requirements are satisfied where the parties are given the opportunities to submit position papers".
(Laurence vs. NLRC, 205 SCRA 737).

Thus, the respondent was not deprived of its Constitutional right to due process of law. 29

We reject, as barren of factual basis, petitioner’s contention that respondents are considered as its talents, hence, not
regular employees of the broadcasting company. Petitioner’s claim that the functions performed by the respondents are
not at all necessary, desirable, or even vital to its trade or business is belied by the evidence on record. 

Case law is that this Court has always accorded respect and finality to the findings of fact of the CA, particularly if they
coincide with those of the Labor Arbiter and the National Labor Relations Commission, when supported by substantial
evidence.30 The question of whether respondents are regular or project employees or independent contractors is
essentially factual in nature; nonetheless, the Court is constrained to resolve it due to its tremendous effects to the legions
of production assistants working in the Philippine broadcasting industry. 

We agree with respondents’ contention that where a person has rendered at least one year of service, regardless of the
nature of the activity performed, or where the work is continuous or intermittent, the employment is considered regular as
long as the activity exists, the reason being that a customary appointment is not indispensable before one may be formally
declared as having attained regular status. Article 280 of the Labor Code provides:

ART. 280. REGULAR AND CASUAL EMPLOYMENT.—The provisions of written agreement to the contrary
notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where
the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or
trade of the employer except where the employment has been fixed for a specific project or undertaking the completion or
termination of which has been determined at the time of the engagement of the employee or where the work or services to
be performed is seasonal in nature and the employment is for the duration of the season.

In Universal Robina Corporation v. Catapang, 31 the Court reiterated the test in determining whether one is a regular
employee:

The primary standard, therefore, of determining regular employment is the reasonable connection between the particular
activity performed by the employee in relation to the usual trade or business of the employer. The test is whether the
former is usually necessary or desirable in the usual business or trade of the employer. The connection can be
determined by considering the nature of work performed and its relation to the scheme of the particular business or trade
in its entirety. Also, if the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its performance as sufficient
evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is considered
regular, but only with respect to such activity and while such activity exists. 32

As elaborated by this Court in Magsalin v. National Organization of Working Men: 33

Even while the language of law might have been more definitive, the clarity of its spirit and intent, i.e., to ensure a
"regular" worker’s security of tenure, however, can hardly be doubted. In determining whether an employment should be
considered regular or non-regular, the applicable test is the reasonable connection between the particular activity
performed by the employee in relation to the usual business or trade of the employer. The standard, supplied by the law
itself, is whether the work undertaken is necessary or desirable in the usual business or trade of the employer, a fact that
can be assessed by looking into the nature of the services rendered and its relation to the general scheme under which
the business or trade is pursued in the usual course. It is distinguished from a specific undertaking that is divorced from
the normal activities required in carrying on the particular business or trade. But, although the work to be performed is
only for a specific project or seasonal, where a person thus engaged has been performing the job for at least one year,
even if the performance is not continuous or is merely intermittent, the law deems the repeated and continuing need for its
performance as being sufficient to indicate the necessity or desirability of that activity to the business or trade of the
employer. The employment of such person is also then deemed to be regular with respect to such activity and while such
activity exists.34

Not considered regular employees are "project employees," the completion or termination of which is more or less
determinable at the time of employment, such as those employed in connection with a particular construction project, and
"seasonal employees" whose employment by its nature is only desirable for a limited period of time. Even then, any
employee who has rendered at least one year of service, whether continuous or intermittent, is deemed regular with
respect to the activity performed and while such activity actually exists.
It is of no moment that petitioner hired respondents as "talents." The fact that respondents received pre-agreed "talent
fees" instead of salaries, that they did not observe the required office hours, and that they were permitted to join other
productions during their free time are not conclusive of the nature of their employment. Respondents cannot be
considered "talents" because they are not actors or actresses or radio specialists or mere clerks or utility employees. They
are regular employees who perform several different duties under the control and direction of ABS-CBN executives and
supervisors.

Thus, there are two kinds of regular employees under the law: (1) those engaged to perform activities which are
necessary or desirable in the usual business or trade of the employer; and (2) those casual employees who have
rendered at least one year of service, whether continuous or broken, with respect to the activities in which they are
employed.35

The law overrides such conditions which are prejudicial to the interest of the worker whose weak bargaining situation
necessitates the succor of the State. What determines whether a certain employment is regular or otherwise is not the will
or word of the employer, to which the worker oftentimes acquiesces, much less the procedure of hiring the employee or
the manner of paying the salary or the actual time spent at work. It is the character of the activities performed in relation to
the particular trade or business taking into account all the circumstances, and in some cases the length of time of its
performance and its continued existence.36 It is obvious that one year after they were employed by petitioner, respondents
became regular employees by operation of law.37

Additionally, respondents cannot be considered as project or program employees because no evidence was presented to
show that the duration and scope of the project were determined or specified at the time of their engagement. Under
existing jurisprudence, project could refer to two distinguishable types of activities. First, a project may refer to a particular
job or undertaking that is within the regular or usual business of the employer, but which is distinct and separate, and
identifiable as such, from the other undertakings of the company. Such job or undertaking begins and ends at determined
or determinable times. Second, the term project may also refer to a particular job or undertaking that is not within the
regular business of the employer. Such a job or undertaking must also be identifiably separate and distinct from the
ordinary or regular business operations of the employer. The job or undertaking also begins and ends at determined or
determinable times.38

The principal test is whether or not the project employees were assigned to carry out a specific project or undertaking, the
duration and scope of which were specified at the time the employees were engaged for that project. 39

In this case, it is undisputed that respondents had continuously performed the same activities for an average of five years.
Their assigned tasks are necessary or desirable in the usual business or trade of the petitioner. The persisting need for
their services is sufficient evidence of the necessity and indispensability of such services to petitioner’s business or
trade.40 While length of time may not be a sole controlling test for project employment, it can be a strong factor to
determine whether the employee was hired for a specific undertaking or in fact tasked to perform functions which are vital,
necessary and indispensable to the usual trade or business of the employer. 41 We note further that petitioner did not
report the termination of respondents’ employment in the particular "project" to the Department of Labor and Employment
Regional Office having jurisdiction over the workplace within 30 days following the date of their separation from work,
using the prescribed form on employees’ termination/ dismissals/suspensions. 42

As gleaned from the records of this case, petitioner itself is not certain how to categorize respondents. In its earlier
pleadings, petitioner classified respondents as program employees, and in later pleadings, independent contractors.
Program employees, or project employees, are different from independent contractors because in the case of the latter,
no employer-employee relationship exists. 

Petitioner’s reliance on the ruling of this Court in Sonza v. ABS-CBN Broadcasting Corporation 43 is misplaced. In that
case, the Court explained why Jose Sonza, a well-known television and radio personality, was an independent contractor
and not a regular employee:

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’S services to co-host its television and radio programs because of SONZA’S peculiar skills,
talent and celebrity status. SONZA contends that the "discretion used by respondent in specifically selecting and hiring
complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondent’s
claim of independent contractorship."
Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from
ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status
not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual
relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered
into the Agreement with SONZA but would have hired him through its personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider
all the circumstances of the relationship, with the control test being the most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this
mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him
benefits and privileges "which he would not have enjoyed if he were truly the subject of a valid job contract."

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were
ABS-CBN’s employee, there would be no need for the parties to stipulate on benefits such as "SSS, Medicare, x x x and
13th month pay which the law automatically incorporates into every employer-employee contract. Whatever benefits
SONZA enjoyed arose from contract and not because of an employer-employee relationship.

SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary
that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN
agreed to pay SONZA such huge talent fees precisely because of SONZA’S unique skills, talent and celebrity status not
possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and
receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary
employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an
independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the
AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement. 44

In the case at bar, however, the employer-employee relationship between petitioner and respondents has been proven. 

First. In the selection and engagement of respondents, no peculiar or unique skill, talent or celebrity status was required
from them because they were merely hired through petitioner’s personnel department just like any ordinary employee. 

Second. The so-called "talent fees" of respondents correspond to wages given as a result of an employer-employee
relationship. Respondents did not have the power to bargain for huge talent fees, a circumstance negating independent
contractual relationship. 

Third. Petitioner could always discharge respondents should it find their work unsatisfactory, and respondents are highly
dependent on the petitioner for continued work. 

Fourth. The degree of control and supervision exercised by petitioner over respondents through its supervisors negates
the allegation that respondents are independent contractors. 

The presumption is that when the work done is an integral part of the regular business of the employer and when the
worker, relative to the employer, does not furnish an independent business or professional service, such work is a regular
employment of such employee and not an independent contractor. 45 The Court will peruse beyond any such agreement to
examine the facts that typify the parties’ actual relationship. 46

It follows then that respondents are entitled to the benefits provided for in the existing CBA between petitioner and its
rank-and-file employees. As regular employees, respondents are entitled to the benefits granted to all other regular
employees of petitioner under the CBA. 47 We quote with approval the ruling of the appellate court, that the reason why
production assistants were excluded from the CBA is precisely because they were erroneously classified and treated as
project employees by petitioner: 

x x x The award in favor of private respondents of the benefits accorded to rank-and-file employees of ABS-CBN under
the 1996-1999 CBA is a necessary consequence of public respondent’s ruling that private respondents as production
assistants of petitioner are regular employees. The monetary award is not considered as claims involving the
interpretation or implementation of the collective bargaining agreement. The reason why production assistants were
excluded from the said agreement is precisely because they were classified and treated as project employees by
petitioner.

As earlier stated, it is not the will or word of the employer which determines the nature of employment of an employee but
the nature of the activities performed by such employee in relation to the particular business or trade of the employer.
Considering that We have clearly found that private respondents are regular employees of petitioner, their exclusion from
the said CBA on the misplaced belief of the parties to the said agreement that they are project employees, is therefore not
proper. Finding said private respondents as regular employees and not as mere project employees, they must be
accorded the benefits due under the said Collective Bargaining Agreement.

A collective bargaining agreement is a contract entered into by the union representing the employees and the employer.
However, even the non-member employees are entitled to the benefits of the contract. To accord its benefits only to
members of the union without any valid reason would constitute undue discrimination against non-members. A collective
bargaining agreement is binding on all employees of the company. Therefore, whatever benefits are given to the other
employees of ABS-CBN must likewise be accorded to private respondents who were regular employees of petitioner. 48

Besides, only talent-artists were excluded from the CBA and not production assistants who are regular employees of the
respondents. Moreover, under Article 1702 of the New Civil Code: "In case of doubt, all labor legislation and all labor
contracts shall be construed in favor of the safety and decent living of the laborer."

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for lack of merit. The assailed Decision and Resolution of
the Court of Appeals in CA-G.R. SP No. 76582 are AFFIRMED. Costs against petitioner.
THELMA DUMPIT-MURILLO vs COURT OF APPEALS

This petition seeks to reverse and set aside both the Decision 1 dated January 30, 2004 of the Court of Appeals in CA-G.R.
SP No. 63125 and its Resolution 2 dated June 23, 2004 denying the motion for reconsideration. The Court of Appeals had
overturned the Resolution3 dated August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that
petitioner was illegally dismissed.

The facts of the case are as follows:

On October 2, 1995, under Talent Contract No. NT95-1805, 4 private respondent Associated Broadcasting Company
(ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and co-anchor for Balitang-Balita, an early evening news
program. The contract was for a period of three months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-
3002, NT98-4984 and NT99-5649.5 In addition, petitioner’s services were engaged for the program "Live on Five."  On
September 30, 1999, after four years of repeated renewals, petitioner’s talent contract expired. Two weeks after the
expiration of the last contract, petitioner sent a letter to Mr. Jose Javier, Vice President for News and Public Affairs of
ABC, informing the latter that she was still interested in renewing her contract subject to a salary increase. Thereafter,
petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier another letter, 6 which we quote
verbatim:

xxxx

Dear Mr. Javier:

On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note "what terms and conditions"
in response to my first letter dated October 13, 1999. To date, or for more than fifteen (15) days since then, I have not
received any formal written reply. xxx

In view hereof, should I not receive any formal response from you until Monday, November 8, 1999, I will deem it as a
constructive dismissal of my services.

xxxx

A month later, petitioner sent a demand letter 7 to ABC, demanding: (a) reinstatement to her former position; (b) payment
of unpaid wages for services rendered from September 1 to October 20, 1999 and full backwages; (c) payment of 13th
month pay, vacation/sick/service incentive leaves and other monetary benefits due to a regular employee starting March
31, 1996. ABC replied that a check covering petitioner’s talent fees for September 16 to October 20, 1999 had been
processed and prepared, but that the other claims of petitioner had no basis in fact or in law.

On December 20, 1999, petitioner filed a complaint 8 against ABC, Mr. Javier and Mr. Edward Tan, for illegal constructive
dismissal, nonpayment of salaries, overtime pay, premium pay, separation pay, holiday pay, service incentive leave pay,
vacation/sick leaves and 13th month pay in NLRC-NCR Case No. 30-12-00985-99. She likewise demanded payment for
moral, exemplary and actual damages, as well as for attorney’s fees.

The parties agreed to submit the case for resolution after settlement failed during the mandatory conference/conciliation.
On March 29, 2000, the Labor Arbiter dismissed the complaint. 9

On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The NLRC held that an
employer-employee relationship existed between petitioner and ABC; that the subject talent contract was void; that the
petitioner was a regular employee illegally dismissed; and that she was entitled to reinstatement and backwages or
separation pay, aside from 13th month pay and service incentive leave pay, moral and exemplary damages and attorney’s
fees. It held as follows:

WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET ASIDE and a NEW
ONE promulgated:

1) declaring respondents to have illegally dismissed complainant from her regular work therein and thus, ordering them to
reinstate her in her former position without loss of seniority right[s] and other privileges and to pay her full backwages,
inclusive of allowances and other benefits, including 13th month pay based on her said latest rate of ₱28,000.00/mo. from
the date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainant’s option, to pay her separation
pay of one (1) month pay per year of service based on said latest monthly rate, reckoned from date of hire on 30
September 1995 until finality hereof;

2) to pay complainant’s accrued SILP [Service Incentive Leave Pay] of 5 days pay per year and 13th month pay for the
years 1999, 1998 and 1997 of ₱19,236.00 and ₱84,000.00, respectively and her accrued salary from 16 September 1999
to 20 October 1999 of ₱32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999 until
finality hereof;

3) to pay complainant moral damages of ₱500,000.00, exemplary damages of ₱350,000.00 and 10% of the total of the
adjudged monetary awards as attorney’s fees.

Other monetary claims of complainant are dismissed for lack of merit.

SO ORDERED.10

After its motion for reconsideration was denied, ABC elevated the case to the Court of Appeals in a petition for certiorari
under Rule 65. The petition was first dismissed for failure to attach particular documents, 11 but was reinstated on grounds
of the higher interest of justice.12

Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and reversed the decision of the
NLRC.13 The appellate court reasoned that petitioner should not be allowed to renege from the stipulations she had
voluntarily and knowingly executed by invoking the security of tenure under the Labor Code. According to the appellate
court, petitioner was a fixed-term employee and not a regular employee within the ambit of Article 280 14 of the Labor Code
because her job, as anticipated and agreed upon, was only for a specified time. 15

Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as follows:

I.

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE COURT OF APPEALS, THE
DECISION OF WHICH IS NOT IN ACCORD WITH LAW OR WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT[;]

II.

THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC – FIRST DIVISION, ARE "ANTI-
REGULARIZATION DEVICES"  WHICH MUST BE STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]

III.

BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE THREE-MONTH TALENT

CONTRACTS, AN EMPLOYER-EMPLOYEE RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE
280 OF THE LABOR CODE[;]

IV.

BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR EMPLOYEE, THERE WAS A

DENIAL OF PETITIONER’S RIGHT TO DUE PROCESS THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED
IN THE COMPLAINT[.]16

The issues for our disposition are: (1) whether or not this Court can review the findings of the Court of Appeals; and (2)
whether or not under Rule 45 of the Rules of Court the Court of Appeals committed a reversible error in its Decision.

On the first issue, private respondents contend that the issues raised in the instant petition are mainly factual and that
there is no showing that the said issues have been resolved arbitrarily and without basis. They add that the findings of the
Court of Appeals are supported by overwhelming wealth of evidence on record as well as prevailing jurisprudence on the
matter.17
Petitioner however contends that this Court can review the findings of the Court of Appeals, since the appellate court
erred in deciding a question of substance in a way which is not in accord with law or with applicable decisions of this
Court.18

We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any case — regardless of the
nature of the action or proceeding involved — may be appealed to this Court through a petition for review. This remedy is
a continuation of the appellate process over the original case, 19 and considering there is no congruence in the findings of
the NLRC and the Court of Appeals regarding the status of employment of petitioner, an exception to the general rule that
this Court is bound by the findings of facts of the appellate court, 20 we can review such findings.

On the second issue, private respondents contend that the Court of Appeals did not err when it upheld the validity of the
talent contracts voluntarily entered into by petitioner. It further stated that prevailing jurisprudence has recognized and
sustained the absence of employer-employee relationship between a talent and the media entity which engaged the
talent’s services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting Corporation.21

Petitioner avers however that an employer-employee relationship was created when the private respondents started to
merely renew the contracts repeatedly fifteen times or for four consecutive years. 22

Again, we agree with petitioner. The Court of Appeals committed reversible error when it held that petitioner was a fixed-
term employee. Petitioner was a regular employee under contemplation of law. The practice of having fixed-term contracts
in the industry does not automatically make all talent contracts valid and compliant with labor law. The assertion that a
talent contract exists does not necessarily prevent a regular employment status. 23

Further, the Sonza  case is not applicable. In Sonza, the television station did not instruct Sonza how to perform his job.
How Sonza delivered his lines, appeared on television, and sounded on radio were outside the television station’s control.
Sonza had a free hand on what to say or discuss in his shows provided he did not attack the television station or its
interests. Clearly, the television station did not exercise control over the means and methods of the performance of
Sonza’s work.24 In the case at bar, ABC had control over the performance of petitioner’s work. Noteworthy too, is the
comparatively low ₱28,000 monthly pay of petitioner25 vis the ₱300,000 a month salary of Sonza,26 that all the more
bolsters the conclusion that petitioner was not in the same situation as Sonza.

The contract of employment of petitioner with ABC had the following stipulations:

xxxx

1. SCOPE OF SERVICES – TALENT agrees to devote his/her talent, time, attention and best efforts in the performance
of his/her duties and responsibilities as Anchor/Program Host/Newscaster of the Program, in accordance with the
direction of ABC and/or its authorized representatives.

1.1. DUTIES AND RESPONSIBILITIES – TALENT shall:

a. Render his/her services as a newscaster on the Program;

b. Be involved in news-gathering operations by conducting interviews on- and off-the-air;

c. Participate in live remote coverages when called upon;

d. Be available for any other news assignment, such as writing, research or camera work;

e. Attend production meetings;

f. On assigned days, be at the studios at least one (1) hour before the live telecasts;

g. Be present promptly at the studios and/or other place of assignment at the time designated by ABC;

h. Keep abreast of the news;

i. Give his/her full cooperation to ABC and its duly authorized representatives in the production and promotion of the
Program; and

j. Perform such other functions as may be assigned to him/her from time to time.

xxxx

1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND REGULATIONS – TALENT agrees
that he/she will promptly and faithfully comply with the requests and instructions, as well as the program standards,
policies, rules and regulations of ABC, the KBP and the government or any of its agencies and instrumentalities. 27

xxxx

In Manila Water Company, Inc. v. Pena,28 we said that the elements to determine the existence of an employment
relationship are: (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 most important element is the employer’s control of the employee’s conduct,
not only as to the result of the work to be done, but also as to the means and methods to accomplish it. 29

The duties of petitioner as enumerated in her employment contract indicate that ABC had control over the work of
petitioner. Aside from control, ABC also dictated the work assignments and payment of petitioner’s wages. ABC also had
power to dismiss her. All these being present, clearly, there existed an employment relationship between petitioner and
ABC.

Concerning regular employment, the law provides for two kinds of employees, namely: (1) those who are engaged to
perform activities which are usually necessary or desirable in the usual business or trade of the employer; and (2) those
who have rendered at least one year of service, whether continuous or broken, with respect to the activity in which they
are employed.30 In other words, regular status arises from either the nature of work of the employee or the duration of his
employment.31 In Benares v. Pancho,32 we very succinctly said:

…[T]he primary standard for determining regular employment is the reasonable connection between the particular activity
performed by the employee vis-à-vis the usual trade or business of the employer. This connection can be determined by
considering the nature of the work performed and its relation to the scheme of the particular business or trade in its
entirety. If the employee has been performing the job for at least a year, even if the performance is not continuous and
merely intermittent, the law deems repeated and continuing need for its performance as sufficient evidence of the
necessity if not indispensability of that activity to the business. Hence, the employment is considered regular, but only with
respect to such activity and while such activity exists.33

In our view, the requisites for regularity of employment have been met in the instant case. Gleaned from the description of
the scope of services aforementioned, petitioner’s work was necessary or desirable in the usual business or trade of the
employer which includes, as a pre-condition for its enfranchisement, its participation in the government’s news and public
information dissemination. In addition, her work was continuous for a period of four years. This repeated engagement
under contract of hire is indicative of the necessity and desirability of the petitioner’s work in private respondent ABC’s
business.34

The contention of the appellate court that the contract was characterized by a valid fixed-period employment is untenable.
For such contract to be valid, it should be shown that the fixed period was knowingly and voluntarily agreed upon by the
parties. There should have been no force, duress or improper pressure brought to bear upon the employee; neither
should there be any other circumstance that vitiates the employee’s consent. 35 It should satisfactorily appear that the
employer and the employee dealt with each other on more or less equal terms with no moral dominance being exercised
by the employer over the employee.36 Moreover, fixed-term employment will not be considered valid where, from the
circumstances, it is apparent that periods have been imposed to preclude acquisition of tenurial security by the
employee.37

In the case at bar, it does not appear that the employer and employee dealt with each other on equal terms.
Understandably, the petitioner could not object to the terms of her employment contract because she did not want to lose
the job that she loved and the workplace that she had grown accustomed to, 38 which is exactly what happened when she
finally manifested her intention to negotiate. Being one of the numerous newscasters/broadcasters of ABC and desiring to
keep her job as a broadcasting practitioner, petitioner was left with no choice but to affix her signature of conformity on
each renewal of her contract as already prepared by private respondents; otherwise, private respondents would have
simply refused to renew her contract. Patently, the petitioner occupied a position of weakness vis-à-vis the employer.
Moreover, private respondents’ practice of repeatedly extending petitioner’s 3-month contract for four years is a
circumvention of the acquisition of regular status. Hence, there was no valid fixed-term employment between petitioner
and private respondents.

While this Court has recognized the validity of fixed-term employment contracts in a number of cases, it has consistently
emphasized that when the circumstances of a case show that the periods were imposed to block the acquisition of
security of tenure, they should be struck down for being contrary to law, morals, good customs, public order or public
policy.39

As a regular employee, petitioner is entitled to security of tenure and can be dismissed only for just cause and after due
compliance with procedural due process. Since private respondents did not observe due process in constructively
dismissing the petitioner, we hold that there was an illegal dismissal.

WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June 23, 2004 of the Court of
Appeals in CA-G.R. SP No. 63125, which held that the petitioner was a fixed-term employee, are REVERSED and SET
ASIDE. The NLRC decision is AFFIRMED.
FUJI TELEVISION NETWORK, INC., vs ARLENE S. ESPIRITU

FACTS: Arlene S. Espiritu (Arlene) was engaged by Fuji Television Network, Inc. (Fuji) as a news correspondent/producer
tasked to report Philippine news to Fuji through its Manila Bureau field office. The employment contract was initially for
one year, but was successively renewed on a yearly basis with salary adjustments upon every renewal. In January 2009,
Arlene was diagnosed with lung cancer. She informed Fuji about her condition, and the Chief of News Agency of Fuji,
Yoshiki Aoki, informed the former that the company had a problem with renewing her contract considering her condition.
Arlene insisted she was still fit to work as certified by her attending physician. After a series of verbal and written
communications, Arlene and Fuji signed a nonrenewal contract. In consideration thereof, Arlene acknowledged the receipt
of the total amount of her salary from March-May 2009, year-end bonus, mid-year bonus and separation pay. However,
Arlene executed the non-renewal contract under protest. Arlene filed a complaint for illegal dismissal with the NCR
Arbitration Branch of the NLRC, alleging that she was forced to sign the non-renewal contract after Fuji came to know of
her illness. She also alleged that Fuji withheld her salaries and other benefits when she refused to sign, and that she was
left with no other recourse but to sign the non-renewal contract to get her salaries.

ISSUES: 1. Was Arlene an independent contractor? 2. Was Arlene a regular employee? 3. Was Arlene illegally
dismissed? 4. Did the Court of Appeals correctly awarded reinstatement, damages and attorney’s fees?

LAWS: Art. 280. Regular and casual employment. The provisions of written agreement to the contrary notwithstanding
and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee
has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the
employer, except where the employment has been fixed for a specific project or undertaking the completion or termination
of which has been determined

at the time of the engagement of the employee or where the work or services to be performed is seasonal in nature and
the employment is for the duration of the season. An employment shall be deemed to be casual if it is not covered by the
preceding paragraph; Provided, That, any employee who has rendered at least one year of service, whether such service
is continuous or broken, shall be considered a regular employee with respect to the activity in which he is employed and
his employment shall continue while such activity exist. Art. 279. Security of tenure. In cases of regular employment, the
employer shall not terminate the services of an employee except for a just cause of when authorized by this Title. An
employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other
privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent
computed from the time his compensation was withheld from him up to the time of his actual reinstatement. Thus, on the
right to security of tenure, no employee shall be dismissed, unless there are just or authorized causes and only after
compliance with procedural and substantive due process is conducted. Art. 284. Disease as ground for termination. An
employer may terminate the services of an employee who has been found to be suffering from any disease and whose
continued employment is prohibited by law or is prejudicial to his health as well as to the health of his co-employees:
Provided, That he is paid separation pay equivalent to at least one (1) month salary or to one-half (1/2) month salary for
every year of service, whichever is greater, a fraction of at least six (6) months being considered as one (1) whole year.
Book VI, Rule 1, Section 8 of the Omnibus Rules Implementing the Labor Code. Disease as a ground for dismissal. –
Where the employee suffers from a disease and his continued employment is prohibited by law or prejudicial to his health
or to the health of his co-employees, the employer shall not terminate his employment unless there is a certification by a
competent public health authority that the disease is of such nature or at such a stage that it cannot be cured within a
period of six (6) months even with proper medical treatment. If the disease or ailment can be cured within the period, the
employer shall not terminate the employee but shall ask the employee to take a leave. The employer shall reinstate such
employee to his former position immediately upon the restoration of his normal health.

CASE HISTORY: Labor Arbiter dismissed the complaint and held that Arlene was not a regular employee but an
independent contractor. The NLRC reversed the Labor Arbiter’s decision and ruled that Arlene was a regular employee
since she continuously rendered services that were necessary and desirable to Fuji’s business. The Court of Appeals
affirmed that NLRC ruling with modification that Fuji immediately reinstate Arlene to her position without loss of seniority
rights and that she be paid her backwages and other emoluments withheld from her. The Court of Appeals agreed with
the NLRC that Arlene was a regular employee, engaged to perform work that was necessary or desirable in the business
of Fuji, and the successive renewals of her fixed-term contract resulted in regular employment. The case of Sonza does
not apply in the case because Arlene was not contracted on account of a special talent or skill. Arlene was illegally
dismissed because Fuji failed to comply with the requirements of substantive and procedural due process. Arlene, in fact,
signed the non-renewal contract under protest as she was left without a choice. Fuji filed a petition for review on certiorari
under Rule 45 before the Supreme Court, alleging that Arlene was hired as an independent contractor; that Fuji had no
control over her work; that the employment contracts were renewed upon Arlene’s insistence; that there was no illegal
dismissal because she freely agreed not to renew her fixed-term contract as evidenced by her email correspondences.
Arlene filed a manifestation stating that the SC could not take jurisdiction over the case since Fuji failed to authorize
Corazon Acerden, the assigned attorney-in-fact for Fuji, to sign the verification. RULING: 1. Arlene was not an
independent contractor. Fuji alleged that Arlene was an independent contractor citing the Sonza case. She was hired
because of her skills. Her salary was higher than the normal rate. She had the power to bargain with her employer. Her
contract was for a fixed term. It also stated that Arlene was not forced to sign the non-renewal agreement, considering
that she sent an email with another version of her non-renewal agreement. Arlene argued (1) that she was a regular
employee because Fuji had control and supervision over her work; (2) that she based her work on instructions from Fuji;
(3) that the successive renewal of her contracts for four years indicated that her work

was necessary and desirable; (4) that the payment of separation pay indicated that she was a regular employee; (5) that
the Sonza case is not applicable because she was a plain reporter for Fuji; (6) that her illness was not a ground for her
dismissal; (7) that she signed the non-renewal agreement because she was not in a position to reject the same.
Distinctions among fixed-term employees, independent contractors, and regular employees Fixed Term Employment 1)
The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or
improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or
2) It satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms with no
moral dominance exercised by the former or the latter. These indications, which must be read together, make the Brent
doctrine applicable only in a few special cases wherein the employer and employee are on more or less in equal footing in
entering into the contract. The reason for this is evident: when a prospective employee, on account of special skills or
market forces, is in a position to make demands upon the prospective employer, such prospective employee needs less
protection than the ordinary worker. Lesser limitations on the parties’ freedom of contract are thus required for the
protection of the employee.155 (Citations omitted) For as long as the guidelines laid down in Brent are satisfied, this court
will recognize the validity of the fixed-term contract. (GMA Network, Inc. vs. Pabriga) Independent Contractor One who
carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and
under one’s own responsibility according to one’s 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. No employer-
employee relationship exists between the independent contractors and their principals. Art. 106. Contractor or
subcontractor. Whenever an employer enters into a contract with another person for the performance of the former’s work,
the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of
this Code.

XXX 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 job contracting as well as differentiations within these types of contracting
and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent
any violation or circumvention of any provision of this Code. There is “labor-only” contracting where the person supplying
workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work
premises, among others, and the workers recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely
as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were
directly employed by him. Department Order No. 18-A, Series of 2011, Section 3 (c) . . . an arrangement whereby a
principal agrees to put out or farm out with a contractor 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. This department order also states that there is a trilateral relationship in
legitimate job contracting and subcontracting arrangements among the principal, contractor, and employees of the
contractor. There is no employer-employee relationship between the contractor and principal who engages the
contractor’s services, but there is an employer-employee relationship between the contractor and workers hired to
accomplish the work for the principal. 162chanRoblesvirtualLawlibrary Jurisprudence has recognized another kind of
independent contractor: individuals with unique skills and talents that set them apart from ordinary employees. There is no
trilateral relationship in this case because the independent contractor himself or herself performs the work for the
principal. In other words, the relationship is bilateral. XXX

There are different kinds of independent contractors: those engaged in legitimate job contracting and those who have
unique skills and talents that set them apart from ordinary employees. Since no employer-employee relationship exists
between independent contractors and their principals, their contracts are governed by the Civil Code provisions on
contracts and other applicable laws. Regular Employees Contracts of employment are different and have a higher level of
regulation because they are impressed with public interest. Article 13, Section 3 of the 1987 Constitution provides full
protection to labor. Apart from the Constitutional guarantee, Article 1700 of the Civil Code states that : The relations
between capital and labor are not merely contractual. They are so impressed with public interest that labor contracts must
yield to the common good. Therefore, such contracts are subject to the special laws on labor unions, collective bargaining,
strikes and lockouts, closed shop, wages, working conditions, hours of labor and similar subjects. In contracts of
employment, the employer and the employee are not on equal footing. Thus, it is subject to regulatory review by the labor
tribunals and courts of law. The law serves to equalize the unequal. The labor force is a special class that is
constitutionally protected because of the inequality between capital and labor. 176 This presupposes that the labor force
is weak. The level of protection to labor should vary from case to caese. When a prospective employee, on account of
special skills or market forces, is in a position to make demands upon the prospective employer, such prospective
employee needs less protection than the ordinary worker. The level of protection to labor must be determined on the basis
of the nature of the work, qualifications of the employee, and other relevant circumstances such as but not limited to
educational attainment and other special qualifications. Fuji’s argument that Arlene was an independent contractor under
a fixed-term contract is contradictory. Employees under fixed-term contracts cannot be independent contractors because
in fixed-term contracts, an employer-employee relationship exists. The test in this kind of contract is not the necessity and
desirability of the employee’s activities, “but the day certain agreed upon by the parties for the commencement and
termination of the employment relationship.” For regular employees, the necessity and desirability of their work in the
usual course of

the employer’s business are the determining factors. On the other hand, independent contractors do not have employer-
employee relationships with their principals. To determine the status of employment, the existence of employer-employee
relationship must first be settled with the use of the four-fold test, especially the qualifications for the power to control. The
distinction is in this guise: Rules that merely serve as guidelines towards the achievement of a mutually desired result
without dictating the means or methods to be employed creates no employeremployee relationship; whereas those that
control or fix the methodology and bind or restrict the party hired to the use of such means creates the relationship. In
appliacation, Arlene was hired by Fuji as a news producer, but there was no evidence that she was hired for her unique
skills that would distinguish her from ordinary employees. Her monthly salary appeared to be a substantial sum. Fuji had
the power to dismiss Arlene, as provided for in her employment contract. The contract also indicated that Fuji had control
over her work as she was rquired to report for 8 hours from Monday to Friday. Fuji gave her instructions on what to report
and even her mode of transportation in carrying out her functions was controlled. Therefore, Arlene could not be an
independent contractor. 2. Arlene was a regular employee with a fixed-term contract. In determining whether an
employment should be considered regular or nonregular, the applicable test is the reasonable connection between the
particular activity performed by the employee in relation to the usual business or trade of the employer. The standard,
supplied by the law itself, is whether the work undertaken is necessary or desirable in the usual business or trade of the
employer, a fact that can be assessed by looking into the nature of the services rendered and its relation to the general
scheme under which the business or trade is pursued in the usual course. It is distinguished from a specific undertaking
that is divorced from the normal activities required in carrying on the particular business or trade. However, there may be
a situation where an employee’s work is necessary but is not always desirable in the usual course of business of the
employer. In this situation, there is no regular employment. Fuji’s Manila Bureau Office is a small unit213 and has a few
employees. Arlene had to do all activities related to news gathering.

A news producer “plans and supervises newscast [and] works with reporters in the field planning and gathering
information, including monitoring and getting news stories, rporting interviewing subjects in front of a video camera,
submission of news and current events reports pertaining to the Philippines, and traveling to the regional office in
Thailand.” She also had to report for work in Fuji’s office in Manila from Mondays to Fridays, eight per day. She had no
equipment and had to use the facilities of Fuji to accomplish her tasks. The successive renewals of her contract indicated
the necessity and desirability of her work in the usual course of Fuji’s business. Because of this, Arlene had become a
regular employee with the right to security of tenure. Arlene’s contract indicating a fixed term did not automatically mean
that she could never be a regular employee. For as long as it was the employee who requested, or bargained, that the
contract have a “definite date of termination,” or that the fixedterm contract be freely entered into by the employer and the
employee, then the validity of the fixed-term contract will be upheld. 3. Arlene was illegally dismissed. As a regular
employee, Arlene was entitled to security of tenure under Article 279 of the Labor Code and could be dismissed only for
just or authorized causaes and after observance of due process. The expiration of the contract does not negate the
finding of illegal dismissal. The manner by which Fuji informed Arlene of non-renewal through email a month after she
informed Fuji of her illness is tantamount to constructive dismissal. Further, Arlene was asked to sign a letter of
resignation prepared by Fuji. The existence of a fixed-term contract should not mean that there can be no illegal
dismissal. Due process must still be observed. Moreoever, disease as a ground for termination under Article 284 of the
Labor Code and Book VI, Rule 1, Section 8 of the Omnibus Rules Implementing the Labor Code require two requirements
to be complied with: (1) the employee’s disease cannot be cured within six months and his continued employment is
prohibited by law or prejudicial to his health as well as to the health of his co-employees; and (2) certification issued by a
competent public health authority that even with proper medical treatment, the disease cannot be cured within six months.
The burden of proving compliance with these requisites is on the employer. Non-compliance leads to illegal dismissal.
blesvirtualLawlibrary

Arlene was not accorded due process. After informing her employer of her lung cancer, she was not given the chance to
present medical certificates. Fuji immediately concluded that Arlene could no longer perform her duties because of
chemotherapy. Neither did it suggest for her to take a leave. It did not present any certificate from a competent public
health authority. Therefore, Arlene was illegally dismissed. 4. The Court of Appeals correctly awarded reinstatement,
damages and attorney’s fees. The Court of Appeals awarded moral and exemplary damages and attorney’s fees. It also
ordered reinstatement, as the grounds when separation pay was awarded in lieu of reinstatement were not proven. The
Labor Code provides in Article 279 that illegally dismissed employees are entitled to reinstatement, backwages including
allowances, and all other benefits. Separation pay in lieu of reinstatement is allowed only (1) when the employer has
ceased operations; (2) when the employee’s position is no longer available; (3) strained relations; and (4) a substantial
period has lapsed from date of filing to date of finality. The doctrine of strained relations should be strictly applied to avoid
deprivation of the right to reinstatement. In the case at bar, no evidence was presented by Fuji to prove that reinstatement
was no longer feasible. Fuji did not allege that it ceased operations or that Arlene’s position was no longer feasible.
Nothing showed that the reinstatement would cause an atmosphere of antagonism in the workplace. Moral damages are
awarded “when the dismissal is attended by bad faith or fraud or constitutes an act oppressive to labor, or is done in a
manner contrary to good morals, good customs or public policy.” On the other hand, exemplary damages may be
awarded when the dismissal was effected “in a wanton, oppressive or malevolent manner. After Arlene had informed Fuji
of her cancer, she was informed that there would be problems in renewing her contract on account of her condition. This
information caused Arlene mental anguish, serious anxiety, and wounded feelings. The manner of her dismissal was
effected in an oppressive approach with her salary and other benefits being withheld until May 5, 2009, when she had no
other choice but to sign the non-renewal contract.

With regard to the award of attorney’s fees, Article 111 of the Labor Code states that “[i]n cases of unlawful withholding of
wages, the culpable party may be assessed attorney’s fees equivalent to ten percent of the amount of wages recovered.”
In actions for recovery of wages or where an employee was forced to litigate and, thus, incur expenses to protect his
rights and interest, the award of attorney’s fees is legally and morally justifiablen.” Due to her illegal dismissal, Arlene was
forced to litigate. Therefore, the awards for reinstatement, damages and attorney’s fees were proper.
JOSE MEL BERNARTE vs PHILIPPINE BASKETBALL ASSOCIATION (PBA), JOSE EMMANUEL M. EALA, and
PERRY MARTINEZ,

The Case

This is a petition for review1 of the 17 December 2009 Decision 2 and 5 April 2010 Resolution 3 of the Court of Appeals in
CA-G.R. SP No. 105406. The Court of Appeals set aside the decision of the National Labor Relations Commission
(NLRC), which affirmed the decision of the Labor Arbiter, and held that petitioner Jose Mel Bernarte is an independent
contractor, and not an employee of respondents Philippine Basketball Association (PBA), Jose Emmanuel M. Eala, and
Perry Martinez. The Court of Appeals denied the motion for reconsideration.

The Facts

The facts, as summarized by the NLRC and quoted by the Court of Appeals, are as follows:

Complainants (Jose Mel Bernarte and Renato Guevarra) aver that they were invited to join the PBA as referees. During
the leadership of Commissioner Emilio Bernardino, they were made to sign contracts on a year-to-year basis. During the
term of Commissioner Eala, however, changes were made on the terms of their employment.

Complainant Bernarte, for instance, was not made to sign a contract during the first conference of the All-Filipino Cup
which was from February 23, 2003 to June 2003. It was only during the second conference when he was made to sign a
one and a half month contract for the period July 1 to August 5, 2003.

On January 15, 2004, Bernarte received a letter from the Office of the Commissioner advising him that his contract would
not be renewed citing his unsatisfactory performance on and off the court. It was a total shock for Bernarte who was
awarded Referee of the year in 2003. He felt that the dismissal was caused by his refusal to fix a game upon order of
Ernie De Leon.

On the other hand, complainant Guevarra alleges that he was invited to join the PBA pool of referees in February 2001.
On March 1, 2001, he signed a contract as trainee. Beginning 2002, he signed a yearly contract as Regular Class C
referee. On May 6, 2003, respondent Martinez issued a memorandum to Guevarra expressing dissatisfaction over his
questioning on the assignment of referees officiating out-of-town games. Beginning February 2004, he was no longer
made to sign a contract.

Respondents aver, on the other hand, that complainants entered into two contracts of retainer with the PBA in the year
2003. The first contract was for the period January 1, 2003 to July 15, 2003; and the second was for September 1 to
December 2003. After the lapse of the latter period, PBA decided not to renew their contracts.

Complainants were not illegally dismissed because they were not employees of the PBA. Their respective contracts of
retainer were simply not renewed. PBA had the prerogative of whether or not to renew their contracts, which they knew
were fixed.4

In her 31 March 2005 Decision, 5 the Labor Arbiter6 declared petitioner an employee whose dismissal by respondents was
illegal. Accordingly, the Labor Arbiter ordered the reinstatement of petitioner and the payment of backwages, moral and
exemplary damages and attorney’s fees, to wit:

WHEREFORE, premises considered all respondents who are here found to have illegally dismissed complainants are
hereby ordered to (a) reinstate complainants within thirty (30) days from the date of receipt of this decision and to
solidarily pay complainants:

JOSE MEL RENATO

BERNARTE GUEVARRA

1. backwages from January 1, 2004 up to ₱536,250.00 ₱211,250.00

the finality of this Decision, which to date
is

2. moral damages 100,000.00 50,000.00

 3. exemplary damages 100,000.00 50,000.00

4. 10% attorney's fees 68,625.00 36,125.00

TOTAL ₱754,875.00 ₱397,375.00

or a total of ₱1,152,250.00

The rest of the claims are hereby dismissed for lack of merit or basis.

SO ORDERED.7

In its 28 January 2008 Decision, 8 the NLRC affirmed the Labor Arbiter’s judgment. The dispositive portion of the NLRC’s
decision reads:

WHEREFORE, the appeal is hereby DISMISSED. The Decision of Labor Arbiter Teresita D. Castillon-Lora dated March
31, 2005 is AFFIRMED.

SO ORDERED.9

Respondents filed a petition for certiorari with the Court of Appeals, which overturned the decisions of the NLRC and
Labor Arbiter. The dispositive portion of the Court of Appeals’ decision reads:

WHEREFORE, the petition is hereby GRANTED. The assailed Decision dated January 28, 2008 and Resolutiondated
August 26, 2008 of the National Labor Relations Commission are ANNULLED and SET ASIDE. Private respondents’
complaint before the Labor Arbiter is DISMISSED.

SO ORDERED.10

The Court of Appeals’ Ruling

The Court of Appeals found petitioner an independent contractor since respondents did not exercise any form of control
over the means and methods by which petitioner performed his work as a basketball referee. The Court of Appeals held:

While the NLRC agreed that the PBA has no control over the referees’ acts of blowing the whistle and making calls during
basketball games, it, nevertheless, theorized that the said acts refer to the means and methods employed by the referees
in officiating basketball games for the illogical reason that said acts refer only to the referees’ skills. How could a skilled
referee perform his job without blowing a whistle and making calls? Worse, how can the PBA control the performance of
work of a referee without controlling his acts of blowing the whistle and making calls?

Moreover, this Court disagrees with the Labor Arbiter’s finding (as affirmed by the NLRC) that the Contracts of Retainer
show that petitioners have control over private respondents.

xxxx

Neither do We agree with the NLRC’s affirmance of the Labor Arbiter’s conclusion that private respondents’ repeated
hiring made them regular employees by operation of law. 11

The Issues

The main issue in this case is whether petitioner is an employee of respondents, which in turn determines whether
petitioner was illegally dismissed.

Petitioner raises the procedural issue of whether the Labor Arbiter’s decision has become final and executory for failure of
respondents to appeal with the NLRC within the reglementary period.

The Ruling of the Court

The petition is bereft of merit.

The Court shall first resolve the procedural issue posed by petitioner.

Petitioner contends that the Labor Arbiter’s Decision of 31 March 2005 became final and executory for failure of
respondents to appeal with the NLRC within the prescribed period. Petitioner claims that the Labor Arbiter’s decision was
constructively served on respondents as early as August 2005 while respondents appealed the Arbiter’s decision only on
31 March 2006, way beyond the reglementary period to appeal. Petitioner points out that service of an unclaimed
registered mail is deemed complete five days from the date of first notice of the post master. In this case three notices
were issued by the post office, the last being on 1 August 2005. The unclaimed registered mail was consequently returned
to sender. Petitioner presents the Postmaster’s Certification to prove constructive service of the Labor Arbiter’s decision
on respondents. The Postmaster certified:

xxx

That upon receipt of said registered mail matter, our registry in charge, Vicente Asis, Jr., immediately issued the first
registry notice to claim on July 12, 2005 by the addressee. The second and third notices were issued on July 21 and
August 1, 2005, respectively.

That the subject registered letter was returned to the sender (RTS) because the addressee failed to claim it after our one
month retention period elapsed. Said registered letter was dispatched from this office to Manila CPO (RTS) under bill #6,
line 7, page1, column 1, on September 8, 2005.12

Section 10, Rule 13 of the Rules of Court provides:

SEC. 10. Completeness of service. – Personal service is complete upon actual delivery. Service by ordinary mail is
complete upon the expiration of ten (10) days after mailing, unless the court otherwise provides. Service by registered
mail is complete upon actual receipt by the addressee, or after five (5) days from the date he received the first notice of
the postmaster, whichever date is earlier.

The rule on service by registered mail contemplates two situations: (1) actual service the completeness of which is
determined upon receipt by the addressee of the registered mail; and (2) constructive service the completeness of which
is determined upon expiration of five days from the date the addressee received the first notice of the postmaster. 13

Insofar as constructive service is concerned, there must be conclusive proof that a first notice was duly sent by the
postmaster to the addressee.14 Not only is it required that notice of the registered mail be issued but that it should also be
delivered to and received by the addressee. 15 Notably, the presumption that official duty has been regularly performed is
not applicable in this situation. It is incumbent upon a party who relies on constructive service to prove that the notice was
sent to, and received by, the addressee.16

The best evidence to prove that notice was sent would be a certification from the postmaster, who should certify not only
that the notice was issued or sent but also as to how, when and to whom the delivery and receipt was made. The mailman
may also testify that the notice was actually delivered. 17

In this case, petitioner failed to present any concrete proof as to how, when and to whom the delivery and receipt of the
three notices issued by the post office was made. There is no conclusive evidence showing that the post office notices
were actually received by respondents, negating petitioner’s claim of constructive service of the Labor Arbiter’s decision
on respondents. The Postmaster’s Certification does not sufficiently prove that the three notices were delivered to and
received by respondents; it only indicates that the post office issued the three notices. Simply put, the issuance of the
notices by the post office is not equivalent to delivery to and receipt by the addressee of the registered mail. Thus, there is
no proof of completed constructive service of the Labor Arbiter’s decision on respondents.

At any rate, the NLRC declared the issue on the finality of the Labor Arbiter’s decision moot as respondents’ appeal was
considered in the interest of substantial justice. We agree with the NLRC. The ends of justice will be better served if we
resolve the instant case on the merits rather than allowing the substantial issue of whether petitioner is an independent
contractor or an employee linger and remain unsettled due to procedural technicalities.

The existence of an employer-employee relationship is ultimately a question of fact. As a general rule, factual issues are
beyond the province of this Court. However, this rule admits of exceptions, one of which is where there are conflicting
findings of fact between the Court of Appeals, on one hand, and the NLRC and Labor Arbiter, on the other, such as in the
present case.18

To determine the existence of an employer-employee relationship, case law has consistently applied the four-fold test, 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 so-called
"control test" is the most important indicator of the presence or absence of an employer-employee relationship. 19

In this case, PBA admits repeatedly engaging petitioner’s services, as shown in the retainer contracts. PBA pays
petitioner a retainer fee, exclusive of per diem or allowances, as stipulated in the retainer contract. PBA can terminate the
retainer contract for petitioner’s violation of its terms and conditions.

However, respondents argue that the all-important element of control is lacking in this case, making petitioner an
independent contractor and not an employee of respondents.

Petitioner contends otherwise. Petitioner asserts that he is an employee of respondents since the latter exercise control
over the performance of his work. Petitioner cites the following stipulations in the retainer contract which evidence control:
(1) respondents classify or rate a referee; (2) respondents require referees to attend all basketball games organized or
authorized by the PBA, at least one hour before the start of the first game of each day; (3) respondents assign petitioner
to officiate ballgames, or to act as alternate referee or substitute; (4) referee agrees to observe and comply with all the
requirements of the PBA governing the conduct of the referees whether on or off the court; (5) referee agrees (a) to keep
himself in good physical, mental, and emotional condition during the life of the contract; (b) to give always his best effort
and service, and loyalty to the PBA, and not to officiate as referee in any basketball game outside of the PBA, without
written prior consent of the Commissioner; (c) always to conduct himself on and off the court according to the highest
standards of honesty or morality; and (6) imposition of various sanctions for violation of the terms and conditions of the
contract.

The foregoing stipulations hardly demonstrate control over the means and methods by which petitioner performs his work
as a referee officiating a PBA basketball game. The contractual stipulations do not pertain to, much less dictate, how and
when petitioner will blow the whistle and make calls. On the contrary, they merely serve as rules of conduct or guidelines
in order to maintain the integrity of the professional basketball league. As correctly observed by the Court of Appeals,
"how could a skilled referee perform his job without blowing a whistle and making calls? x x x [H]ow can the PBA control
the performance of work of a referee without controlling his acts of blowing the whistle and making calls?" 20

In Sonza v. ABS-CBN Broadcasting Corporation,21 which determined the relationship between a television and radio
station and one of its talents, the Court held that not all rules imposed by the hiring party on the hired party indicate that
the latter is an employee of the former. The Court held:

We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are
top-rating television and radio programs that comply with standards of the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relation to the
services being rendered may be accorded the effect of establishing an employer-employee relationship. The facts of this
case fall squarely with the case of Insular Life Assurance Co., Ltd. v. NLRC. In said case, we held that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix
the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the
result, create no employer-employee relationship unlike the second, which address both the result and the means used to
achieve it.22

We agree with respondents that once in the playing court, the referees exercise their own independent judgment, based
on the rules of the game, as to when and how a call or decision is to be made. The referees decide whether an infraction
was committed, and the PBA cannot overrule them once the decision is made on the playing court. The referees are the
only, absolute, and final authority on the playing court. Respondents or any of the PBA officers cannot and do not
determine which calls to make or not to make and cannot control the referee when he blows the whistle because such
authority exclusively belongs to the referees. The very nature of petitioner’s job of officiating a professional basketball
game undoubtedly calls for freedom of control by respondents.
Moreover, the following circumstances indicate that petitioner is an independent contractor: (1) the referees are required
to report for work only when PBA games are scheduled, which is three times a week spread over an average of only 105
playing days a year, and they officiate games at an average of two hours per game; and (2) the only deductions from the
fees received by the referees are withholding taxes.

In other words, unlike regular employees who ordinarily report for work eight hours per day for five days a week, petitioner
is required to report for work only when PBA games are scheduled or three times a week at two hours per game. In
addition, there are no deductions for contributions to the Social Security System, Philhealth or Pag-Ibig, which are the
usual deductions from employees’ salaries. These undisputed circumstances buttress the fact that petitioner is an
independent contractor, and not an employee of respondents.

Furthermore, the applicable foreign case law declares that a referee is an independent contractor, whose special skills
and independent judgment are required specifically for such position and cannot possibly be controlled by the hiring party.

In Yonan v. United States Soccer Federation, Inc.,23 the United States District Court of Illinois held that plaintiff, a soccer
referee, is an independent contractor, and not an employee of defendant which is the statutory body that governs soccer
in the United States. As such, plaintiff was not entitled to protection by the Age Discrimination in Employment Act. The
U.S. District Court ruled:

Generally, "if an employer has the right to control and direct the work of an individual, not only as to the result to be
achieved, but also as to details by which the result is achieved, an employer/employee relationship is likely to exist." The
Court must be careful to distinguish between "control[ling] the conduct of another party contracting party by setting out in
detail his obligations" consistent with the freedom of contract, on the one hand, and "the discretionary control an employer
daily exercises over its employee’s conduct" on the other.

Yonan asserts that the Federation "closely supervised" his performance at each soccer game he officiated by giving him
an assessor, discussing his performance, and controlling what clothes he wore while on the field and traveling. Putting
aside that the Federation did not, for the most part, control what clothes he wore, the Federation did not supervise Yonan,
but rather evaluated his performance after matches. That the Federation evaluated Yonan as a referee does not mean
that he was an employee. There is no question that parties retaining independent contractors may judge the performance
of those contractors to determine if the contractual relationship should continue. x x x

It is undisputed that the Federation did not control the way Yonan refereed his games. 1âwphi1 He had full discretion and
authority, under the Laws of the Game, to call the game as he saw fit. x x x In a similar vein, subjecting Yonan to
qualification standards and procedures like the Federation’s registration and training requirements does not create an
employer/employee relationship. x x x

A position that requires special skills and independent judgment weights in favor of independent contractor status. x x x
Unskilled work, on the other hand, suggests an employment relationship. x x x Here, it is undisputed that soccer
refereeing, especially at the professional and international level, requires "a great deal of skill and natural ability." Yonan
asserts that it was the Federation’s training that made him a top referee, and that suggests he was an employee. Though
substantial training supports an employment inference, that inference is dulled significantly or negated when the putative
employer’s activity is the result of a statutory requirement, not the employer’s choice. x x x

In McInturff v. Battle Ground Academy of Franklin,24 it was held that the umpire was not an agent of the Tennessee
Secondary School Athletic Association (TSSAA), so the player’s vicarious liability claim against the association should be
dismissed. In finding that the umpire is an independent contractor, the Court of Appeals of Tennesse ruled:

The TSSAA deals with umpires to achieve a result-uniform rules for all baseball games played between TSSAA member
schools. The TSSAA does not supervise regular season games. It does not tell an official how to conduct the game
beyond the framework established by the rules. The TSSAA does not, in the vernacular of the case law, control the
means and method by which the umpires work.

In addition, the fact that PBA repeatedly hired petitioner does not by itself prove that petitioner is an employee of the
former. For a hired party to be considered an employee, the hiring party must have control over the means and methods
by which the hired party is to perform his work, which is absent in this case. The continuous rehiring by PBA of petitioner
simply signifies the renewal of the contract between PBA and petitioner, and highlights the satisfactory services rendered
by petitioner warranting such contract renewal. Conversely, if PBA decides to discontinue petitioner’s services at the end
of the term fixed in the contract, whether for unsatisfactory services, or violation of the terms and conditions of the
contract, or for whatever other reason, the same merely results in the non-renewal of the contract, as in the present case.
The non-renewal of the contract between the parties does not constitute illegal dismissal of petitioner by respondents.

WHEREFORE, we DENY the petition and AFFIRM the assailed decision of the Court of Appeals.

RAQUEL P. CONSULTA vs COURT OF APPEALS

The Case

This is a petition for review1 assailing the Decision of 28 April 2000 and Resolution of 9 October 2000 promulgated by the
Court of Appeals ("appellate court")2 in CA-G.R. SP No. 50462. The appellate court reversed the Resolution of the
National Labor Relations Commission ("NLRC") which in turn affirmed the Labor Arbiter’s Decision.

The Antecedent Facts

Pamana Philippines, Inc. ("Pamana") is engaged in health care business. Raquel P. Consulta ("Consulta") was a
Managing Associate of Pamana. Consulta’s appointment dated 1 December 1987 states:

We are pleased to formally confirm your appointment and confer upon you the authority as MANAGING ASSOCIATE
(MA) effective on December 1, 1987 up to January 2, 1988. Your area of operation shall be within Metro Manila. 

In this capacity, your principal responsibility is to organize, develop, manage, and maintain a sales division and a full
complement of agencies and Health Consultants (HealthCons) and to submit such number of enrollments and revenue
attainments as may be required of your position in accordance with pertinent Company policies and guidelines. In pursuit
of this objective, you are hereby tasked with the responsibilities of recruiting, training and directing your Supervising
Associates (SAs) and the Health Consultants under their respective agencies, for the purpose of promoting our corporate
Love Mission.

In the performance of such duties, you are expected to uphold and promote the Company’s interests and good image and
to abide by its principles and established norms of conduct necessary and appropriate in the discharge of your functions.
The authority as MA likewise vests upon you command responsibility for the actions of your SAs and HealthCons; the
Company therefore reserves the right to debit your account for any accountabilities/financial obligations arising therefrom.

By your acceptance of this appointment, it is understood that you must represent the Company on an exclusive basis, and
must not engage directly or indirectly in activities, nor become affiliated in official or unofficial capacity with companies or
organizations which compete or have the same business as Pamana. It is further understood that his [sic] self-inhibition
shall be effective for a period of one year from date of official termination with the Company arising from any cause
whatsoever.

In consideration of your undertaking the assignment and the accompanying duties and responsibilities, you shall be
entitled to compensation computed as follows:

On Initial Membership Fee Entrance Fee 5%

Medical Fee 6%

On Subsequent Membership Fee 6%

You are likewise entitled to participate in sales contests and such other incentives that may be implemented by the
Company.

This appointment is on a non-employer-employee relationship basis, and shall be in accordance with the Company
Guidelines on Appointment, Reclassification and Transfer of Sales Associates. 3

Sometime in 1987, Consulta negotiated with the Federation of Filipino Civilian Employees Association ("FFCEA") working
at the United States Subic Naval Base for a Health Care Plan for the FFCEA members. Pamana issued Consulta a
Certification4 dated 23 November 1987, as follows:

This certifies that the Emerald Group under Ms. Raquel P. Consulta, as Managing Consultant, is duly authorized to
negotiate for and in behalf of PAMANA with the Federation of Filipino Civilian Employees Association covering all U.S.
facilities in the Philippines, the coverage of FFCEA members under the Pamana Golden Care Health Plans.
Upon such negotiation and eventual execution of the contract agreements, entitlements of all benefits due the Emerald
Group in it’s [sic] entirely including it’s [sic] Supervising Consultants and Health Consultants, by of commissions, over-
rides and other package of benefits is hereby affirmed, obligated and confirmed as long as the contracts negotiated and
executed are in full force and effect, including any and all renewals made. And provided further that the herein authorized
consultants remain in active status with the Pamana Golden Care sales group. 5

On 4 March 1988, Pamana and the U.S. Naval Supply Depot signed the FFCEA account. Consulta, claiming that Pamana
did not pay her commission for the FFCEA account, filed a complaint for unpaid wages or commission against Pamana,
its President Razul Z. Requesto ("Requesto"), and its Executive Vice-President Aleta Tolentino ("Tolentino").

The Rulings of the Labor Arbiter and the NLRC

In a Decision promulgated on 23 June 1993, Labor Arbiter Alex Arcadio Lopez ruled, as follows:

ACCORDINGLY, respondent is hereby ordered to pay complainant her unpaid commission to be computed as against
actual transactions between respondent PAMANA and the contracting Department of U.S. Naval Supply Depot upon
presentation of pertinent document.

Respondent is further ordered to pay ten (10%) percent attorney’s fees.

SO ORDERED.6

Pamana, Requesto and Tolentino ("Pamana et al.") appealed the Decision of the Labor Arbiter.

In a Resolution7 promulgated on 22 July 1994, the NLRC dismissed the appeal and affirmed the Decision of the Labor
Arbiter. In its Order promulgated on 3 October 1994, the NLRC denied the motion for reconsideration of Pamana et al.

Pamana et al. filed a petition for certiorari before this Court. In compliance with this Court’s resolution dated 6 February
1995, the Office of the Solicitor General submitted a Manifestation in Lieu of Comment praying to grant the petition on the
ground that Consulta was not an employee of Pamana. On 23 November 1998, this Court referred the case to the
appellate court pursuant to St. Martin Funeral Home v. NLRC.8

The Decision of the Appellate Court

In its Decision promulgated on 28 April 2000, the appellate court reversed the NLRC Decision. The appellate court ruled
that Consulta was a commission agent, not an employee of Pamana. The appellate court also ruled that Consulta should
have litigated her claim for unpaid commission in an ordinary civil action.

Hence, Consulta’s recourse to this Court.

The Issues

The issues are:

1. Whether Consulta was an employee of Pamana.

2. Whether the Labor Arbiter had jurisdiction over Consulta’s claim for unpaid commission.

The Ruling of the Court

We affirm the Decision of the appellate court. Consulta was an independent agent and not an employee of Pamana.

The Four-Fold Test

In Viaña v. Al-Lagadan,9 the Court first laid down the four-fold test to determine the existence of an employer-employee
relationship. The four elements of an employer-employee relationship, which have since been adopted in subsequent
jurisprudence,10 are (1) the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4) the power to control.
The power to control is the most important of the four elements.
In Insular Life Assurance Co., Ltd. v. NLRC,11 the Court explained the scope of the power to control, thus:

x x x It should, however, be obvious that not every form of control that the hiring party reserves to himself over the
conduct of the party hired in relation to the services rendered may be accorded the effect of establishing an employer-
employee relationship between them in the legal or technical sense of the term. A line must be drawn somewhere, if the
recognized distinction between an employee and an individual contractor is not to vanish altogether. Realistically, it would
be a rare contract of service that gives untrammelled freedom to the party hired and eschews any intervention whatsoever
in his performance of the engagement.

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix
the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the
result, create no employer-employee relationship unlike the second, which address both the result and the means used to
achieve it.

In the present case, the power to control is missing. Pamana tasked Consulta to organize, develop, manage, and maintain
a sales division, submit a number of enrollments and revenue attainments in accordance with company policies and
guidelines, and to recruit, train and direct her Supervising Associates and Health Consultants. 12However, the manner in
which Consulta was to pursue these activities was not subject to the control of Pamana. Consulta failed to show that she
had to report for work at definite hours. The amount of time she devoted to soliciting clients was left entirely to her
discretion. The means and methods of recruiting and training her sales associates, as well as the development,
management and maintenance of her sales division, were left to her sound judgment.

Consulta claims that the documents she submitted show that Pamana had control on the conduct of her work and the
means and methods to accomplish the work. However, the documents only prove the absence of the power to control.
The Minutes of the meeting on 31 May 1988 of the Managing Associates with Fely Whitfield, Vice-President for Sales of
Pamana, reflect the following:

At this point Mrs. Whitfield gave some pointers on recruitment and selling techniques and reminded the group that
the success of an agency is still people. The more recruits you have the better is your chance to achieve your quota.

She also announced June be made a recruitment month, and told the MAs to remind their associates that if you cannot
sell to a prospect then recruit him or her.

She also discussed extensively the survey method of selling and recruitment and that the sales associates should be
more aggressive in their day to day sales activity. She reminded the MAs to fill up their recruitment requirements to
be able to participate in the monthly and quarterly contest.

xxx

4. Recruitment Campaign

In connection with the Recruitment Campaign for June, Mr. R. Canon 13 requested for Management support. He suggested
that a recruitment Advertisement be placed in a leading Metropolitan daily Newspaper.  The cost of which was
unanimously suggested by MAs that Management should share at least 50%.

5. MAs agreed to pay in advance their share for the salary of the MAs Secretary.14 (Emphasis supplied)

The Minutes of the 7 June 1988 meeting reflect the following:

III. PRODUCTION & RECRUITMENT INCENTIVES

To help the MAs in their recruitment drive Mrs. Whitfield suggested some incentives to be undertaken by the MAs like (1)
cash incentives for associates that bring in a recruit, (2) cash incentives based on production brought in by these new
recruits.

She said that MAs, as businessm[e]n should invest time, effort & money to their work, because it will redown [sic] to their
own good anyway, that the success of their agency should not depend solely on what management could give as
incentives but also on incentives of MAs within their agencies. It should be a concerted effort.
After a thorough discussion on the pros & cons of the suggestions it was agreed that a ₱10.00 per recruit be given to the
associate that will recruit and an additional cash prize based on production of these new recruits. 15

Clearly, the Managing Associates only received suggestions from Pamana on how to go about their recruitment and sales
activities. They could adopt the suggestions but the suggestions were not binding on them. They could adopt other
methods that they deemed more effective.

Further, the Managing Associates had to ask the Management of Pamana to shoulder half of the advertisement cost for
their recruitment campaign. They shelled out their own resources to bolster their recruitment. They shared in the payment
of the salaries of their secretaries. They gave cash incentives to their sales associates from their own pocket. These
circumstances show that the Managing Associates were independent contractors, not employees, of Pamana.

Finally, Pamana paid Consulta not for labor she performed but only for the results of her labor. 16 Without results,
Consulta’s labor was her own burden and loss. Her right to compensation, or to commission, depended on the tangible
results of her work17 - whether she brought in paying recruits. Consulta’s appointment paper provides:

In consideration of your undertaking the assignment and the accompanying duties and responsibilities, you shall be
entitled to compensation computed as follows: 

On Initial Membership Fee Entrance Fee 5%

Medical Fee 6%

On Subsequent Membership Fee 6%

You are likewise entitled to participation in sales contests and such other incentives that may be implemented by the
Company.18

The Guidelines on Appointment of Associates show that a Managing Associate received the following commissions and
bonuses:

3. Compensation Package of Regular MAs

Regular MAs shall be entitled to the following compensation and benefits:

3.1 Compensation

a) Personal Production

Individual/Family Institutional Acct.

commission 30% 30%

bonus 40% -

b) Group Production

overriding commission 6% 6%

bonus 5% -

3.2 Benefits

Participation in all sales contests corresponding to the MA position plus any such other benefits as may be provided for
the MA on regular status.19
Aside from commissions, bonuses and other benefits that depended solely on actual sales, Pamana did not pay Consulta
any compensation for managing her sales division, or for recruiting and training her sales consultants. As a Managing
Associate, she was only entitled to commissions, bonuses and other benefits, which depended solely on her sales and on
the sales of her group.

The Exclusivity Provision

Consulta’s appointment had an exclusivity provision. The appointment provided that Consulta must represent Pamana on
an exclusive basis. She must not engage directly or indirectly in activities of other companies that compete with the
business of Pamana. However, the fact that the appointment required Consulta to solicit business exclusively for Pamana
did not mean that Pamana exercised control over the means and methods of Consulta’s work as the term control is
understood in labor jurisprudence.20 Neither did it make Consulta an employee of Pamana. Pamana did not prohibit
Consulta from engaging in any other business, or from being connected with any other company, for as long as the
business or company did not compete with Pamana’s business.

The prohibition applied for one year after the termination of the contract with Pamana. In one of their meetings, one of the
Managing Associates reported that he was transferring his sales force and account from another company to
Pamana.21 The exclusivity provision was a reasonable restriction designed to prevent similar acts prejudicial to Pamana’s
business interest. Article 1306 of the Civil Code provides that "[t]he contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy."

Jurisdiction over Claim for Unpaid Commission

There being no employer-employee relationship between Pamana and Consulta, the Labor Arbiter and the NLRC had no
jurisdiction to entertain and rule on Consulta’s money claim.

Article 217 of the Labor Code provides:

ART. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code the
Labor Arbiters 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 non-agricultural:

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 (₱5,000.00) regardless of whether accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the
interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the
same to the grievance machinery and voluntary arbitration as may be provided in said agreements.

Consulta filed her action under Article 217(a)(6) of the Labor Code. However, since there was no employer-employee
relationship between Pamana and Consulta, the Labor Arbiter should have dismissed Consulta’s claim for unpaid
commission. Consulta’s remedy is to file an ordinary civil action to litigate her claim.
WHEREFORE, the petition is DISMISSED and the Decision of the Court of Appeals in CA-G.R. SP No. 50462 is
AFFIRMED in toto.
OSCAR VILLAMARIA, JR vs COURT OF APPEALS

Before us is a Petition for Review on Certiorari under Rule 65 of the Revised Rules of Court assailing the Decision 1and
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 78720 which set aside the Resolution 3 of the National Labor
Relations Commission (NLRC) in NCR-30-08-03247-00, which in turn affirmed the Decision 4 of the Labor Arbiter
dismissing the complaint filed by respondent Jerry V. Bustamante.

Petitioner Oscar Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship engaged in assembling
passenger jeepneys with a public utility franchise to operate along the Baclaran-Sucat route. By 1995, Villamaria stopped
assembling jeepneys and retained only nine, four of which he operated by employing drivers on a "boundary basis." One
of those drivers was respondent Bustamante who drove the jeepney with Plate No. PVU-660. Bustamante remitted
P450.00 a day to Villamaria as boundary and kept the residue of his daily earnings as compensation for driving the
vehicle. In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under the "boundary-hulog scheme,"
where Bustamante would remit to Villarama P550.00 a day for a period of four years; Bustamante would then become the
owner of the vehicle and continue to drive the same under Villamaria’s franchise. It was also agreed that Bustamante
would make a downpayment of P10,000.00.

On August 7, 1997, Villamaria executed a contract entitled "Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng
Boundary-Hulog"5 over the passenger jeepney with Plate No. PVU-660, Chassis No. EVER95-38168-C and Motor No. SL-
26647. The parties agreed that if Bustamante failed to pay the boundary-hulog for three days, Villamaria Motors would
hold on to the vehicle until Bustamante paid his arrears, including a penalty of P50.00 a day; in case Bustamante failed to
remit the daily boundary-hulog for a period of one week, the Kasunduan would cease to have legal effect and Bustamante
would have to return the vehicle to Villamaria Motors.

Under the Kasunduan, Bustamante was prohibited from driving the vehicle without prior authority from Villamaria Motors.
Thus, Bustamante was authorized to operate the vehicle to transport passengers only and not for other purposes. He was
also required to display an identification card in front of the windshield of the vehicle; in case of failure to do so, any fine
that may be imposed by government authorities would be charged against his account. Bustamante further obliged
himself to pay for the cost of replacing any parts of the vehicle that would be lost or damaged due to his negligence. In
case the vehicle sustained serious damage, Bustamante was obliged to notify Villamaria Motors before commencing
repairs. Bustamante was not allowed to wear slippers, short pants or undershirts while driving. He was required to be
polite and respectful towards the passengers. He was also obliged to notify Villamaria Motors in case the vehicle was
leased for two or more days and was required to attend any meetings which may be called from time to time. Aside from
the boundary-hulog, Bustamante was also obliged to pay for the annual registration fees of the vehicle and the premium
for the vehicle’s comprehensive insurance. Bustamante promised to strictly comply with the rules and regulations imposed
by Villamaria for the upkeep and maintenance of the jeepney.

Bustamante continued driving the jeepney under the supervision and control of Villamaria. As agreed upon, he made daily
remittances of P550.00 in payment of the purchase price of the vehicle. Bustamante failed to pay for the annual
registration fees of the vehicle, but Villamaria allowed him to continue driving the jeepney.

In 1999, Bustamante and other drivers who also had the same arrangement with Villamaria Motors failed to pay their
respective boundary-hulog. This prompted Villamaria to serve a "Paalala," 6 reminding them that under the Kasunduan,
failure to pay the daily boundary-hulog for one week, would mean their respective jeepneys would be returned to him
without any complaints. He warned the drivers that the Kasunduan would henceforth be strictly enforced and urged them
to comply with their obligation to avoid litigation.

On July 24, 2000, Villamaria took back the jeepney driven by Bustamante and barred the latter from driving the vehicle.

On August 15, 2000, Bustamante filed a Complaint 7 for Illegal Dismissal against Villamaria and his wife Teresita. In his
Position Paper,8 Bustamante alleged that he was employed by Villamaria in July 1996 under the boundary system, where
he was required to remit P450.00 a day. After one year of continuously working for them, the spouses Villamaria
presented the Kasunduan for his signature, with the assurance that he (Bustamante) would own the jeepney by March
2001 after paying P550.00 in daily installments and that he would thereafter continue driving the vehicle along the same
route under the same franchise. He further narrated that in July 2000, he informed the Villamaria spouses that the surplus
engine of the jeepney needed to be replaced, and was assured that it would be done. However, he was later arrested and
his driver’s license was confiscated because apparently, the replacement engine that was installed was taken from a
stolen vehicle. Due to negotiations with the apprehending authorities, the jeepney was not impounded. The Villamaria
spouses took the jeepney from him on July 24, 2000, and he was no longer allowed to drive the vehicle since then unless
he paid them P70,000.00.

Bustamante prayed that judgment be rendered in his favor, thus:

WHEREFORE, in the light of the foregoing, it is most respectfully prayed that judgment be rendered ordering the
respondents, jointly and severally, the following:

1. Reinstate complainant to his former position without loss of seniority rights and execute a Deed of Sale in favor
of the complainant relative to the PUJ with Plate No. PVU-660;

2. Ordering the respondents to pay backwages in the amount of P400.00 a day and other benefits computed from
July 24, 2000 up to the time of his actual reinstatement;

3. Ordering respondents to return the amount of P10,000.00 and P180,000.00 for the expenses incurred by the
complainant in the repair and maintenance of the subject jeep;

4. Ordering the respondents to refund the amount of One Hundred (P100.00) Pesos per day counted from August
7, 1997 up to June 2000 or a total of P91,200.00;

5. To pay moral and exemplary damages of not less than P200,000.00;

6. Attorney’s fee[s] of not less than 10% of the monetary award.

Other just and equitable reliefs under the premises are also being prayed for. 9

In their Position Paper,10 the spouses Villamaria admitted the existence of the Kasunduan, but alleged that Bustamante
failed to pay the P10,000.00 downpayment and the vehicle’s annual registration fees. They further alleged that
Bustamante eventually failed to remit the requisite boundary-hulog of P550.00 a day, which prompted them to issue the
Paalaala. Instead of complying with his obligations, Bustamante stopped making his remittances despite his daily trips
and even brought the jeepney to the province without permission. Worse, the jeepney figured in an accident and its
license plate was confiscated; Bustamante even abandoned the vehicle in a gasoline station in Sucat, Parañaque City for
two weeks. When the security guard at the gasoline station requested that the vehicle be retrieved and Teresita Villamaria
asked Bustamante for the keys, Bustamante told her: "Di kunin ninyo." When the vehicle was finally retrieved, the tires
were worn, the alternator was gone, and the battery was no longer working.

Citing the cases of Cathedral School of Technology v. NLRC 11 and Canlubang Security Agency Corporation v.
NLRC,12 the spouses Villamaria argued that Bustamante was not illegally dismissed since the Kasunduan executed on
August 7, 1997 transformed the employer-employee relationship into that of vendor-vendee. Hence, the spouses
concluded, there was no legal basis to hold them liable for illegal dismissal. They prayed that the case be dismissed for
lack of jurisdiction and patent lack of merit.

In his Reply,13 Bustamante claimed that Villamaria exercised control and supervision over the conduct of his employment.
He maintained that the rulings of the Court in National Labor Union v. Dinglasan, 14 Magboo v. Bernardo,15 and Citizen's
League of Free Workers v. Abbas16 are germane to the issue as they define the nature of the owner/operator-driver
relationship under the boundary system. He further reiterated that it was the Villamaria spouses who presented the
Kasunduan to him and that he conformed thereto only upon their representation that he would own the vehicle after four
years. Moreover, it appeared that the Paalala was duly received by him, as he, together with other drivers, was made to
affix his signature on a blank piece of paper purporting to be an "attendance sheet."

On March 15, 2002, the Labor Arbiter rendered judgment 17 in favor of the spouses Villamaria and ordered the complaint
dismissed on the following ratiocination:

Respondents presented the contract of Boundary-Hulog, as well as the PAALALA, to prove their claim that complainant
violated the terms of their contract and afterwards abandoned the vehicle assigned to him. As against the foregoing, [the]
complaint’s (sic) mere allegations to the contrary cannot prevail.

Not having been illegally dismissed, complainant is not entitled to damages and attorney's fees. 18
Bustamante appealed the decision to the NLRC, 19 insisting that the Kasunduan did not extinguish the employer-employee
relationship between him and Villamaria. While he did not receive fixed wages, he kept only the excess of the boundary-
hulog which he was required to remit daily to Villamaria under the agreement. Bustamante maintained that he remained
an employee because he was engaged to perform activities which were necessary or desirable to Villamaria’s trade or
business.

The NLRC rendered judgment20 dismissing the appeal for lack of merit, thus:

WHEREFORE, premises considered, complainant's appeal is hereby DISMISSED for reasons not stated in the Labor
Arbiter's decision but mainly on a jurisdictional issue, there being none over the subject matter of the controversy. 21

The NLRC ruled that under the Kasunduan, the juridical relationship between Bustamante and Villamaria was that of
vendor and vendee, hence, the Labor Arbiter had no jurisdiction over the complaint. Bustamante filed a Motion for
Reconsideration, which the NLRC resolved to deny on May 30, 2003. 22

Bustamante elevated the matter to the CA via Petition for Certiorari, alleging that the NLRC erred

IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT STATED IN THE LABOR ARBITER’S DECISION, BUT
MAINLY ON JURISDICTIONAL ISSUE;"

II

IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE WHEN IT DECLARED THAT THE
RELATIONSHIP WHICH WAS ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE RESPONDENT WAS
DEFINITELY A MATTER WHICH IS BEYOND THE PROTECTIVE MANTLE OF OUR LABOR LAWS. 23

Bustamante insisted that despite the Kasunduan, the relationship between him and Villamaria continued to be that of
employer-employee and as such, the Labor Arbiter had jurisdiction over his complaint. He further alleged that it is
common knowledge that operators of passenger jeepneys (including taxis) pay their drivers not on a regular monthly basis
but on commission or boundary basis, or even the boundary-hulog system. Bustamante asserted that he was dismissed
from employment without any lawful or just cause and without due notice.

For his part, Villamaria averred that Bustamante failed to adduce proof of their employer-employee relationship. He further
pointed out that the Dinglasan case pertains to the boundary system and not the boundary-hulog system, hence
inapplicable in the instant case. He argued that upon the execution of the Kasunduan, the juridical tie between him and
Bustamante was transformed into a vendor-vendee relationship. Noting that he was engaged in the manufacture and sale
of jeepneys and not in the business of transporting passengers for consideration, Villamaria contended that the daily fees
which Bustmante paid were actually periodic installments for the the vehicle and were not the same fees as understood in
the boundary system. He added that the boundary-hulog plan was basically a scheme to help the driver-buyer earn
money and eventually pay for the unit in full, and for the owner to profit not from the daily earnings of the driver-buyer but
from the purchase price of the unit sold. Villamaria further asserted that the apparently restrictive conditions in the
Kasunduan did not mean that the means and method of driver-buyer’s conduct was controlled, but were mere ways to
preserve the vehicle for the benefit of both parties: Villamaria would be able to collect the agreed purchase price, while
Bustamante would be assured that the vehicle would still be in good running condition even after four years. Moreover,
the right of vendor to impose certain conditions on the buyer should be respected until full ownership of the property is
vested on the latter. Villamaria insisted that the parallel circumstances obtaining in Singer Sewing Machine Company v.
Drilon24 has analogous application to the instant issue.

In its Decision25 dated August 30, 2004, the CA reversed and set aside the NLRC decision. The fallo of the decision reads:

UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned resolutions of the NLRC must be, as they are hereby
are, REVERSED AND SET ASIDE, and judgment entered in favor of petitioner:

1. Sentencing private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante separation pay
computed from the time of his employment up to the time of termination based on the prevailing minimum wage at
the time of termination; and,
 2. Condemning private respondent Oscar Villamaria, Jr. to pay petitioner Jerry Bustamante back wages computed
from the time of his dismissal up to March 2001 based on the prevailing minimum wage at the time of his
dismissal.

Without Costs.

SO ORDERED.26

The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamante’s complaint. Under the Kasunduan, the
relationship between him and Villamaria was dual: that of vendor-vendee and employer-employee. The CA ratiocinated
that Villamaria’s exercise of control over Bustamante’s conduct in operating the jeepney is inconsistent with the former’s
claim that he was not engaged in the transportation business. There was no evidence that petitioner was allowed to let
some other person drive the jeepney.

The CA further held that, while the power to dismiss was not mentioned in the Kasunduan, it did not mean that Villamaria
could not exercise it. It explained that the existence of an employment relationship did not depend on how the worker was
paid but on the presence or absence of control over the means and method of the employee’s work. In this case,
Villamaria’s directives (to drive carefully, wear an identification card, don decent attire, park the vehicle in his garage, and
to inform him about provincial trips, etc.) was a means to control the way in which Bustamante was to go about his work.
In view of Villamaria’s supervision and control as employer, the fact that the "boundary" represented installment payments
of the purchase price on the jeepney did not remove the parties’ employer-employee relationship.

While the appellate court recognized that a week’s default in paying the boundary-hulog constituted an additional cause
for terminating Bustamante’s employment, it held that the latter was illegally dismissed. According to the CA, assuming
that Bustamante failed to make the required payments as claimed by Villamaria, the latter nevertheless failed to take
steps to recover the unit and waited for Bustamante to abandon it. It also pointed out that Villamaria neither submitted any
police report to support his claim that the vehicle figured in a mishap nor presented the affidavit of the gas station guard to
substantiate the claim that Bustamante abandoned the unit.

Villamaria received a copy of the decision on September 8, 2004, and filed, on September 17, 2004, a motion for
reconsideration thereof. The CA denied the motion in a Resolution 27 dated November 2, 2004, and Villamaria received a
copy thereof on November 8, 2004.

Villamaria, now petitioner, seeks relief from this Court via petition for review on certiorari under Rule 65 of the Rules of
Court, alleging that the CA committed grave abuse of its discretion amounting to excess or lack of jurisdiction in reversing
the decision of the Labor Arbiter and the NLRC. He claims that the CA erred in ruling that the juridical relationship
between him and respondent under the Kasunduan was a combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan clearly state that he and respondent Bustamante had entered
into a conditional deed of sale over the jeepney; as such, their employer-employee relationship had been transformed into
that of vendor-vendee. Petitioner insists that he had the right to reserve his title on the jeepney until after the purchase
price thereof had been paid in full.

In his Comment on the petition, respondent avers that the appropriate remedy of petitioner was an appeal via a petition for
review on certiorari under Rule 45 of the Rules of Court and not a special civil action of certiorari under Rule 65. He
argues that petitioner failed to establish that the CA committed grave abuse of its discretion amounting to excess or lack
of jurisdiction in its decision, as the said ruling is in accord with law and the evidence on record. 

Respondent further asserts that the Kasunduan presented to him by petitioner which provides for a boundary-hulog
scheme was a devious circumvention of the Labor Code of the Philippines. Respondent insists that his juridical
relationship with petitioner is that of employer-employee because he was engaged to perform activities which were
necessary or desirable in the usual business of petitioner, his employer.

In his Reply, petitioner avers that the Rules of Procedure should be liberally construed in his favor; hence, it behooves the
Court to resolve the merits of his petition. 

We agree with respondent’s contention that the remedy of petitioner from the CA decision was to file a petition for review
on certiorari under Rule 45 of the Rules of Court and not the independent action of certiorari under Rule 65. Petitioner had
15 days from receipt of the CA resolution denying his motion for the reconsideration within which to file the petition under
Rule 45.28 But instead of doing so, he filed a petition for certiorari under Rule 65 on November 22, 2004, which did not,
however, suspend the running of the 15-day reglementary period; consequently, the CA decision became final and
executory upon the lapse of the reglementary period for appeal. Thus, on this procedural lapse, the instant petition stands
to be dismissed.29

It must be stressed that the recourse to a special civil action under Rule 65 of the Rules of Court is proscribed by the
remedy of appeal under Rule 45. As the Court elaborated in Tomas Claudio Memorial College, Inc. v. Court of Appeals: 30

We agree that the remedy of the aggrieved party from a decision or final resolution of the CA is to file a petition for review
on certiorari under Rule 45 of the Rules of Court, as amended, on questions of facts or issues of law within fifteen days
from notice of the said resolution. Otherwise, the decision of the CA shall become final and executory. The remedy under
Rule 45 of the Rules of Court is a mode of appeal to this Court from the decision of the CA. It is a continuation of the
appellate process over the original case. A review is not a matter of right but is a matter of judicial discretion. The
aggrieved party may, however, assail the decision of the CA via a petition for certiorari under Rule 65 of the Rules of
Court within sixty days from notice of the decision of the CA or its resolution denying the motion for reconsideration of the
same. This is based on the premise that in issuing the assailed decision and resolution, the CA acted with grave abuse of
discretion, amounting to excess or lack of jurisdiction and there is no plain, speedy and adequate remedy in the ordinary
course of law. A remedy is considered plain, speedy and adequate if it will promptly relieve the petitioner from the
injurious effect of the judgment and the acts of the lower court.

The aggrieved party is proscribed from filing a petition for certiorari if appeal is available, for the remedies of appeal and
certiorari are mutually exclusive and not alternative or successive. The aggrieved party is, likewise, barred from filing a
petition for certiorari if the remedy of appeal is lost through his negligence. A petition for certiorari is an original action and
does not interrupt the course of the principal case unless a temporary restraining order or a writ of preliminary injunction
has been issued against the public respondent from further proceeding. A petition for certiorari must be based on
jurisdictional grounds because, as long as the respondent court acted within its jurisdiction, any error committed by it will
amount to nothing more than an error of judgment which may be corrected or reviewed only by appeal. 31

However, we have also ruled that a petition for certiorari under Rule 65 may be considered as filed under Rule 45,
conformably with the principle that rules of procedure are to be construed liberally, provided that the petition is filed within
the reglementary period under Section 2, Rule 45 of the Rules of Court, and where valid and compelling circumstances
warrant that the petition be resolved on its merits. 32 In this case, the petition was filed within the reglementary period and
petitioner has raised an issue of substance: whether the existence of a boundary-hulog agreement negates the employer-
employee relationship between the vendor and vendee, and, as a corollary, whether the Labor Arbiter has jurisdiction over
a complaint for illegal dismissal in such case.

We resolve these issues in the affirmative.

The rule is that, the nature of an action and the subject matter thereof, as well as, which court or agency of the
government has jurisdiction over the same, are determined by the material allegations of the complaint in relation to the
law involved and the character of the reliefs prayed for, whether or not the complainant/plaintiff is entitled to any or all of
such reliefs.33 A prayer or demand for relief is not part of the petition of the cause of action; nor does it enlarge the cause
of action stated or change the legal effect of what is alleged. 34 In determining which body has jurisdiction over a case, the
better policy is to consider not only the status or relationship of the parties but also the nature of the action that is the
subject of their controversy.35

Article 217 of the Labor Code, as amended, vests on the Labor Arbiter exclusive original jurisdiction only over the
following:

x x x (a) Except as otherwise provided under this Code, the Labor Arbiters 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
non-agricultural:

1. Unfair labor practice cases;

2. Termination disputes;

3. If accompanied with a claim for reinstatement, those cases that workers may file involving wage, 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 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 relationship, including those of persons in domestic or household service,
involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim
for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters.

(c) Cases arising from the interpretation or implementation of collective bargaining agreements, and those
arising from the interpretation or enforcement of company personnel policies shall be disposed of by the
Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be
provided in said agreements.

In the foregoing cases, an employer-employee relationship is an indispensable jurisdictional requisite. 36 The jurisdiction of
Labor Arbiters and the NLRC under Article 217 of the Labor Code is limited to disputes arising from an employer-
employee relationship which can only be resolved by reference to the Labor Code, other labor statutes or their collective
bargaining agreement.37 Not every dispute between an employer and employee involves matters that only the Labor
Arbiter and the NLRC can resolve in the exercise of their adjudicatory or quasi-judicial powers. Actions between
employers and employees where the employer-employee relationship is merely incidental is within the exclusive original
jurisdiction of the regular courts. 38 When the principal relief is to be granted under labor legislation or a collective
bargaining agreement, the case falls within the exclusive jurisdiction of the Labor Arbiter and the NLRC even though a
claim for damages might be asserted as an incident to such claim. 39

We agree with the ruling of the CA that, under the boundary-hulog scheme incorporated in the Kasunduan, a dual juridical
relationship was created between petitioner and respondent: that of employer-employee and vendor-vendee. The
Kasunduan did not extinguish the employer-employee relationship of the parties extant before the execution of said deed.

As early as 1956, the Court ruled in National Labor Union v. Dinglasan 40 that the jeepney owner/operator-driver
relationship under the boundary system is that of employer-employee and not lessor-lessee. This doctrine was affirmed,
under similar factual settings, in Magboo v. Bernardo 41 and Lantaco, Sr. v. Llamas, 42 and was analogously applied to
govern the relationships between auto-calesa owner/operator and driver, 43 bus owner/operator and conductor, 44 and taxi
owner/operator and driver.45

The boundary system is a scheme by an owner/operator engaged in transporting passengers as a common carrier to
primarily govern the compensation of the driver, that is, the latter’s daily earnings are remitted to the owner/operator less
the excess of the boundary which represents the driver’s compensation. Under this system, the owner/operator exercises
control and supervision over the driver. It is unlike in lease of chattels where the lessor loses complete control over the
chattel leased but the lessee is still ultimately responsible for the consequences of its use. The management of the
business is still in the hands of the owner/operator, who, being the holder of the certificate of public convenience, must
see to it that the driver follows the route prescribed by the franchising and regulatory authority, and the rules promulgated
with regard to the business operations. The fact that the driver does not receive fixed wages but only the excess of the
"boundary" given to the owner/operator is not sufficient to change the relationship between them. Indubitably, the driver
performs activities which are usually necessary or desirable in the usual business or trade of the owner/operator. 46

Under the Kasunduan, respondent was required to remit P550.00 daily to petitioner, an amount which represented the
boundary of petitioner as well as respondent’s partial payment (hulog) of the purchase price of the jeepney. 

Respondent was entitled to keep the excess of his daily earnings as his daily wage. Thus, the daily remittances also had a
dual purpose: that of petitioner’s boundary and respondent’s partial payment (hulog) for the vehicle. This dual purpose
was expressly stated in the Kasunduan. The well-settled rule is that an obligation is not novated by an instrument that
expressly recognizes the old one, changes only the terms of payment, and adds other obligations not incompatible with
the old provisions or where the new contract merely supplements the previous one. 47 The two obligations of the
respondent to remit to petitioner the boundary-hulog can stand together.

In resolving an issue based on contract, this Court must first examine the contract itself, keeping in mind that when the
terms of the agreement are clear and leave no doubt as to the intention of the contracting parties, the literal meaning of its
stipulations shall prevail.48 The intention of the contracting parties should be ascertained by looking at the words used to
project their intention, that is, all the words, not just a particular word or two or more words standing alone. The various
stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all
of them taken jointly.49 The parts and clauses must be interpreted in relation to one another to give effect to the whole.
The legal effect of a contract is to be determined from the whole read together. 50

Under the Kasunduan, petitioner retained supervision and control over the conduct of the respondent as driver of the
jeepney, thus:

Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan ng boundary hulog ay ang mga sumusunod:

1. Pangangalagaan at pag-iingatan ng TAUHAN NG IKALAWANG PANIG ang sasakyan ipinagkatiwala sa kanya

ng TAUHAN NG UNANG PANIG.

2. Na ang sasakyan nabanggit ay gagamitin lamang ng TAUHAN NG IKALAWANG PANIG sa paghahanapbuhay

bilang pampasada o pangangalakal sa malinis at maayos na pamamaraan.

3. Na ang sasakyan nabanggit ay hindi gagamitin ng TAUHAN NG IKALAWANG PANIG sa mga bagay na
makapagdudulot ng kahihiyan, kasiraan o pananagutan sa TAUHAN NG UNANG PANIG.

4. Na hindi ito mamanehohin ng hindi awtorisado ng opisina ng UNANG PANIG.

5. Na ang TAUHAN NG IKALAWANG PANIG ay kinakailangang maglagay ng ID Card sa harap ng windshield

upang sa pamamagitan nito ay madaliang malaman kung ang nagmamaneho ay awtorisado ng VILLAMARIA
MOTORS o hindi.

6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG ang [halaga ng] multa kung sakaling mahuli ang
sasakyang ito na hindi nakakabit ang ID card sa wastong lugar o anuman kasalanan o kapabayaan.

7. Na sasagutin din ng TAUHAN NG IKALAWANG PANIG ang materyales o piyesa na papalitan ng nasira o
nawala ito dahil sa kanyang kapabayaan.

8. Kailangan sa VILLAMARIA MOTORS pa rin ang garahe habang hinuhulugan pa rin ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan.

9. Na kung magkaroon ng mabigat na kasiraan ang sasakyang ipinagkaloob ng TAUHAN NG UNANG PANIG,
ang TAUHAN NG IKALAWANG PANIG ay obligadong itawag ito muna sa VILLAMARIA MOTORS bago ipagawa
sa alin mang Motor Shop na awtorisado ng VILLAMARIA MOTORS.

10. Na hindi pahihintulutan ng TAUHAN NG IKALAWANG PANIG sa panahon ng pamamasada na ang

nagmamaneho ay naka-tsinelas, naka short pants at nakasando lamang. Dapat ang nagmamaneho ay laging
nasa maayos ang kasuotan upang igalang ng mga pasahero.

11. Na ang TAUHAN NG IKALAWANG PANIG o ang awtorisado niyang driver ay magpapakita ng magandang
asal sa mga pasaheros at hindi dapat magsasalita ng masama kung sakali man may pasaherong pilosopo upang
maiwasan ang anumang kaguluhan na maaaring kasangkutan.

12. Na kung sakaling hindi makapagbigay ng BOUNDARY HULOG ang TAUHAN NG IKALAWANG PANIG sa
loob ng tatlong (3) araw ay ang opisina ng VILLAMARIA MOTORS ang may karapatang mangasiwa ng nasabing
sasakyan hanggang matugunan ang lahat ng responsibilidad. Ang halagang dapat bayaran sa opisina ay may
karagdagang multa ng P50.00 sa araw-araw na ito ay nasa pangangasiwa ng VILLAMARIA MOTORS.

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng
isang linggo ay nangangahulugan na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG.

14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang bayad sa rehistro, comprehensive insurance taon-taon
at kahit anong uri ng aksidente habang ito ay hinuhulugan pa sa TAUHAN NG UNANG PANIG.
 15. Na ang TAUHAN NG IKALAWANG PANIG ay obligadong dumalo sa pangkalahatang pagpupulong ng
VILLAMARIA MOTORS sa tuwing tatawag ang mga tagapangasiwa nito upang maipaabot ang anumang
mungkahi sa ikasusulong ng samahan.

16. Na ang TAUHAN NG IKALAWANG PANIG ay makikiisa sa lahat ng mga patakaran na magkakaroon ng
pagbabago o karagdagan sa mga darating na panahon at hindi magiging hadlang sa lahat ng mga balakin ng
VILLAMARIA MOTORS sa lalo pang ipagtatagumpay at ikakatibay ng Samahan.

17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi magiging buwaya sa pasahero upang hindi kainisan ng
kapwa driver at maiwasan ang pagkakasangkot sa anumang gulo.

18. Ang nasabing sasakyan ay hindi kalilimutang siyasatin ang kalagayan lalo na sa umaga bago pumasada, at
sa hapon o gabi naman ay sisikapin mapanatili ang kalinisan nito.

19. Na kung sakaling ang nasabing sasakyan ay maaarkila at aabutin ng dalawa o higit pang araw sa lalawigan
ay dapat lamang na ipagbigay alam muna ito sa VILLAMARIA MOTORS upang maiwasan ang mga anumang
suliranin.

20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan ang pakikipag-unahan sa kaninumang sasakyan upang
maiwasan ang aksidente.

21. Na kung ang TAUHAN NG IKALAWANG PANIG ay mayroon sasabihin sa VILLAMARIA MOTORS mabuti
man or masama ay iparating agad ito sa kinauukulan at iwasan na iparating ito kung [kani-kanino] lamang upang
maiwasan ang anumang usapin. Magsadya agad sa opisina ng VILLAMARIA MOTORS.

22. Ang mga nasasaad sa KASUNDUAN ito ay buong galang at puso kong sinasang-ayunan at buong sikap na
pangangalagaan ng TAUHAN NG IKALAWANG PANIG ang nasabing sasakyan at gagamitin lamang ito sa
paghahanapbuhay at wala nang iba pa.51

The parties expressly agreed that petitioner, as vendor, and respondent, as vendee, entered into a contract to sell the
jeepney on a daily installment basis of P550.00 payable in four years and that petitioner would thereafter become its
owner. A contract is one of conditional sale, oftentimes referred to as contract to sell, if the ownership or title over the

property sold is retained by the vendor, and is not passed to the vendee unless and until there is full payment of the
purchase price and/or upon faithful compliance with the other terms and conditions that may lawfully be stipulated. 52Such
payment or satisfaction of other preconditions, as the case may be, is a positive suspensive condition, the failure of which
is not a breach of contract, casual or serious, but simply an event that would prevent the obligation of the vendor to
convey title from acquiring binding force. 53 Stated differently, the efficacy or obligatory force of the vendor's obligation to
transfer title is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not
take place, the parties would stand as if the conditional obligation had never existed. 54 The vendor may extrajudicially
terminate the operation of the contract, refuse conveyance, and retain the sums or installments already received, where
such rights are expressly provided for.55

Under the boundary-hulog scheme, petitioner retained ownership of the jeepney although its material possession was
vested in respondent as its driver. In case respondent failed to make his P550.00 daily installment payment for a week,
the agreement would be of no force and effect and respondent would have to return the jeepney to petitioner; the
employer-employee relationship would likewise be terminated unless petitioner would allow respondent to continue driving
the jeepney on a boundary basis of P550.00 daily despite the termination of their vendor-vendee relationship.

The juridical relationship of employer-employee between petitioner and respondent was not negated by the foregoing
stipulation in the Kasunduan, considering that petitioner retained control of respondent’s conduct as driver of the vehicle.
As correctly ruled by the CA:

The exercise of control by private respondent over petitioner’s conduct in operating the jeepney he was driving is
inconsistent with private respondent’s claim that he is, or was, not engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive the unit, it was not shown that he did so; that the existence of an
employment relation is not dependent on how the worker is paid but on the presence or absence of control over the
means and method of the work; that the amount earned in excess of the "boundary hulog" is equivalent to wages; and that
the fact that the power of dismissal was not mentioned in the Kasunduan did not mean that private respondent never
exercised such power, or could not exercise such power.
Moreover, requiring petitioner to drive the unit for commercial use, or to wear an identification card, or to don a decent
attire, or to park the vehicle in Villamaria Motors garage, or to inform Villamaria Motors about the fact that the unit would
be going out to the province for two days of more, or to drive the unit carefully, etc. necessarily related to control over the
means by which the petitioner was to go about his work; that the ruling applicable here is not Singer Sewing Machine but
National Labor Union since the latter case involved jeepney owners/operators and jeepney drivers, and that the fact that
the "boundary" here represented installment payment of the purchase price on the jeepney did not withdraw the
relationship from that of employer-employee, in view of the overt presence of supervision and control by the employer. 56

Neither is such juridical relationship negated by petitioner’s claim that the terms and conditions in the Kasunduan relative
to respondent’s behavior and deportment as driver was for his and respondent’s benefit: to insure that respondent would
be able to pay the requisite daily installment of P550.00, and that the vehicle would still be in good condition despite the
lapse of four years. What is primordial is that petitioner retained control over the conduct of the respondent as driver of the
jeepney. 

Indeed, petitioner, as the owner of the vehicle and the holder of the franchise, is entitled to exercise supervision and
control over the respondent, by seeing to it that the route provided in his franchise, and the rules and regulations of the
Land Transportation Regulatory Board are duly complied with. Moreover, in a business establishment, an identification
card is usually provided not just as a security measure but to mainly identify the holder thereof as a bona fide employee of
the firm who issues it.57

As respondent’s employer, it was the burden of petitioner to prove that respondent’s termination from employment was for
a lawful or just cause, or, at the very least, that respondent failed to make his daily remittances of P550.00 as boundary.
However, petitioner failed to do so. As correctly ruled by the appellate court:

It is basic of course that termination of employment must be effected in accordance with law. The just and authorized
causes for termination of employment are enumerated under Articles 282, 283 and 284 of the Labor Code.

Parenthetically, given the peculiarity of the situation of the parties here, the default in the remittance of the boundary hulog
for one week or longer may be considered an additional cause for termination of employment. The reason is because the
Kasunduan would be of no force and effect in the event that the purchaser failed to remit the boundary hulog for one
week. The Kasunduan in this case pertinently stipulates: 

13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi makapagbigay ng BOUNDARY HULOG sa loob ng isang
linggo ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng bisa at kusang ibabalik ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng paghahabol pa.

Moreover, well-settled is the rule that, the employer has the burden of proving that the dismissal of an employee is for a
just cause. The failure of the employer to discharge this burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.

In the case at bench, private respondent in his position paper before the Labor Arbiter, alleged that petitioner failed to pay
the miscellaneous fee of P10,000.00 and the yearly registration of the unit; that petitioner also stopped remitting the
"boundary hulog," prompting him (private respondent) to issue a "Paalala," which petitioner however ignored; that
petitioner even brought the unit to his (petitioner’s) province without informing him (private respondent) about it; and that
petitioner eventually abandoned the vehicle at a gasoline station after figuring in an accident. But private respondent failed
to substantiate these allegations with solid, sufficient proof. Notably, private respondent’s allegation viz, that he retrieved
the vehicle from the gas station, where petitioner abandoned it, contradicted his statement in the Paalala that he would
enforce the provision (in the Kasunduan) to the effect that default in the remittance of the boundary hulog for one week
would result in the forfeiture of the unit. The Paalala reads as follows:

"Sa lahat ng mga kumukuha ng sasakyan

"Sa pamamagitan ng ‘BOUNDARY HULOG’

"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong pinirmahan particular na ang paragrapo 13 na nagsasaad na
kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng isang linggo ay kusa ninyong ibabalik and nasabing
sasakyan na inyong hinuhulugan ng wala ng paghahabol pa.

"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito ay akin na pong ipatutupad ang nasabing Kasunduan kaya’t
aking pinaaalala sa inyong lahat na tuparin natin ang nakalagay sa kasunduan upang maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito upang hindi na tayo makaabot pa sa korte kung sakaling
hindi ninyo isasauli ang inyong sasakyan na hinuhulugan na ang mga magagastos ay kayo pa ang magbabayad sapagkat
ang hindi ninyo pagtupad sa kasunduan ang naging dahilan ng pagsampa ng kaso.

"Sumasainyo

"Attendance: 8/27/99

"(The Signatures appearing herein

include (sic) that of petitioner’s) (Sgd.)

OSCAR VILLAMARIA, JR."

If it were true that petitioner did not remit the boundary hulog for one week or more, why did private respondent not
forthwith take steps to recover the unit, and why did he have to wait for petitioner to abandon it?1avvphil.net

On another point, private respondent did not submit any police report to support his claim that petitioner really figured in a
vehicular mishap. Neither did he present the affidavit of the guard from the gas station to substantiate his claim that
petitioner abandoned the unit there.58

Petitioner’s claim that he opted not to terminate the employment of respondent because of magnanimity is negated by his
(petitioner’s) own evidence that he took the jeepney from the respondent only on July 24, 2000.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No.
78720 is AFFIRMED. Costs against petitioner.
REPUBLIC OF THE PHILIPPINES vs ASIAPRO COOPERATIVE

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure
seeking to annul and set aside the Decision 1 and Resolution2 of the Court of Appeals in CA-G.R. SP No. 87236, dated 5
January 2006 and 20 March 2006, respectively, which annulled and set aside the Orders of the Social Security
Commission (SSC) in SSC Case No. 6-15507-03, dated 17 February 2004 3 and 16 September 2004,4respectively,
thereby dismissing the petition-complaint dated 12 June 2003 filed by herein petitioner Social Security System (SSS)
against herein respondent.

Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body authorized by law to resolve
disputes arising under Republic Act No. 1161, as amended by Republic Act No. 8282. 5 Petitioner SSS is a government
corporation created by virtue of Republic Act No. 1161, as amended. On the other hand, herein respondent Asiapro
Cooperative (Asiapro) is a multi-purpose cooperative created pursuant to Republic Act No. 6938 6 and duly registered with
the Cooperative Development Authority (CDA) on 23 November 1999 with Registration Certificate No. 0-623-2460. 7

The antecedents of this case are as follows:

Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws, owners-members are of two
categories, to wit: (1) regular member, who is entitled to all the rights and privileges of membership; and (2) associate
member, who has no right to vote and be voted upon and shall be entitled only to such rights and privileges provided in its
by-laws.8 Its primary objectives are to provide savings and credit facilities and to develop other livelihood services for its
owners-members. In the discharge of the aforesaid primary objectives, respondent cooperative entered into several
Service Contracts9 with Stanfilco - a division of DOLE Philippines, Inc. and a company based in Bukidnon. The owners-
members do not receive compensation or wages from the respondent cooperative. Instead, they receive a share in the
service surplus10 which the respondent cooperative earns from different areas of trade it engages in, such as the income
derived from the said Service Contracts with Stanfilco. The owners-members get their income from the service surplus
generated by the quality and amount of services they rendered, which is determined by the Board of Directors of the
respondent cooperative.

In order to enjoy the benefits under the Social Security Law of 1997, the owners-members of the respondent cooperative,
who were assigned to Stanfilco requested the services of the latter to register them with petitioner SSS as self-employed
and to remit their contributions as such. Also, to comply with Section 19-A of Republic Act No. 1161, as amended by
Republic Act No. 8282, the SSS contributions of the said owners-members were equal to the share of both the employer
and the employee.

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao Division, Atty. Eddie A. Jara,
sent a letter11 to the respondent cooperative, addressed to its Chief Executive Officer (CEO) and General Manager Leo G.
Parma, informing the latter that based on the Service Contracts it executed with Stanfilco, respondent cooperative is
actually a manpower contractor supplying employees to Stanfilco and for that reason, it is an employer of its owners-
members working with Stanfilco. Thus, respondent cooperative should register itself with petitioner SSS as an employer
and make the corresponding report and remittance of premium contributions in accordance with the Social Security Law
of 1997. On 9 October 2002, 12 respondent cooperative, through its counsel, sent a reply to petitioner SSS’s letter
asserting that it is not an employer because its owners-members are the cooperative itself; hence, it cannot be its own
employer. Again, on 21 October 2002, 13 petitioner SSS sent a letter to respondent cooperative ordering the latter to
register as an employer and report its owners-members as employees for compulsory coverage with the petitioner SSS.
Respondent cooperative continuously ignored the demand of petitioner SSS.

Accordingly, petitioner SSS, on 12 June 2003, filed a Petition 14 before petitioner SSC against the respondent cooperative
and Stanfilco praying that the respondent cooperative or, in the alternative, Stanfilco be directed to register as an
employer and to report respondent cooperative’s owners-members as covered employees under the compulsory
coverage of SSS and to remit the necessary contributions in accordance with the Social Security Law of 1997. The same
was docketed as SSC Case No. 6-15507-03. Respondent cooperative filed its Answer with Motion to Dismiss alleging that
no employer-employee relationship exists between it and its owners-members, thus, petitioner SSC has no jurisdiction
over the respondent cooperative. Stanfilco, on the other hand, filed an Answer with Cross-claim against the respondent
cooperative.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed by the respondent cooperative.
The respondent cooperative moved for the reconsideration of the said Order, but it was likewise denied in another Order
issued by the SSC dated 16 September 2004.

Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension of Time to File a Petition for
Review before the Court of Appeals. Subsequently, respondent cooperative filed a Manifestation stating that it was no
longer filing a Petition for Review. In its place, respondent cooperative filed a Petition for Certiorari before the Court of
Appeals, docketed as CA-G.R. SP No. 87236, with the following assignment of errors:

I. The Orders dated 17 February 2004 and 16 September 2004 of [herein petitioner] SSC were issued with grave abuse of
discretion amounting to a (sic) lack or excess of jurisdiction in that:

A. [Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction over the petition a quo,
considering that it failed to first resolve the issue of the existence of an employer-employee relationship
between [respondent] cooperative and its owners-members.

B. While indeed, the [petitioner] SSC has jurisdiction over all disputes arising under the SSS Law with
respect to coverage, benefits, contributions, and related matters, it is respectfully submitted that
[petitioner] SSC may only assume jurisdiction in cases where there is no dispute as to the existence of an
employer-employee relationship.

C. Contrary to the holding of the [petitioner] SSC, the legal issue of employer-employee relationship
raised in [respondent’s] Motion to Dismiss can be preliminarily resolved through summary hearings prior
to the hearing on the merits. However, any inquiry beyond a preliminary determination, as what [petitioner
SSC] wants to accomplish, would be to encroach on the jurisdiction of the National Labor Relations
Commission [NLRC], which is the more competent body clothed with power to resolve issues relating to
the existence of an employment relationship.

II. At any rate, the [petitioner] SSC has no jurisdiction to take cognizance of the petition a quo.

A. [Respondent] is not an employer within the contemplation of the Labor Law but is a multi-purpose
cooperative created pursuant to Republic Act No. 6938 and composed of owners-members, not
employees.

B. The rights and obligations of the owners-members of [respondent] cooperative are derived from their
Membership Agreements, the Cooperatives By-Laws, and Republic Act No. 6938, and not from any
contract of employment or from the Labor Laws. Moreover, said owners-members enjoy rights that are
not consistent with being mere employees of a company, such as the right to participate and vote in
decision-making for the cooperative.

C. As found by the Bureau of Internal Revenue [BIR], the owners-members of [respondent] cooperative
are not paid any compensation income.15 (Emphasis supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by the respondent cooperative.
The decretal portion of the Decision reads:

WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004] and [16 September 2004], are
ANNULLED and SET ASIDE and a new one is entered DISMISSING the petition-complaint dated [12 June 2003] of
[herein petitioner] Social Security System. 16

Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was denied by the appellate court
in its Resolution dated 20 March 2006.

Hence, this Petition.

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals erred in not finding that the SSC
has jurisdiction over the subject matter and it has a valid basis in denying respondent’s Motion to Dismiss. The said issue
is supported by the following arguments:
 I. The [petitioner SSC] has jurisdiction over the petition-complaint filed before it by the [petitioner SSS] under R.A.
No. 8282.

II. Respondent [cooperative] is estopped from questioning the jurisdiction of petitioner SSC after invoking its
jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss before it.

III. The [petitioner SSC] did not act with grave abuse of discretion in denying respondent [cooperative’s] [M]otion
to [D]ismiss.

IV. The existence of an employer-employee relationship is a question of fact where presentation of evidence is
necessary.

V. There is an employer-employee relationship between [respondent cooperative] and its [owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS as it involved an
issue of whether or not a worker is entitled to compulsory coverage under the SSS Law. Petitioners avow that Section 5 of
Republic Act No. 1161, as amended by Republic Act No. 8282, expressly confers upon petitioner SSC the power to settle
disputes on compulsory coverage, benefits, contributions and penalties thereon or any other matter related thereto.
Likewise, Section 9 of the same law clearly provides that SSS coverage is compulsory upon all employees. Thus, when
petitioner SSS filed a petition-complaint against the respondent cooperative and Stanfilco before the petitioner SSC for
the compulsory coverage of respondent cooperative’s owners-members as well as for collection of unpaid SSS
contributions, it was very obvious that the subject matter of the aforesaid petition-complaint was within the expertise and
jurisdiction of the SSC.

Petitioners similarly assert that granting arguendo that there is a prior need to determine the existence of an employer-
employee relationship between the respondent cooperative and its owners-members, said issue does not preclude
petitioner SSC from taking cognizance of the aforesaid petition-complaint. Considering that the principal relief sought in
the said petition-complaint has to be resolved by reference to the Social Security Law and not to the Labor Code or other
labor relations statutes, therefore, jurisdiction over the same solely belongs to petitioner SSC.

Petitioners further claim that the denial of the respondent cooperative’s Motion to Dismiss grounded on the alleged lack of
employer-employee relationship does not constitute grave abuse of discretion on the part of petitioner SSC because the
latter has the authority and power to deny the same. Moreover, the existence of an employer-employee relationship is a
question of fact where presentation of evidence is necessary. Petitioners also maintain that the respondent cooperative is
already estopped from assailing the jurisdiction of the petitioner SSC because it has already filed its Answer before it,
thus, respondent cooperative has already submitted itself to the jurisdiction of the petitioner SSC.

Finally, petitioners contend that there is an employer-employee relationship between the respondent cooperative and its
owners-members. The respondent cooperative is the employer of its owners-members considering that it undertook to
provide services to Stanfilco, the performance of which is under the full and sole control of the respondent cooperative.

On the other hand, respondent cooperative alleges that its owners-members own the cooperative, thus, no employer-
employee relationship can arise between them. The persons of the employer and the employee are merged in the
owners-members themselves. Likewise, respondent cooperative’s owners-members even requested the respondent
cooperative to register them with the petitioner SSS as self-employed individuals. Hence, petitioner SSC has no
jurisdiction over the petition-complaint filed before it by petitioner SSS.

Respondent cooperative further avers that the Court of Appeals correctly ruled that petitioner SSC acted with grave abuse
of discretion when it assumed jurisdiction over the petition-complaint without determining first if there was an employer-
employee relationship between the respondent cooperative and its owners-members. Respondent cooperative claims that
the question of whether an employer-employee relationship exists between it and its owners-members is a legal and not a
factual issue as the facts are undisputed and need only to be interpreted by the applicable law and jurisprudence.

Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing the jurisdiction of petitioner
SSC simply because it filed an Answer with Motion to Dismiss, especially where the issue of jurisdiction is raised at the
very first instance and where the only relief being sought is the dismissal of the petition-complaint for lack of jurisdiction.

From the foregoing arguments of the parties, the issues may be summarized into:
 I. Whether the petitioner SSC has jurisdiction over the petition-complaint filed before it by petitioner SSS against
the respondent cooperative.

II. Whether the respondent cooperative is estopped from assailing the jurisdiction of petitioner SSC since it had
already filed an Answer with Motion to Dismiss before the said body.

Petitioner SSC’s jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as in Section 1, Rule III of the
1997 SSS Revised Rules of Procedure.

Section 5 of Republic Act No. 8282 provides:

SEC. 5. Settlement of Disputes. – (a) Any dispute arising under this Act with respect to coverage, benefits, contributions
and penalties thereon or any other matter related thereto, shall be cognizable by the Commission, x x x. (Emphasis
supplied.)

Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:

Section 1. Jurisdiction. – Any dispute arising under the Social Security Act with respect to coverage, entitlement of
benefits, collection and settlement of contributions and penalties thereon, or any other matter related thereto, shall be
cognizable by the Commission after the SSS through its President, Manager or Officer-in-charge of the
Department/Branch/Representative Office concerned had first taken action thereon in writing. (Emphasis supplied.)

It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage of the SSS is well within
the exclusive domain of the petitioner SSC. It is important to note, though, that the mandatory coverage under the SSS
Law is premised on the existence of an employer-employee relationship 17 except in cases of compulsory coverage of the
self-employed.

It is axiomatic that the allegations in the complaint, not the defenses set up in the Answer or in the Motion to Dismiss,
determine which court has jurisdiction over an action; otherwise, the question of jurisdiction would depend almost entirely
upon the defendant.18 Moreover, it is well-settled that once jurisdiction is acquired by the court, it remains with it until the
full termination of the case.19 The said principle may be applied even to quasi-judicial bodies.

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC against the respondent
cooperative and Stanfilco alleges that the owners-members of the respondent cooperative are subject to the compulsory
coverage of the SSS because they are employees of the respondent cooperative. Consequently, the respondent
cooperative being the employer of its owners-members must register as employer and report its owners-members as
covered members of the SSS and remit the necessary premium contributions in accordance with the Social Security Law
of 1997. Accordingly, based on the aforesaid allegations in the petition-complaint filed before the petitioner SSC, the case
clearly falls within its jurisdiction. Although the Answer with Motion to Dismiss filed by the respondent cooperative
challenged the jurisdiction of the petitioner SSC on the alleged lack of employer-employee relationship between itself and
its owners-members, the same is not enough to deprive the petitioner SSC of its jurisdiction over the petition-complaint
filed before it. Thus, the petitioner SSC cannot be faulted for initially assuming jurisdiction over the petition-complaint of
the petitioner SSS.

Nonetheless, since the existence of an employer-employee relationship between the respondent cooperative and its
owners-members was put in issue and considering that the compulsory coverage of the SSS Law is predicated on the
existence of such relationship, it behooves the petitioner SSC to determine if there is really an employer-employee
relationship that exists between the respondent cooperative and its owners-members.

The question on the existence of an employer-employee relationship is not within the exclusive jurisdiction of the National
Labor Relations Commission (NLRC). Article 217 of the Labor Code enumerating the jurisdiction of the Labor Arbiters and
the NLRC provides that:

ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.

xxxx
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 (₱5,000.00) regardless of whether accompanied with a claim for reinstatement. 20

Although the aforesaid provision speaks merely of claims for Social Security, it would necessarily include issues on the
coverage thereof, because claims are undeniably rooted in the coverage by the system. Hence, the question on the
existence of an employer-employee relationship for the purpose of determining the coverage of the Social Security
System is explicitly excluded from the jurisdiction of the NLRC and falls within the jurisdiction of the SSC which is primarily
charged with the duty of settling disputes arising under the Social Security Law of 1997.

On the basis thereof, considering that the petition-complaint of the petitioner SSS involved the issue of compulsory
coverage of the owners-members of the respondent cooperative, this Court agrees with the petitioner SSC when it
declared in its Order dated 17 February 2004 that as an incident to the issue of compulsory coverage, it may inquire into
the presence or absence of an employer-employee relationship without need of waiting for a prior pronouncement or
submitting the issue to the NLRC for prior determination. Since both the petitioner SSC and the NLRC are independent
bodies and their jurisdiction are well-defined by the separate statutes creating them, petitioner SSC has the authority to
inquire into the relationship existing between the worker and the person or entity to whom he renders service to determine
if the employment, indeed, is one that is excepted by the Social Security Law of 1997 from compulsory coverage. 21

Even before the petitioner SSC could make a determination of the existence of an employer-employee relationship,
however, the respondent cooperative already elevated the Order of the petitioner SSC, denying its Motion to Dismiss, to
the Court of Appeals by filing a Petition for Certiorari. As a consequence thereof, the petitioner SSC became a party to the
said Petition for Certiorari pursuant to Section 5(b) 22 of Republic Act No. 8282. The appellate court ruled in favor of the
respondent cooperative by declaring that the petitioner SSC has no jurisdiction over the petition-complaint filed before it
because there was no employer-employee relationship between the respondent cooperative and its owners-members.
Resultantly, the petitioners SSS and SSC, representing the Republic of the Philippines, filed a Petition for Review before
this Court.

Although as a rule, in the exercise of the Supreme Court’s power of review, the Court is not a trier of facts and the findings
of fact of the Court of Appeals are conclusive and binding on the Court, 23 said rule is not without exceptions. There are
several recognized exceptions24 in which factual issues may be resolved by this Court. One of these exceptions finds
application in this present case which is, when the findings of fact are conflicting. There are, indeed, conflicting findings
espoused by the petitioner SSC and the appellate court relative to the existence of employer-employee relationship
between the respondent cooperative and its owners-members, which necessitates a departure from the oft-repeated rule
that factual issues may not be the subject of appeals to this Court.

In determining the existence of an employer-employee relationship, the following elements are considered: (1) the
selection and engagement of the workers; (2) the payment of wages by whatever means; (3) the power of dismissal; and
(4) the power to control the worker’s conduct, with the latter assuming primacy in the overall consideration. 25The most
important element is the employer’s control of the employee’s conduct, not only as to the result of the work to be done, but
also as to the means and methods to accomplish. 26 The power of control refers to the existence of the power and not
necessarily to the actual exercise thereof. It is not essential for the employer to actually supervise the performance of
duties of the employee; it is enough that the employer has the right to wield that power. 27 All the aforesaid elements are
present in this case.

First. It is expressly provided in the Service Contracts that it is the respondent cooperative which has the exclusive
discretion in the selection and engagement of the owners-members as well as its team leaders who will be assigned at
Stanfilco.28 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." 29 In this case, the weekly stipends or the so-called shares
in the service surplus given by the respondent cooperative to its owners-members were in reality wages, as the same
were equivalent to an amount not lower than that prescribed by existing labor laws, rules and regulations, including the
wage order applicable to the area and industry; or the same shall not be lower than the prevailing rates of wages. 30 It
cannot be doubted then that those stipends or shares in the service surplus are indeed wages, because these are given
to the owners-members as compensation in rendering services to respondent cooperative’s client, Stanfilco. Third. It is
also stated in the above-mentioned Service Contracts that it is the respondent cooperative which has the power to
investigate, discipline and remove the owners-members and its team leaders who were rendering services at
Stanfilco.31 Fourth. As earlier opined, of the four elements of the employer-employee relationship, the "control test" is the
most important. In the case at bar, it is the respondent cooperative which has the sole control over the manner and means
of performing the services under the Service Contracts with Stanfilco as well as the means and methods of work. 32 Also,
the respondent cooperative is solely and entirely responsible for its owners-members, team leaders and other
representatives at Stanfilco.33 All these clearly prove that, indeed, there is an employer-employee relationship between the
respondent cooperative and its owners-members.

It is true that the Service Contracts executed between the respondent cooperative and Stanfilco expressly provide that
there shall be no employer-employee relationship between the respondent cooperative and its owners-members. 34 This
Court, however, cannot give the said provision force and effect.

As previously pointed out by this Court, an employee-employer relationship actually exists between the respondent
cooperative and its owners-members. The four elements in the four-fold test for the existence of an employment
relationship have been complied with. The respondent cooperative must not be allowed to deny its employment
relationship with its owners-members by invoking the questionable Service Contracts provision, when in actuality, it does
exist. The existence of an employer-employee relationship cannot be negated by expressly repudiating it in a contract,
when the terms and surrounding circumstances show otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be. 35

It is settled that the contracting parties may establish such stipulations, clauses, terms and conditions as they want, and
their agreement would have the force of law between them. However, the agreed terms and conditions must not be
contrary to law, morals, customs, public policy or public order. 36 The Service Contract provision in question must be struck
down for being contrary to law and public policy since it is apparently being used by the respondent cooperative merely to
circumvent the compulsory coverage of its employees, who are also its owners-members, by the Social Security Law.

This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of Davao City, Inc. v. Ferrer-
Calleja37 wherein it held that:

A cooperative, therefore, is by its nature different from an ordinary business concern, being run either by persons,
partnerships, or corporations. Its owners and/or members are the ones who run and operate the business while the others
are its employees x x x.

An employee therefore of such a cooperative who is a member and co-owner thereof cannot invoke the right to collective
bargaining for certainly an owner cannot bargain with himself or his co-owners. In the opinion of August 14, 1981 of the
Solicitor General he correctly opined that employees of cooperatives who are themselves members of the cooperative
have no right to form or join labor organizations for purposes of collective bargaining for being themselves co-owners of
the cooperative.1awp++i1

However, in so far as it involves cooperatives with employees who are not members or co-owners thereof, certainly such
employees are entitled to exercise the rights of all workers to organization, collective bargaining, negotiations and others
as are enshrined in the Constitution and existing laws of the country.

The situation in the aforesaid case is very much different from the present case. The declaration made by the Court in the
aforesaid case was made in the context of whether an employee who is also an owner-member of a cooperative can
exercise the right to bargain collectively with the employer who is the cooperative wherein he is an owner-member.
Obviously, an owner-member cannot bargain collectively with the cooperative of which he is also the owner because an
owner cannot bargain with himself. In the instant case, there is no issue regarding an owner-member’s right to bargain
collectively with the cooperative. The question involved here is whether an employer-employee relationship can exist
between the cooperative and an owner-member. In fact, a closer look at Cooperative Rural Bank of Davao City, Inc. will
show that it actually recognized that an owner-member of a cooperative can be its own employee.

It bears stressing, too, that a cooperative acquires juridical personality upon its registration with the Cooperative
Development Authority.38 It has its Board of Directors, which directs and supervises its business; meaning, its Board of
Directors is the one in charge in the conduct and management of its affairs. 39 With that, a cooperative can be likened to a
corporation with a personality separate and distinct from its owners-members. Consequently, an owner-member of a
cooperative can be an employee of the latter and an employer-employee relationship can exist between them.

In the present case, it is not disputed that the respondent cooperative had registered itself with the Cooperative
Development Authority, as evidenced by its Certificate of Registration No. 0-623-2460. 40 In its by-laws,41 its Board of
Directors directs, controls, and supervises the business and manages the property of the respondent cooperative. Clearly
then, the management of the affairs of the respondent cooperative is vested in its Board of Directors and not in its owners-
members as a whole. Therefore, it is completely logical that the respondent cooperative, as a juridical person represented
by its Board of Directors, can enter into an employment with its owners-members.
In sum, having declared that there is an employer-employee relationship between the respondent cooperative and its
owners-member, we conclude that the petitioner SSC has jurisdiction over the petition-complaint filed before it by the
petitioner SSS. This being our conclusion, it is no longer necessary to discuss the issue of whether the respondent
cooperative was estopped from assailing the jurisdiction of the petitioner SSC when it filed its Answer with Motion to
Dismiss.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and the Resolution of the
Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006, respectively, are hereby
REVERSED and SET ASIDE. The Orders of the petitioner SSC dated 17 February 2004 and 16 September 2004 are
hereby REINSTATED. The petitioner SSC is hereby DIRECTED to continue hearing the petition-complaint filed before it
by the petitioner SSS as regards the compulsory coverage of the respondent cooperative and its owners-members. No
costs.
ANGELINA FRANCISCO vs NATIONAL LABOR RELATIONS COMMISSION

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and
Resolution of the Court of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No.
78515 dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate
court reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003,  3 in
NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002,  4 in
NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and
Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as
Liaison Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial
operation of the company. 5

Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did
she attend any board meeting nor required to do so. She never prepared any legal document and never represented the
company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the
company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of
petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management
administration functions; represent the company in all dealings with government agencies, especially with the Bureau of
Internal Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other
matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00
plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. 8

In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner alleged that she was required to sign
a prepared resolution for her replacement but she was assured that she would still be connected with Kasei Corporation.
Timoteo Acedo, the designated Treasurer, convened a meeting of all employees of Kasei Corporation and announced
that nothing had changed and that petitioner was still connected with Kasei Corporation as Technical Assistant to Seiji
Kamura and in charge of all BIR matters. 9

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning January up to September 2001 for a
total reduction of P22,500.00 as of September 2001. Petitioner was not paid her mid-year bonus allegedly because the
company was not earning well. On October 2001, petitioner did not receive her salary from the company. She made
repeated follow-ups with the company cashier but she was advised that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she
is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal
before the labor arbiter. 

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was
hired in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As
technical consultant, petitioner performed her work at her own discretion without control and supervision of Kasei
Corporation. Petitioner had no daily time record and she came to the office any time she wanted. The company never
interfered with her work except that from time to time, the management would ask her opinion on matters relating to her
profession. Petitioner did not go through the usual procedure of selection of employees, but her services were engaged
through a Board Resolution designating her as technical consultant. The money received by petitioner from the
corporation was her professional fee subject to the 10% expanded withholding tax on professionals, and that she was not
one of those reported to the BIR or SSS as one of the company’s employees. 12

Petitioner’s designation as technical consultant depended solely upon the will of management. As such, her consultancy
may be terminated any time considering that her services were only temporary in nature and dependent on the needs of
the corporation. 
To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the
years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR,
as well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioner’s latest employer was Seiji Corporation. 13

The Labor Arbiter found that petitioner was illegally dismissed, thus:

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and
severally pay complainant her money claims in accordance with the following computation:

a. Backwages 10/2001 – 07/2002 275,000.00

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 – 09/2001) 22,500.00

c. Housing Allowance (01/2001 – 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional
backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which
reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to
full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of
P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorney’s fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED.
SO ORDERED. 15

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated
April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the complaint filed by
private respondent against Kasei Corporation, et al. for constructive dismissal.

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between
petitioner and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally
dismissed.

Considering the conflicting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and
the Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions
espoused by the contending parties is supported by substantial evidence. 17

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence
of an employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for
whom the services are performed reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end. In addition to the standard of right-of-control, the existing economic conditions prevailing
between the parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an
employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the
parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are
instances when, aside from the employer’s power to control the employee with respect to the means and methods by
which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive
analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or
some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer’s power to control
the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying
economic realities of the activity or relationship. 

This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of
circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this
case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of
the relationship based on the various positions and responsibilities given to the worker over the period of the latter’s
employment.

The control test initially found application in the case of Viaña v. Al-Lagadan and Piga, 19 and lately in Leonardo v. Court
of Appeals, 20 where we held that there is an employer-employee relationship when the person for whom the services are
performed reserves the right to control not only the end achieved but also the manner and means used to achieve that
end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions prevailing between
the parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer
picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic
circumstances of the worker.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the
whole economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employer’s
business; (2) the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control
exercised by the employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or
foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the
relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for
his continued employment in that line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his
continued employment in that line of business. 24 In the United States, the touchstone of economic reality in analyzing
possible employment relationships for purposes of the Federal Labor Standards Act is dependency.  25 By analogy, the
benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to
be the economic dependence of the worker on his employer.

By applying the control test, there is no doubt that petitioner is an employee of Kasei Corporation because she was under
the direct control and supervision of Seiji Kamura, the corporation’s Technical Consultant. She reported for work regularly
and served in various capacities as Accountant, Liaison Officer, Technical Consultant, Acting Manager and Corporate
Secretary, with substantially the same job functions, that is, rendering accounting and tax services to the company and
performing functions necessary and desirable for the proper operation of the corporation such as securing business
permits and other licenses over an indefinite period of engagement. 

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation
because she had served the company for six years before her dismissal, receiving check vouchers indicating her
salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security
contributions from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager,
respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as
manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and
the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee
relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment
in the latter’s line of business.

In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is
provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that
issues it. Together with the cash vouchers covering petitioner’s salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter
were the former’s employees. The coverage of Social Security Law is predicated on the existence of an employer-
employee relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as
Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioner’s job was
as Kamura’s direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction
permits, license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with
corporate documents of the company, nor required to attend the meeting of the corporation. She was never privy to the
preparation of any document for the corporation, although once in a while she was required to sign prepared
documentation for the company. 30

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly
withdrawn by Kamura himself from the records of the case. 31 Regardless of this fact, we are convinced that the
allegations in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any
retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would
make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A
recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test
of credibility and should be received with caution. 33

Based on the foregoing, there can be no other conclusion that petitioner is an employee of respondent Kasei Corporation.
She was selected and engaged by the company for compensation, and is economically dependent upon respondent for
her continued employment in that line of business. Her main job function involved accounting and tax services rendered to
respondent corporation on a regular basis over an indefinite period of engagement. Respondent corporation hired and
engaged petitioner for compensation, with the power to dismiss her for cause. More importantly, respondent corporation
had the power to control petitioner with the means and methods by which the work is to be accomplished. 

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to
September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages.
Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an
involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible,
unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination,
insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-
Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an
unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to
continue working for her employer. Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even
as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are
mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would
enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum
aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of
social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of Appeals dated October 29, 2004
and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the
National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is  REINSTATED. The case
is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Francisco’s full backwages from the time
she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay
for every year of service, where a fraction of at least six months shall be considered as one whole year.
GREGORIO V. TONGKO vs THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC (Jan 25 2011)

FACTS: Taking from the November 2008 decision, the facts are as follows:

Manufacturers Life Insurance, Co. is a domestic corporation engaged in life insurance business. De Dios was its
President and Chief Executive Officer. Petitioner Tongko started his relationship with Manulife in 1977 by virtue of a
Career Agent's Agreement.

Pertinent provisions of the agreement state that:

It is understood and agreed that the Agent is an independent contractor and nothing contained herein shall be construed
or interpreted as creating an employer-employee relationship between the Company and the Agent.

a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and other products offered by the
Company, and collect, in exchange for provisional receipts issued by the Agent, money due or to become due to the
Company in respect of applications or policies obtained by or through the Agent or from policyholders allotted by the
Company to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company as
evidenced by an Official Receipt issued by the Company directly to the policyholder.

b) The Company may terminate this Agreement for any breach or violation of any of the provisions hereof by the Agent by
giving written notice to the Agent within fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to terminate this Agreement by the Company shall
be construed for any previous failure to exercise its right under any provision of this Agreement.

c) Either of the parties hereto may likewise terminate his Agreement at any time without cause, by giving to the other party
fifteen (15) days notice in writing.

Sometime in 2001, De Dios addressed a letter to Tongko, then one of the Metro North Managers, regarding meetings
wherein De Dios found Tongko's views and comments to be unaligned with the directions the company was taking. De
Dios also expressed his concern regarding the Metro North Managers' interpretation of the company's goals. He
maintains that Tongko's allegations are unfounded. Some allegations state that some Managers are unhappy with their
earnings, that they're earning less than what they deserve and that these are the reasons why Tonko's division is unable
to meet agency development objectives. However, not a single Manager came forth to confirm these allegations. Finally,
De Dios related his worries about Tongko's inability to push for company development and growth.

De Dios subsequently sent Tongko a letter of termination in accordance with Tongko's Agents Contract. Tongko filed a
complaint with the NLRC against Manulife for illegal dismissal, alleging that he had an employer-employee relationship
with De Dios instead of a revocable agency by pointing out that the latter exercised control over him through directives
regarding how to manage his area of responsibility and setting objectives for him relating to the business. Tongko also
claimed that his dismissal was without basis and he was not afforded due process. The NLRC ruled that there was an
employer-employee relationship as evidenced by De Dios's letter which contained the manner and means by which
Tongko should do his work. The NLRC ruled in favor of Tongko, affirming the existence of the employer-employee
relationship.

The Court of Appeals, however, set aside the NLRC's ruling. It applied the four-fold test for determining control and found
the elements in this case to be lacking, basing its decision on the same facts used by the NLRC. It found that Manulife did
not exert control over Tongko, there was no employer-employee relationship and thus the NLRC did not have jurisdiction
over the case.

The Supreme Court reversed the ruling of the Court of Appeals and ruled in favor of Tongko. However, the Supreme
Court issued another Resolution dated June 29, 2010, reversing its decision. Tongko filed a motion for reconsideration,
which is now the subject of the instant case.

ISSUE: Did the Supreme Court err in issuing the June 29, 2010 resolution, reversing its earlier decision that an
employer-employee relationship existed?

HELD: The Supreme Court finds no reason to reverse the June 29, 2010 decision. Control over the performance of the
task of one providing service both with respect to the means and manner, and the results of the service is the primary
element in determining whether an employment relationship exists. The Supreme Court ruled petitioners Motion against
his favor since he failed to show that the control Manulife exercised over him was the control required to exist in an
employer-employee relationship; Manulifes control fell short of this norm and carried only the characteristic of the
relationship between an insurance company and its agents, as defined by the Insurance Code and by the law of agency
under the Civil Code.

In the Supreme Courts June 29, 2010 Resolution, they noted that there are built-in elements of control specific to an
insurance agency, which do not amount to the elements of control that characterize an employment relationship governed
by the Labor Code.The Insurance Code provides definite parameters in the way an agent negotiates for the sale of the
companys insurance products, his collection activities and his delivery of the insurance contract or policy. They do not
reach the level of control into the means and manner of doing an assigned task that invariably characterizes an
employment relationship as defined by labor law.

To reiterate, guidelines indicative of labor law "control" do not merely relate to the mutually desirable result intended by
the contractual relationship; they must have the nature of dictating the means and methods to be employed in attaining
the result. Tested by this norm, Manulifes instructions regarding the objectives and sales targets, in connection with the
training and engagement of other agents, are among the directives that the principal may impose on the agent to achieve
the assigned tasks.They are targeted results that Manulife wishes to attain through its agents. Manulifes codes of
conduct, likewise, do not necessarily intrude into the insurance agents means and manner of conducting their sales.
Codes of conduct are norms or standards of behavior rather than employer directives into how specific tasks are to be
done.

In sum, the Supreme Court found absolutely no evidence of labor law control. DENIED.
MATLING INDUSTRIAL AND COMMERCIAL CORPORATION, RICHARD K. SPENCER, CATHERINE SPENCER,
AND ALEX MANCILLA vs RICARDO R. COROS

This case reprises the jurisdictional conundrum of whether a complaint for illegal dismissal is cognizable by the Labor
Arbiter (LA) or by the Regional Trial Court (RTC). The determination of whether the dismissed officer was a regular
employee or a corporate officer unravels the conundrum. In the case of the regular employee, the LA has jurisdiction;
otherwise, the RTC exercises the legal authority to adjudicate. 

In this appeal via petition for review on certiorari, the petitioners challenge the decision dated September 13, 2002 1and the
resolution dated April 2, 2003,2 both promulgated in C.A.-G.R. SP No. 65714 entitled Matling Industrial and Commercial
Corporation, et al. v. Ricardo R. Coros and National Labor Relations Commission, whereby by the Court of Appeals (CA)
sustained the ruling of the National Labor Relations Commission (NLRC) to the effect that the LA had jurisdiction because
the respondent was not a corporate officer of petitioner Matling Industrial and Commercial Corporation (Matling).

Antecedents

After his dismissal by Matling as its Vice President for Finance and Administration, the respondent filed on August 10,
2000 a complaint for illegal suspension and illegal dismissal against Matling and some of its corporate officers
(petitioners) in the NLRC, Sub-Regional Arbitration Branch XII, Iligan City. 3

The petitioners moved to dismiss the complaint,4 raising the ground, among others, that the complaint pertained to the
jurisdiction of the Securities and Exchange Commission (SEC) due to the controversy being intra-corporate inasmuch as
the respondent was a member of Matling’s Board of Directors aside from being its Vice-President for Finance and
Administration prior to his termination. 

The respondent opposed the petitioners’ motion to dismiss, 5 insisting that his status as a member of Matling’s Board of
Directors was doubtful, considering that he had not been formally elected as such; that he did not own a single share of
stock in Matling, considering that he had been made to sign in blank an undated indorsement of the certificate of stock he
had been given in 1992; that Matling had taken back and retained the certificate of stock in its custody; and that even
assuming that he had been a Director of Matling, he had been removed as the Vice President for Finance and
Administration, not as a Director, a fact that the notice of his termination dated April 10, 2000 showed. 

On October 16, 2000, the LA granted the petitioners’ motion to dismiss, 6 ruling that the respondent was a corporate officer
because he was occupying the position of Vice President for Finance and Administration and at the same time was a
Member of the Board of Directors of Matling; and that, consequently, his removal was a corporate act of Matling and the
controversy resulting from such removal was under the jurisdiction of the SEC, pursuant to Section 5, paragraph (c) of
Presidential Decree No. 902.

Ruling of the NLRC

The respondent appealed to the NLRC,7 urging that:

THE HONORABLE LABOR ARBITER COMMITTED GRAVE ABUSE OF DISCRETION GRANTING APPELLEE’S
MOTION TO DISMISS WITHOUT GIVING THE APPELLANT AN OPPORTUNITY TO FILE HIS OPPOSITION THERETO
THEREBY VIOLATING THE BASIC PRINCIPLE OF DUE PROCESS.

II

THE HONORABLE LABOR ARBITER COMMITTED AN ERROR IN DISMISSING THE CASE FOR LACK OF
JURISDICTION.

On March 13, 2001, the NLRC set aside the dismissal, concluding that the respondent’s complaint for illegal dismissal
was properly cognizable by the LA, not by the SEC, because he was not a corporate officer by virtue of his position in
Matling, albeit high ranking and managerial, not being among the positions listed in Matling’s Constitution and By-
Laws.8 The NLRC disposed thuswise:
WHEREFORE, the Order appealed from is SET ASIDE. A new one is entered declaring and holding that the case at
bench does not involve any intracorporate matter. Hence, jurisdiction to hear and act on said case is vested with the
Labor Arbiter, not the SEC, considering that the position of Vice-President for Finance and Administration being held by
complainant-appellant is not listed as among respondent's corporate officers.

Accordingly, let the records of this case be REMANDED to the Arbitration Branch of origin in order that the Labor Arbiter
below could act on the case at bench, hear both parties, receive their respective evidence and position papers fully
observing the requirements of due process, and resolve the same with reasonable dispatch. 

SO ORDERED.

The petitioners sought reconsideration,9 reiterating that the respondent, being a member of the Board of Directors, was a
corporate officer whose removal was not within the LA’s jurisdiction. 

The petitioners later submitted to the NLRC in support of the motion for reconsideration the certified machine copies of
Matling’s Amended Articles of Incorporation and By Laws to prove that the President of Matling was thereby granted "full
power to create new offices and appoint the officers thereto, and the minutes of special meeting held on June 7, 1999 by
Matling’s Board of Directors to prove that the respondent was, indeed, a Member of the Board of Directors. 10

Nonetheless, on April 30, 2001, the NLRC denied the petitioners’ motion for reconsideration. 11

Ruling of the CA

The petitioners elevated the issue to the CA by petition for certiorari, docketed as C.A.-G.R. No. SP 65714, contending
that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction in reversing the correct decision of
the LA.

In its assailed decision promulgated on September 13, 2002, 12 the CA dismissed the petition for certiorari, explaining:

For a position to be considered as a corporate office, or, for that matter, for one to be considered as a corporate officer,
the position must, if not listed in the by-laws, have been created by the corporation's board of directors, and the occupant
thereof appointed or elected by the same board of directors or stockholders. This is the implication of the ruling in Tabang
v. National Labor Relations Commission, which reads:

"The president, vice president, secretary and treasurer are commonly regarded as the principal or executive officers of a
corporation, and modern corporation statutes usually designate them as the officers of the corporation. However,  other
offices are sometimes created by the charter or by-laws of a corporation, or the board of directors may be empowered
under the by-laws of a corporation to create additional offices as may be necessary.

It has been held that an 'office' is created by the charter of the corporation and the officer is elected by the directors or
stockholders. On the other hand, an 'employee' usually occupies no office and generally is employed not by action of the
directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid
to such employee."

This ruling was reiterated in the subsequent cases of Ongkingco v. National Labor Relations Commission  and De Rossi
v. National Labor Relations Commission. 

The position of vice-president for administration and finance, which Coros used to hold in the corporation, was not created
by the corporation’s board of directors but only by its president or executive vice-president pursuant to the by-laws of the
corporation. Moreover, Coros’ appointment to said position was not made through any act of the board of directors or
stockholders of the corporation. Consequently, the position to which Coros was appointed and later on removed from, is
not a corporate office despite its nomenclature, but an ordinary office in the corporation. 

Coros’ alleged illegal dismissal therefrom is, therefore, within the jurisdiction of the labor arbiter.

WHEREFORE, the petition for certiorari is hereby DISMISSED.

SO ORDERED.
The CA denied the petitioners’ motion for reconsideration on April 2, 2003. 13

Issue

Thus, the petitioners are now before the Court for a review on certiorari, positing that the respondent was a
stockholder/member of the Matling’s Board of Directors as well as its Vice President for Finance and Administration; and
that the CA consequently erred in holding that the LA had jurisdiction. 

The decisive issue is whether the respondent was a corporate officer of Matling or not. The resolution of the issue
determines whether the LA or the RTC had jurisdiction over his complaint for illegal dismissal. 

Ruling

The appeal fails.

The Law on Jurisdiction in Dismissal Cases

As a rule, the illegal dismissal of an officer or other employee of a private employer is properly cognizable by the LA. This
is pursuant to Article 217 (a) 2 of the Labor Code, as amended, which provides as follows:

Article 217. Jurisdiction of the Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code,
the Labor Arbiters 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 non-agricultural: 

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 (₱5,000.00) regardless of whether
accompanied with a claim for reinstatement.

(b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. 

(c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising
from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by
referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements.
(As amended by Section 9, Republic Act No. 6715, March 21, 1989).

Where the complaint for illegal dismissal concerns a corporate officer, however, the controversy falls under the jurisdiction
of the Securities and Exchange Commission (SEC), because the controversy arises out of intra-corporate or partnership
relations between and among stockholders, members, or associates, or between any or all of them and the corporation,
partnership, or association of which they are stockholders, members, or associates, respectively; and between such
corporation, partnership, or association and the State insofar as the controversy concerns their individual franchise or right
to exist as such entity; or because the controversy involves the election or appointment of a director, trustee, officer, or
manager of such corporation, partnership, or association. 14 Such controversy, among others, is known as an intra-
corporate dispute.

Effective on August 8, 2000, upon the passage of Republic Act No. 8799, 15 otherwise known as The Securities Regulation
Code, the SEC’s jurisdiction over all intra-corporate disputes was transferred to the RTC, pursuant to Section 5.2 of RA
No. 8799, to wit:

5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is hereby
transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the Supreme Court
in the exercise of its authority may designate the Regional Trial Court branches that shall exercise jurisdiction over these
cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate disputes submitted for final
resolution which should be resolved within one (1) year from the enactment of this Code. The Commission shall retain
jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June 2000 until finally disposed.

Considering that the respondent’s complaint for illegal dismissal was commenced on August 10, 2000, it might come
under the coverage of Section 5.2 of RA No. 8799, supra, should it turn out that the respondent was a corporate, not a
regular, officer of Matling.

II

Was the Respondent’s Position of Vice President 

for Administration and Finance a Corporate Office?

We must first resolve whether or not the respondent’s position as Vice President for Finance and Administration was a
corporate office. If it was, his dismissal by the Board of Directors rendered the matter an intra-corporate dispute
cognizable by the RTC pursuant to RA No. 8799. 

The petitioners contend that the position of Vice President for Finance and Administration was a corporate office, having
been created by Matling’s President pursuant to By-Law No. V, as amended, 16 to wit:

BY LAW NO. V
Officers

The President shall be the executive head of the corporation; shall preside over the meetings of the stockholders and
directors; shall countersign all certificates, contracts and other instruments of the corporation as authorized by the Board
of Directors; shall have full power to hire and discharge any or all employees of the corporation; shall have full power to
create new offices and to appoint the officers thereto as he may deem proper and necessary in the operations of the
corporation and as the progress of the business and welfare of the corporation may demand; shall make reports to the
directors and stockholders and perform all such other duties and functions as are incident to his office or are properly
required of him by the Board of Directors. In case of the absence or disability of the President, the Executive Vice
President shall have the power to exercise his functions.

The petitioners argue that the power to create corporate offices and to appoint the individuals to assume the offices was
delegated by Matling’s Board of Directors to its President through By-Law No. V, as amended; and that any office the
President created, like the position of the respondent, was as valid and effective a creation as that made by the Board of
Directors, making the office a corporate office. In justification, they cite Tabang v. National Labor Relations
Commission,17 which held that "other offices are sometimes created by the charter or by-laws of a corporation, or the
board of directors may be empowered under the by-laws of a corporation to create additional officers as may be
necessary." 

The respondent counters that Matling’s By-Laws did not list his position as Vice President for Finance and Administration
as one of the corporate offices; that Matling’s By-Law No. III listed only four corporate officers, namely: President,
Executive Vice President, Secretary, and Treasurer; 18 that the corporate offices contemplated in the phrase "and such
other officers as may be provided for in the by-laws" found in Section 25 of the Corporation Code should be clearly and
expressly stated in the By-Laws; that the fact that Matling’s By-Law No. III dealt with Directors & Officers while its By-Law
No. V dealt with Officers proved that there was a differentiation between the officers mentioned in the two provisions, with
those classified under By-Law No. V being ordinary or non-corporate officers; and that the officer, to be considered as a
corporate officer, must be elected by the Board of Directors or the stockholders, for the President could only appoint an
employee to a position pursuant to By-Law No. V.
We agree with respondent. 

Section 25 of the Corporation Code provides:

Section 25. Corporate officers, quorum.--Immediately after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a secretary
who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws.
Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as president and
secretary or as president and treasurer at the same time. 

The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of
the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the number
of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of corporate
business, and every decision of at least a majority of the directors or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a majority of all
the members of the board. 

Directors or trustees cannot attend or vote by proxy at board meetings. 

Conformably with Section 25, a position must be expressly mentioned in the By-Laws in order to be considered as a
corporate office. Thus, the creation of an office pursuant to or under a By-Law enabling provision is not enough to make a
position a corporate office. Guerrea v. Lezama, 19 the first ruling on the matter, held that the only officers of a corporation
were those given that character either by the Corporation Code or by the By-Laws; the rest of the corporate officers could
be considered only as employees or subordinate officials. Thus, it was held in Easycall Communications Phils., Inc. v.
King:20

An "office" is created by the charter of the corporation and the officer is elected by the directors or stockholders. On the
other hand, an employee occupies no office and generally is employed not by the action of the directors or stockholders
but by the managing officer of the corporation who also determines the compensation to be paid to such employee.

In this case, respondent was appointed vice president for nationwide expansion by Malonzo, petitioner’'s general
manager, not by the board of directors of petitioner. It was also Malonzo who determined the compensation package of
respondent. Thus, respondent was an employee, not a "corporate officer." The CA was therefore correct in ruling that
jurisdiction over the case was properly with the NLRC, not the SEC (now the RTC). 

This interpretation is the correct application of Section 25 of the Corporation Code, which plainly states that the corporate
officers are the President, Secretary, Treasurer and such other officers as may be provided for in the By-Laws.
Accordingly, the corporate officers in the context of PD No. 902-A are exclusively those who are given that character
either by the Corporation Code or by the corporation’s By-Laws. 

A different interpretation can easily leave the way open for the Board of Directors to circumvent the constitutionally
guaranteed security of tenure of the employee by the expedient inclusion in the By-Laws of an enabling clause on the
creation of just any corporate officer position. 

It is relevant to state in this connection that the SEC, the primary agency administering the Corporation Code, adopted a
similar interpretation of Section 25 of the Corporation Code in its Opinion dated November 25, 1993, 21 to wit:

Thus, pursuant to the above provision (Section 25 of the Corporation Code), whoever are the corporate officers
enumerated in the by-laws are the exclusive Officers of the corporation and the Board has no power to create other
Offices without amending first the corporate By-laws. However, the Board may create appointive positions other than
the positions of corporate Officers, but the persons occupying such positions are not considered as corporate
officers within the meaning of Section 25 of the Corporation Code and are not empowered to exercise the functions
of the corporate Officers, except those functions lawfully delegated to them. Their functions and duties are to be
determined by the Board of Directors/Trustees. 

Moreover, the Board of Directors of Matling could not validly delegate the power to create a corporate office to the
President, in light of Section 25 of the Corporation Code requiring the Board of Directors itself to elect the corporate
officers. Verily, the power to elect the corporate officers was a discretionary power that the law exclusively vested in the
Board of Directors, and could not be delegated to subordinate officers or agents. 22 The office of Vice President for Finance
and Administration created by Matling’s President pursuant to By Law No. V was an ordinary, not a corporate, office. 
To emphasize, the power to create new offices and the power to appoint the officers to occupy them vested by By-Law
No. V merely allowed Matling’s President to create non-corporate offices to be occupied by ordinary employees of
Matling. Such powers were incidental to the President’s duties as the executive head of Matling to assist him in the daily
operations of the business. 

The petitioners’ reliance on Tabang, supra, is misplaced. The statement in Tabang, to the effect that offices not expressly
mentioned in the By-Laws but were created pursuant to a By-Law enabling provision were also considered corporate
offices, was plainly obiter dictum due to the position subject of the controversy being mentioned in the By-Laws. Thus, the
Court held therein that the position was a corporate office, and that the determination of the rights and liabilities arising
from the ouster from the position was an intra-corporate controversy within the SEC’s jurisdiction. 

In Nacpil v. Intercontinental Broadcasting Corporation, 23 which may be the more appropriate ruling, the position subject of
the controversy was not expressly mentioned in the By-Laws, but was created pursuant to a By-Law enabling provision
authorizing the Board of Directors to create other offices that the Board of Directors might see fit to create. The Court held
there that the position was a corporate office, relying on the obiter dictum  in Tabang.

Considering that the observations earlier made herein show that the soundness of their dicta is not
unassailable, Tabang and  Nacpil should no longer be controlling.

III

Did Respondent’s Status as Director and 

Stockholder Automatically Convert his Dismissal 
into an Intra-Corporate Dispute?

Yet, the petitioners insist that because the respondent was a Director/stockholder of Matling, and relying on  Paguio v.
National Labor Relations Commission 24 and Ongkingko v. National Labor Relations Commission, 25 the NLRC had no
jurisdiction over his complaint, considering that any case for illegal dismissal brought by a stockholder/officer against the
corporation was an intra-corporate matter that must fall under the jurisdiction of the SEC conformably with the context of
PD No. 902-A.

The petitioners’ insistence is bereft of basis.

To begin with, the reliance on Paguio and Ongkingko  is misplaced. In both rulings, the complainants were undeniably
corporate officers due to their positions being expressly mentioned in the By-Laws, aside from the fact that both of them
had been duly elected by the respective Boards of Directors. But the herein respondent’s position of Vice President for
Finance and Administration was not expressly mentioned in the By-Laws; neither was the position of Vice President for
Finance and Administration created by Matling’s Board of Directors. Lastly, the President, not the Board of Directors,
appointed him.

True it is that the Court pronounced in Tabang as follows:

Also, an intra-corporate controversy is one which arises between a stockholder and the corporation. There is no
distinction, qualification or any exemption whatsoever. The provision is broad and covers all kinds of controversies
between stockholders and corporations.26

However, the Tabang pronouncement is not controlling because it is too sweeping and does not accord with reason,
justice, and fair play. 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 the question
that is the subject of their controversy. This was our thrust in Viray v. Court of Appeals:27

The establishment of any of the relationships mentioned above will not necessarily always confer jurisdiction over the
dispute on the SEC to the exclusion of regular courts. The statement made in one case that the rule admits of no
exceptions or distinctions is not that absolute. The better policy in determining which body has jurisdiction over a case
would be to consider not only the status or relationship of the parties but also the nature of the question that is the subject
of their controversy.

Not every conflict between a corporation and its stockholders involves corporate matters that only the SEC can resolve in
the exercise of its adjudicatory or quasi-judicial powers. If, for example, a person leases an apartment owned by a
corporation of which he is a stockholder, there should be no question that a complaint for his ejectment for non-payment
of rentals would still come under the jurisdiction of the regular courts and not of the SEC. By the same token, if one
person injures another in a vehicular accident, the complaint for damages filed by the victim will not come under the
jurisdiction of the SEC simply because of the happenstance that both parties are stockholders of the same corporation. A
contrary interpretation would dissipate the powers of the regular courts and distort the meaning and intent of PD No. 902-
A.

In another case, Mainland Construction Co., Inc. v. Movilla,28 the Court reiterated these determinants thuswise:

In order that the SEC (now the regular courts) can take cognizance of a case, the controversy must pertain to any of the
following relationships: 

a) between the corporation, partnership or association and the public; 

b) between the corporation, partnership or association and its stockholders, partners, members or officers; 

c) between the corporation, partnership or association and the State as far as its franchise, permit or license to
operate is concerned; and 

d) among the stockholders, partners or associates themselves. 

The fact that the parties involved in the controversy are all stockholders or that the parties involved are the stockholders
and the corporation does not necessarily place the dispute within the ambit of the jurisdiction of SEC. The better policy to
be followed in determining jurisdiction over a case should be to consider concurrent factors such as the status or
relationship of the parties or the nature of the question that is the subject of their controversy. In the absence of any one of
these factors, the SEC will not have jurisdiction. Furthermore, it does not necessarily follow that every conflict between the
corporation and its stockholders would involve such corporate matters as only the SEC can resolve in the exercise of its
adjudicatory or quasi-judicial powers.29

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. In the respondent’s case, he was supposedly at once an
employee, a stockholder, and a Director of Matling. The circumstances surrounding his appointment to office must be fully
considered to determine whether the dismissal constituted an intra-corporate controversy or a labor termination dispute.
We must also consider whether his status as Director and stockholder had any relation at all to his appointment and
subsequent dismissal as Vice President for Finance and Administration.

Obviously enough, the respondent was not appointed as Vice President for Finance and Administration because of his
being a stockholder or Director of Matling. He had started working for Matling on September 8, 1966, and had been
employed continuously for 33 years until his termination on April 17, 2000, first as a bookkeeper, and his climb in 1987 to
his last position as Vice President for Finance and Administration had been gradual but steady, as the following sequence
indicates:

1966 – Bookkeeper

1968 – Senior Accountant

1969 – Chief Accountant

1972 – Office Supervisor

1973 – Assistant Treasurer

1978 – Special Assistant for Finance

1980 – Assistant Comptroller

1983 – Finance and Administrative Manager

 1985 – Asst. Vice President for Finance and Administration

1987 to April 17, 2000 – Vice President for Finance and Administration

Even though he might have become a stockholder of Matling in 1992, his promotion to the position of Vice President for
Finance and Administration in 1987 was by virtue of the length of quality service he had rendered as an employee of
Matling. His subsequent acquisition of the status of Director/stockholder had no relation to his promotion. Besides, his
status of Director/stockholder was unaffected by his dismissal from employment as Vice President for Finance and
Administration.1avvphi1

In Prudential Bank and Trust Company v. Reyes, 30 a case involving a lady bank manager who had risen from the ranks
but was dismissed, the Court held that her complaint for illegal dismissal was correctly brought to the NLRC, because she
was deemed a regular employee of the bank. The Court observed thus:

It appears that private respondent was appointed Accounting Clerk by the Bank on July 14, 1963. From that position she
rose to become supervisor. Then in 1982, she was appointed Assistant Vice-President which she occupied until her illegal
dismissal on July 19, 1991. The bank’s contention that she merely holds an elective position and that in effect she
is not a regular employee is belied by the nature of her work and her length of service with the Bank. As earlier
stated, she rose from the ranks and has been employed with the Bank since 1963 until the termination of her employment
in 1991. As Assistant Vice President of the Foreign Department of the Bank, she is tasked, among others, to collect
checks drawn against overseas banks payable in foreign currency and to ensure the collection of foreign bills or checks
purchased, including the signing of transmittal letters covering the same. It has been stated that "the primary standard of
determining regular employment is the reasonable connection between the particular activity performed by the employee
in relation to the usual trade or business of the employer. Additionally, "an employee is regular because of the nature of
work and the length of service, not because of the mode or even the reason for hiring them." As Assistant Vice-President
of the Foreign Department of the Bank she performs tasks integral to the operations of the bank and her length of service
with the bank totaling 28 years speaks volumes of her status as a regular employee of the bank. In fine, as a regular
employee, she is entitled to security of tenure; that is, her services may be terminated only for a just or authorized cause.
This being in truth a case of illegal dismissal, it is no wonder then that the Bank endeavored to the very end to establish
loss of trust and confidence and serious misconduct on the part of private respondent but, as will be discussed later, to no
avail. 
RAUL C. COSARE vs BROADCOM ASIA, INC. and DANTE AREVALO

Before the Court is a petition for review on certiorari 1 under Rule 45 of the Rules of Court, which assails the
Decision2 dated November 24, 2011 and Resolution 3 dated March 26, 2012 of the Court of Appeals (CA) in CA-G.R. SP.
No. 117356, wherein the CA ruled that the Regional Trial Court (RTC), and not the Labor Arbiter (LA), had the jurisdiction
over petitioner Raul C. Cosare's (Cosare) complaint for illegal dismissal against Broadcom Asia, Inc. (Broadcom) and
Dante Arevalo (Arevalo), the President of Broadcom (respondents).

The Antecedents

The case stems from a complaint 4 for constructive dismissal, illegal suspension and monetary claims filed with the
National Capital Region Arbitration Branch of the National Labor Relations Commission (NLRC) by Cosare against the
respondents.

Cosare claimed that sometime in April 1993, he was employed as a salesman by Arevalo, who was then in the business
of selling broadcast equipment needed by television networks and production houses. In December 2000, Arevalo set up
the company Broadcom, still to continue the business of trading communication and broadcast equipment. Cosare was
named an incorporator of Broadcom, having been assigned 100 shares of stock with par value of ₱1.00 per share. 5 In
October 2001, Cosare was promoted to the position of Assistant Vice President for Sales (AVP for Sales) and Head of the
Technical Coordination, having a monthly basic net salary and average commissions of ₱18,000.00 and ₱37,000.00,
respectively.6

Sometime in 2003, Alex F. Abiog (Abiog) was appointed as Broadcom’s Vice President for Sales and thus, became
Cosare’s immediate superior. On March 23, 2009, Cosare sent a confidential memo 7 to Arevalo to inform him of the
following anomalies which were allegedly being committed by Abiog against the company: (a) he failed to report to work
on time, and would immediately leave the office on the pretext of client visits; (b) he advised the clients of Broadcom to
purchase camera units from its competitors, and received commissions therefor; (c) he shared in the "under the-table
dealings" or "confidential commissions" which Broadcom extended to its clients’ personnel and engineers; and (d) he
expressed his complaints and disgust over Broadcom’s uncompetitive salaries and wages and delay in the payment of
other benefits, even in the presence of office staff. Cosare ended his memo by clarifying that he was not interested in
Abiog’s position, but only wanted Arevalo to know of the irregularities for the corporation’s sake.

Apparently, Arevalo failed to act on Cosare’s accusations. Cosare claimed that he was instead called for a meeting by
Arevalo on March 25, 2009, wherein he was asked to tender his resignation in exchange for "financial assistance" in the
amount of ₱300,000.00.8 Cosare refused to comply with the directive, as signified in a letter 9dated March 26, 2009 which
he sent to Arevalo.

On March 30, 2009, Cosare received from Roselyn Villareal (Villareal), Broadcom’s Manager for Finance and
Administration, a memo10 signed by Arevalo, charging him of serious misconduct and willful breach of trust, and providing
in part:

1. A confidential memo was received from the VP for Sales informing me that you had directed, or at the very
least tried to persuade, a customer to purchase a camera from another supplier. Clearly, this action is a gross and
willful violation of the trust and confidence this company has given to you being its AVP for Sales and is an
attempt to deprive the company of income from which you, along with the other employees of this company,
derive your salaries and other benefits. x x x.

2. A company vehicle assigned to you with plate no. UNV 402 was found abandoned in another place outside of
the office without proper turnover from you to this office which had assigned said vehicle to you. The vehicle was
found to be inoperable and in very bad condition, which required that the vehicle be towed to a nearby auto repair
shop for extensive repairs.

3. You have repeatedly failed to submit regular sales reports informing the company of your activities within and
outside of company premises despite repeated reminders. However, it has been observed that you have been
both frequently absent and/or tardy without proper information to this office or your direct supervisor, the VP for
Sales Mr. Alex Abiog, of your whereabouts.
 4. You have been remiss in the performance of your duties as a Sales officer as evidenced by the fact that you
have not recorded any sales for the past immediate twelve (12) months. This was inspite of the fact that my office
decided to relieve you of your duties as technical coordinator between Engineering and Sales since June last year
so that you could focus and concentrate [on] your activities in sales. 11

Cosare was given forty-eight (48) hours from the date of the memo within which to present his explanation on the
charges. He was also "suspended from having access to any and all company files/records and use of company assets
effective immediately."12 Thus, Cosare claimed that he was precluded from reporting for work on March 31, 2009, and was
instead instructed to wait at the office’s receiving section. Upon the specific instructions of Arevalo, he was also prevented
by Villareal from retrieving even his personal belongings from the office.

On April 1, 2009, Cosare was totally barred from entering the company premises, and was told to merely wait outside the
office building for further instructions. When no such instructions were given by 8:00 p.m., Cosare was impelled to seek
the assistance of the officials of Barangay San Antonio, Pasig City, and had the incident reported in the barangay blotter. 13

On April 2, 2009, Cosare attempted to furnish the company with a Memo 14 by which he addressed and denied the
accusations cited in Arevalo’s memo dated March 30, 2009. The respondents refused to receive the memo on the ground
of late filing, prompting Cosare to serve a copy thereof by registered mail. The following day, April 3, 2009, Cosare filed
the subject labor complaint, claiming that he was constructively dismissed from employment by the respondents. He
further argued that he was illegally suspended, as he placed no serious and imminent threat to the life or property of his
employer and co-employees.15

In refuting Cosare’s complaint, the respondents argued that Cosare was neither illegally suspended nor dismissed from
employment. They also contended that Cosare committed the following acts inimical to the interests of Broadcom: (a) he
failed to sell any broadcast equipment since the year 2007; (b) he attempted to sell a Panasonic HMC 150 Camera which
was to be sourced from a competitor; and (c) he made an unauthorized request in Broadcom’s name for its principal,
Panasonic USA, to issue an invitation for Cosare’s friend, one Alex Paredes, to attend the National Association of
Broadcasters’ Conference in Las Vegas, USA. 16 Furthermore, they contended that Cosare abandoned his job 17 by
continually failing to report for work beginning April 1, 2009, prompting them to issue on April 14, 2009 a
memorandum18 accusing Cosare of absence without leave beginning April 1, 2009.

The Ruling of the LA

On January 6, 2010, LA Napoleon M. Menese (LA Menese) rendered his Decision 19 dismissing the complaint on the
ground of Cosare’s failure to establish that he was dismissed, constructively or otherwise, from his employment. For the
LA, what transpired on March 30, 2009 was merely the respondents’ issuance to Cosare of a show-cause memo, giving
him a chance to present his side on the charges against him. He explained:

It is obvious that [Cosare] DID NOT wait for respondents’ action regarding the charges leveled against him in the show-
cause memo. What he did was to pre-empt that action by filing this complaint just a day after he submitted his written
explanation. Moreover, by specifically seeking payment of "Separation Pay" instead of reinstatement, [Cosare’s] motive
for filing this case becomes more evident.20

It was also held that Cosare failed to substantiate by documentary evidence his allegations of illegal suspension and non-
payment of allowances and commissions.

Unyielding, Cosare appealed the LA decision to the NLRC.

The Ruling of the NLRC

On August 24, 2010, the NLRC rendered its Decision 21 reversing the Decision of LA Menese. The dispositive portion of
the NLRC Decision reads:

WHEREFORE, premises considered, the DECISION is REVERSED and the Respondents are found guilty of Illegal
Constructive Dismissal. Respondents BROADCOM ASIA, INC. and Dante Arevalo are ordered to pay [Cosare’s]
backwages, and separation pay, as well as damages, in the total amount of ₱1,915,458.33, per attached Computation.

SO ORDERED.22
In ruling in favor of Cosare, the NLRC explained that "due weight and credence is accorded to [Cosare’s] contention that
he was constructively dismissed by Respondent Arevalo when he was asked to resign from his employment." 23The fact
that Cosare was suspended from using the assets of Broadcom was also inconsistent with the respondents’ claim that
Cosare opted to abandon his employment.

Exemplary damages in the amount of ₱100,000.00 was awarded, given the NLRC’s finding that the termination of
Cosare’s employment was effected by the respondents in bad faith and in a wanton, oppressive and malevolent manner.
The claim for unpaid commissions was denied on the ground of the failure to include it in the prayer of pleadings filed with
the LA and in the appeal.

The respondents’ motion for reconsideration was denied. 24 Dissatisfied, they filed a petition for certiorari with the CA
founded on the following arguments: (1) the respondents did not have to prove just cause for terminating the employment
of Cosare because the latter’s complaint was based on an alleged constructive dismissal; (2) Cosare resigned and was
thus not dismissed from employment; (3) the respondents should not be declared liable for the payment of Cosare’s
monetary claims; and (4) Arevalo should not be held solidarily liable for the judgment award.

In a manifestation filed by the respondents during the pendency of the CA appeal, they raised a new argument, i.e., the
case involved an intra-corporate controversy which was within the jurisdiction of the RTC, instead of the LA. 25They argued
that the case involved a complaint against a corporation filed by a stockholder, who, at the same time, was a corporate
officer.

The Ruling of the CA

On November 24, 2011, the CA rendered the assailed Decision 26 granting the respondents’ petition. It agreed with the
respondents’ contention that the case involved an intra-corporate controversy which, pursuant to Presidential Decree No.
902-A, as amended, was within the exclusive jurisdiction of the RTC. It reasoned:

Record shows that [Cosare] was indeed a stockholder of [Broadcom], and that he was listed as one of its directors.
Moreover, he held the position of [AVP] for Sales which is listed as a corporate office. Generally, the president, vice-
president, secretary or treasurer are commonly regarded as the principal or executive officers of a corporation, and
modern corporation statutes usually designate them as the officers of the corporation. However, it bears mentioning that
under Section 25 of the Corporation Code, the Board of Directors of [Broadcom] is allowed to appoint such other officers
as it may deem necessary. Indeed, [Broadcom’s] By-Laws provides:

Article IV
Officer

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall formally organize by
electing the President, the Vice-President, the Treasurer, and the Secretary at said meeting.

The Board, may, from time to time, appoint such other officers as it may determine to be necessary or proper. x x x

We hold that [the respondents] were able to present substantial evidence that [Cosare] indeed held a corporate office, as
evidenced by the General Information Sheet which was submitted to the Securities and Exchange Commission (SEC) on
October 22, 2009.27 (Citations omitted and emphasis supplied)

Thus, the CA reversed the NLRC decision and resolution, and then entered a new one dismissing the labor complaint on
the ground of lack of jurisdiction, finding it unnecessary to resolve the main issues that were raised in the petition. Cosare
filed a motion for reconsideration, but this was denied by the CA via the Resolution 28 dated March 26, 2012. Hence, this
petition.

The Present Petition

The pivotal issues for the petition’s full resolution are as follows: (1) whether or not the case instituted by Cosare was an
intra-corporate dispute that was within the original jurisdiction of the RTC, and not of the LAs; and (2) whether or not
Cosare was constructively and illegally dismissed from employment by the respondents.

The Court’s Ruling

The petition is impressed with merit.

Jurisdiction over the controversy

As regards the issue of jurisdiction, the Court has determined that contrary to the ruling of the CA, it is the LA, and not the
regular courts, which has the original jurisdiction over the subject controversy. An intra-corporate controversy, which falls
within the jurisdiction of regular courts, has been regarded in its broad sense to pertain to disputes that involve any of the
following relationships: (1) between the corporation, partnership or association and the public; (2) between the
corporation, partnership or association and the state in so far as its franchise, permit or license to operate is concerned;
(3) between the corporation, partnership or association and its stockholders, partners, members or officers; and (4)
among the stockholders, partners or associates, themselves. 29 Settled jurisprudence, however, qualifies that when the
dispute involves a charge of illegal dismissal, the action may fall under the jurisdiction of the LAs upon whose jurisdiction,
as a rule, falls termination disputes and claims for damages arising from employer-employee relations as provided in
Article 217 of the Labor Code. Consistent with this jurisprudence, the mere fact that Cosare was a stockholder and an
officer of Broadcom at the time the subject controversy developed failed to necessarily make the case an intra-corporate
dispute.

In Matling Industrial and Commercial Corporation v. Coros, 30 the Court distinguished between a "regular employee" and a
"corporate officer" for purposes of establishing the true nature of a dispute or complaint for illegal dismissal and
determining which body has jurisdiction over it. Succinctly, it was explained that "[t]he determination of whether the
dismissed officer was a regular employee or corporate officer unravels the conundrum" of whether a complaint for illegal
dismissal is cognizable by the LA or by the RTC. "In case of the regular employee, the LA has jurisdiction; otherwise, the
RTC exercises the legal authority to adjudicate.31

Applying the foregoing to the present case, the LA had the original jurisdiction over the complaint for illegal dismissal
because Cosare, although an officer of Broadcom for being its AVP for Sales, was not a "corporate officer" as the term is
defined by law. We emphasized in Real v. Sangu Philippines, Inc. 32 the definition of corporate officers for the purpose of
identifying an intra-corporate controversy. Citing Garcia v. Eastern Telecommunications Philippines, Inc., 33 we held:

" ‘Corporate officers’ in the context of Presidential Decree No. 902-A are those officers of the corporation who are given
that character by the Corporation Code or by the corporation’s by-laws. There are three specific officers whom a
corporation must have under Section 25 of the Corporation Code. These are the president, secretary and the treasurer.
The number of officers is not limited to these three. A corporation may have such other officers as may be provided for by
its by-laws like, but not limited to, the vice-president, cashier, auditor or general manager. The number of corporate
officers is thus limited by law and by the corporation’s by-laws." 34 (Emphasis ours)

In Tabang v. NLRC,35 the Court also made the following pronouncement on the nature of corporate offices:

It has been held that an "office" is created by the charter of the corporation and the officer is elected by the directors and
stockholders. On the other hand, an "employee" usually occupies no office and generally is employed not by action of the
directors or stockholders but by the managing officer of the corporation who also determines the compensation to be paid
to such employee.36 (Citations omitted)

As may be deduced from the foregoing, there are two circumstances which must concur in order for an individual to be
considered a corporate officer, as against an ordinary employee or officer, namely: (1) the creation of the position is under
the corporation’s charter or by-laws; and (2) the election of the officer is by the directors or stockholders. It is only when
the officer claiming to have been illegally dismissed is classified as such corporate officer that the issue is deemed an
intra-corporate dispute which falls within the jurisdiction of the trial courts.

To support their argument that Cosare was a corporate officer, the respondents referred to Section 1, Article IV of
Broadcom’s by-laws, which reads:

ARTICLE IV
OFFICER

Section 1. Election / Appointment – Immediately after their election, the Board of Directors shall formally organize by
electing the President, the Vice-President, the Treasurer, and the Secretary at said meeting.
The Board may, from time to time, appoint such other officers as it may determine to be necessary or proper. Any two (2)
or more compatible positions may be held concurrently by the same person, except that no one shall act as President and
Treasurer or Secretary at the same time.37 (Emphasis ours)

This was also the CA’s main basis in ruling that the matter was an intra-corporate dispute that was within the trial courts’
jurisdiction.

The Court disagrees with the respondents and the CA. As may be gleaned from the aforequoted provision, the only
officers who are specifically listed, and thus with offices that are created under Broadcom’s by-laws are the following: the
President, Vice-President, Treasurer and Secretary. Although a blanket authority provides for the Board’s appointment of
such other officers as it may deem necessary and proper, the respondents failed to sufficiently establish that the position
of AVP for Sales was created by virtue of an act of Broadcom’s board, and that Cosare was specifically elected or
appointed to such position by the directors. No board resolutions to establish such facts form part of the case records.
Further, it was held in Marc II Marketing, Inc. v. Joson 38 that an enabling clause in a corporation’s by-laws empowering its
board of directors to create additional officers, even with the subsequent passage of a board resolution to that effect,
cannot make such position a corporate office. The board of directors has no power to create other corporate offices
without first amending the corporate by-laws so as to include therein the newly created corporate office. 39 "To allow the
creation of a corporate officer position by a simple inclusion in the corporate by-laws of an enabling clause empowering
the board of directors to do so can result in the circumvention of that constitutionally well-protected right [of every
employee to security of tenure]."40

The CA’s heavy reliance on the contents of the General Information Sheets 41, which were submitted by the respondents
during the appeal proceedings and which plainly provided that Cosare was an "officer" of Broadcom, was clearly
misplaced. The said documents could neither govern nor establish the nature of the office held by Cosare and his
appointment thereto. Furthermore, although Cosare could indeed be classified as an officer as provided in the General
Information Sheets, his position could only be deemed a regular office, and not a corporate office as it is defined under the
Corporation Code. Incidentally, the Court noticed that although the Corporate Secretary of Broadcom, Atty. Efren L.
Cordero, declared under oath the truth of the matters set forth in the General Information Sheets, the respondents failed
to explain why the General Information Sheet officially filed with the Securities and Exchange Commission in 2011 and
submitted to the CA by the respondents still indicated Cosare as an AVP for Sales, when among their defenses in the
charge of illegal dismissal, they asserted that Cosare had severed his relationship with the corporation since the year
2009.

Finally, the mere fact that Cosare was a stockholder of Broadcom at the time of the case’s filing did not necessarily make
the action an intra- corporate controversy. "Not all conflicts between the stockholders and the corporation are classified as
intra-corporate. There are other facts to consider in determining whether the dispute involves corporate matters as to
consider them as intra-corporate controversies." 42 Time and again, the Court has ruled that in determining the existence of
an intra-corporate dispute, the status or relationship of the parties and the nature of the question that is the subject of the
controversy must be taken into account. 43 Considering that the pending dispute particularly relates to Cosare’s rights and
obligations as a regular officer of Broadcom, instead of as a stockholder of the corporation, the controversy cannot be
deemed intra-corporate. This is consistent with the "controversy test" explained by the Court in Reyes v. Hon. RTC, Br.
142,44 to wit:

Under the nature of the controversy test, the incidents of that relationship must also be considered for the purpose of
ascertaining whether the controversy itself is intra-corporate. The controversy must not only be rooted in the existence of
an intra-corporate relationship, but must as well pertain to the enforcement of the parties’ correlative rights and obligations
under the Corporation Code and the internal and intra-corporate regulatory rules of the corporation. If the relationship and
its incidents are merely incidental to the controversy or if there will still be conflict even if the relationship does not exist,
then no intra-corporate controversy exists.45 (Citation omitted)

It bears mentioning that even the CA’s finding 46 that Cosare was a director of Broadcom when the dispute commenced
was unsupported by the case records, as even the General Information Sheet of 2009 referred to in the CA decision to
support such finding failed to provide such detail.

All told, it is then evident that the CA erred in reversing the NLRC’s ruling that favored Cosare solely on the ground that
the dispute was an intra-corporate controversy within the jurisdiction of the regular courts.

The charge of constructive dismissal

Towards a full resolution of the instant case, the Court finds it appropriate to rule on the correctness of the NLRC’s ruling
finding Cosare to have been illegally dismissed from employment.

In filing his labor complaint, Cosare maintained that he was constructively dismissed, citing among other circumstances
the charges that were hurled and the suspension that was imposed against him via Arevalo’s memo dated March 30,
2009. Even prior to such charge, he claimed to have been subjected to mental torture, having been locked out of his files
and records and disallowed use of his office computer and access to personal belongings. 47While Cosare attempted to
furnish the respondents with his reply to the charges, the latter refused to accept the same on the ground that it was filed
beyond the 48-hour period which they provided in the memo.

Cosare further referred to the circumstances that allegedly transpired subsequent to the service of the memo, particularly
the continued refusal of the respondents to allow Cosare’s entry into the company’s premises. These incidents were cited
in the CA decision as follows:

On March 31, 2009, [Cosare] reported back to work again. He asked Villareal if he could retrieve his personal belongings,
but the latter said that x x x Arevalo directed her to deny his request, so [Cosare] again waited at the receiving section of
the office. On April 1, 2009, [Cosare] was not allowed to enter the office premises. He was asked to just wait outside of
the Tektite (PSE) Towers, where [Broadcom] had its offices, for further instructions on how and when he could get his
personal belongings. [Cosare] waited until 8 p.m. for instructions but none were given. Thus, [Cosare] sought the
assistance of the officials of Barangay San Antonio, Pasig who advised him to file a labor or replevin case to recover his
personal belongings. x x x.48 (Citation omitted)

It is also worth mentioning that a few days before the issuance of the memo dated March 30, 2009, Cosare was allegedly
summoned to Arevalo’s office and was asked to tender his immediate resignation from the company, in exchange for a
financial assistance of ₱300,000.00.49 The directive was said to be founded on Arevalo’s choice to retain Abiog’s
employment with the company.50 The respondents failed to refute these claims.

Given the circumstances, the Court agrees with Cosare’s claim of constructive and illegal dismissal. "[C]onstructive
dismissal occurs when there is cessation of work because continued employment is rendered impossible, unreasonable,
or unlikely as when there is a demotion in rank or diminution in pay or when a clear discrimination, insensibility, or disdain
by an employer becomes unbearable to the employee leaving the latter with no other option but to quit." 51 In Dimagan v.
Dacworks United, Incorporated,52 it was explained:

The test of constructive dismissal is whether a reasonable person in the employee’s position would have felt compelled to
give up his position under the circumstances. It is an act amounting to dismissal but is made to appear as if it were not.
Constructive dismissal is therefore a dismissal in disguise. The law recognizes and resolves this situation in favor of
employees in order to protect their rights and interests from the coercive acts of the employer. 53(Citation omitted)

It is clear from the cited circumstances that the respondents already rejected Cosare’s continued involvement with the
company. Even their refusal to accept the explanation which Cosare tried to tender on April 2, 2009 further evidenced the
resolve to deny Cosare of the opportunity to be heard prior to any decision on the termination of his employment. The
respondents allegedly refused acceptance of the explanation as it was filed beyond the mere 48-hour period which they
granted to Cosare under the memo dated March 30, 2009. However, even this limitation was a flaw in the memo or notice
to explain which only further signified the respondents’ discrimination, disdain and insensibility towards Cosare, apparently
resorted to by the respondents in order to deny their employee of the opportunity to fully explain his defenses and
ultimately, retain his employment. The Court emphasized in King of Kings Transport, Inc. v. Mamac 54 the standards to be
observed by employers in complying with the service of notices prior to termination:

[T]he first written notice to be served on the employees should contain the specific causes or grounds for termination
against them, and a directive that the employees are given the opportunity to submit their written explanation within a
reasonable period. "Reasonable opportunity" under the Omnibus Rules means every kind of assistance that management
must accord to the employees to enable them to prepare adequately for their defense. This should be construed as a
period of at least five (5) calendar days from receipt of the notice to give the employees an opportunity to study the
accusation against them, consult a union official or lawyer, gather data and evidence, and decide on the defenses they
will raise against the complaint. Moreover, in order to enable the employees to intelligently prepare their explanation and
defenses, the notice should contain a detailed narration of the facts and circumstances that will serve as basis for the
charge against the employees. A general description of the charge will not suffice. Lastly, the notice should specifically
mention which company rules, if any, are violated and/or which among the grounds under Art. 282 is being charged
against the employees.55 (Citation omitted, underscoring ours, and emphasis supplied)
In sum, the respondents were already resolute on a severance of their working relationship with Cosare, notwithstanding
the facts which could have been established by his explanations and the respondents’ full investigation on the matter. In
addition to this, the fact that no further investigation and final disposition appeared to have been made by the respondents
on Cosare’s case only negated the claim that they actually intended to first look into the matter before making a final
determination as to the guilt or innocence of their employee. This also manifested from the fact that even before Cosare
was required to present his side on the charges of serious misconduct and willful breach of trust, he was summoned to
Arevalo’s office and was asked to tender his immediate resignation in exchange for financial assistance.

The clear intent of the respondents to find fault in Cosare was also manifested by their persistent accusation that Cosare
abandoned his post, allegedly signified by his failure to report to work or file a leave of absence beginning April 1, 2009.
This was even the subject of a memo56 issued by Arevalo to Cosare on April 14, 2009, asking him to explain his absence
within 48 hours from the date of the memo. As the records clearly indicated, however, Arevalo placed Cosare under
suspension beginning March 30, 2009. The suspension covered access to any and all company files/records and the use
of the assets of the company, with warning that his failure to comply with the memo would be dealt with drastic
management action. The charge of abandonment was inconsistent with this imposed suspension. "Abandonment is the
deliberate and unjustified refusal of an employee to resume his employment. To constitute abandonment of work, two
elements must concur: ‘(1) the employee must have failed to report for work or must have been absent without valid or
justifiable reason; and (2) there must have been a clear intention on the part of the employee to sever the employer-
employee relationship manifested by some overt act.’" 57Cosare’s failure to report to work beginning April 1, 2009 was
neither voluntary nor indicative of an intention to sever his employment with Broadcom. It was illogical to be requiring him
to report for work, and imputing fault when he failed to do so after he was specifically denied access to all of the
company’s assets. As correctly observed by the NLRC:

[T]he Respondent[s] had charged [Cosare] of abandoning his employment beginning on April 1, 2009. However[,] the
show-cause letter dated March 3[0], 2009 (Annex "F", ibid) suspended [Cosare] from using not only the equipment but the
"assets" of Respondent [Broadcom]. This insults rational thinking because the Respondents tried to mislead us and make
[it appear] that [Cosare] failed to report for work when they had in fact had [sic] placed him on suspension. x x x. 58

Following a finding of constructive dismissal, the Court finds no cogent reason to modify the NLRC's monetary awards in
Cosare's favor. In Robinsons Galleria/Robinsons Supermarket Corporation v. Ranchez, 59 the Court reiterated that an
illegally or constructively dismissed employee is entitled to: (1) either reinstatement, if viable, or separation pay, if
reinstatement is no longer viable; and (2) backwages. 60 The award of exemplary damages was also justified given the
NLRC's finding that the respondents acted in bad faith and in a wanton, oppressive and malevolent manner when they
dismissed Cosare. It is also by reason of such bad faith that Arevalo was correctly declared solidarily liable for the
monetary awards.

WHEREFORE, the petition is GRANTED. The Decision dated November 24, 2011 and Resolution dated March 26, 2012
of the Court of Appeals in CA-G.R. SP. No. 117356 are SET ASIDE. The Decision dated August 24, 2010 of the National
Labor Relations Commission in favor of petitioner Raul C. Cosare is AFFIRMED.
ATLANTA INDUSTRIES, INC. and/or ROBERT CHAN vs APRILITO R. SEBOLINO

The facts are summarized below.

In the months of February and March 2005, complainants Aprilito R. Sebolino, Khim V. Costales, Alvin V. Almoite, Joseph
S. Sagun, Agosto D. Zaño, Domingo S. Alegria, Jr., Ronie Ramos, Edgar Villagomez, Melvin Pedregoza, Teofanes B.
Chiong, Jr., Leonardo L. dela Cruz, Arnold A. Magalang, and Saturnino M. Mabanag filed several complaints for illegal
dismissal, regularization, underpayment, nonpayment of wages and other money claims, as well as claims for moral and
exemplary damages and attorney’s fees against the petitioners Atlanta Industries, Inc. (Atlanta) and its President and
Chief Operating Officer Robert Chan. Atlanta is a domestic corporation engaged in the manufacture of steel pipes.

The complaints were consolidated and were raffled to Labor Arbiter Daniel Cajilig, but were later transferred to Labor
Arbiter Dominador B. Medroso, Jr.

The complainants alleged that they had attained regular status as they were allowed to work with Atlanta for more than six
(6) months from the start of a purported apprenticeship agreement between them and the company. They claimed that
they were illegally dismissed when the apprenticeship agreement expired.

In defense, Atlanta and Chan argued that the workers were not entitled to regularization and to their money claims
because they were engaged as apprentices under a government-approved apprenticeship program. The company offered
to hire them as regular employees in the event vacancies for regular positions occur in the section of the plant where they
had trained. They also claimed that their names did not appear in the list of employees (Master List) 5 prior to their
engagement as apprentices.

On May 24, 2005, dela Cruz, Magalang, Zaño and Chiong executed a Pagtalikod at Pagwawalang Saysay before Labor
Arbiter Cajilig.

The Compulsory Arbitration Rulings

On April 24, 2006, Labor Arbiter Medroso dismissed the complaint with respect to dela Cruz, Magalang, Zaño and Chiong,
but found the termination of service of the remaining nine to be illegal. 6 Consequently, the arbiter awarded the dismissed
workers backwages, wage differentials, holiday pay and service incentive leave pay amounting to ₱1,389,044.57 in the
aggregate.

Atlanta appealed to the National Labor Relations Commission (NLRC). In the meantime, or on October 10, 2006, Ramos,
Alegria, Villagomez, Costales and Almoite allegedly entered into a compromise agreement with Atlanta. 7The agreement
provided that except for Ramos, Atlanta agreed to pay the workers a specified amount as settlement, and to acknowledge
them at the same time as regular employees.

On December 29, 2006,8 the NLRC rendered a decision, on appeal, modifying the ruling of the labor arbiter, as follows:
(1) withdrawing the illegal dismissal finding with respect to Sagun, Mabanag, Sebolino and Pedregoza; (2) affirming the
dismissal of the complaints of dela Cruz, Zaño, Magalang and Chiong; (3) approving the compromise agreement entered
into by Costales, Ramos, Villagomez, Almoite and Alegria, and (4) denying all other claims.

Sebolino, Costales, Almoite and Sagun moved for the reconsideration of the decision, but the NLRC denied the motion in
its March 30, 20079 resolution. The four then sought relief from the CA through a petition for certiorari under Rule 65 of the
Rules of Court. They charged that the NLRC committed grave abuse of discretion in: (1) failing to recognize their prior
employment with Atlanta; (2) declaring the second apprenticeship agreement valid; (3) holding that the dismissal of
Sagun, Mabanag, Sebolino and Melvin Pedregoza is legal; and (4) upholding the compromise agreement involving
Costales, Ramos, Villagomez, Almoite and Alegria.

The CA Decision

The CA granted the petition based on the following findings: 10

1. The respondents were already employees of the company before they entered into the first and second
apprenticeship agreements – Almoite and Costales were employed as early as December 2003 and,
 subsequently, entered into a first apprenticeship agreement from May 13, 2004 to October 12, 2004; before this
first agreement expired, a second apprenticeship agreement, from October 9, 2004 to March 8, 2005 was
executed. The same is true with Sebolino and Sagun, who were employed by Atlanta as early as March 3, 2004.
Sebolino entered into his first apprenticeship agreement with the company from March 20, 2004 to August 19,
2004, and his second apprenticeship agreement from August 20, 2004 to January 19, 2005. Sagun, on the other
hand, entered into his first agreement from May 28, 2004 to October 8, 2004, and the second agreement from
October 9, 2004 to March 8, 2005.

2. The first and second apprenticeship agreements were defective as they were executed in violation of the law
and the rules.11 The agreements did not indicate the trade or occupation in which the apprentice would be trained;
neither was the apprenticeship program approved by the Technical Education and Skills Development Authority
(TESDA).

3. The positions occupied by the respondents – machine operator, extruder operator and scaleman – are usually
necessary and desirable in the manufacture of plastic building materials, the company’s main business. Costales,
Almoite, Sebolino and Sagun were, therefore, regular employees whose dismissals were illegal for lack of a just
or authorized cause and notice.

4. The compromise agreement entered into by Costales and Almoite, together with Ramos, Villagomez and
Alegria, was not binding on Costales and Almoite because they did not sign the agreement.

The petitioners themselves admitted that Costales and Almoite were initially planned to be a part of the compromise
agreement, but their employment has been regularized as early as January 11, 2006; hence, the company did not pursue
their inclusion in the compromise agreement.12

The CA faulted the NLRC for failing to appreciate the evidence regarding the respondents’ prior employment with Atlanta.
The NLRC recognized the prior employment of Costales and Almoite on Atlanta’s monthly report for December 2003 for
the CPS Department/Section dated January 6, 2004. 13 This record shows that Costales and Almoite were assigned to the
company’s first shift from 7:00 a.m. to 3:00 p.m. The NLRC ignored Sebolino and Sagun’s prior employment under the
company’s Production and Work Schedule for March 7 to 12, 2005 dated March 3, 2004, 14 as they had been Atlanta’s
employees as early as March 3, 2004, with Sebolino scheduled to work on March 7-12, 2005 at 7:00 a.m. to 7:00 p.m.,
while Sagun was scheduled to work for the same period but from 7:00 p.m. to 7:00 a.m. The CA noted that Atlanta failed
to challenge the authenticity of the two documents before it and the labor authorities.

Atlanta and Chan moved for reconsideration, but the CA denied the motion in a resolution rendered on March 25,
2009.15 Hence, the present petition.

The Petition

Atlanta seeks a reversal of the CA decision, contending that the appellate court erred in (1) concluding that Costales,
Almoite, Sebolino and Sagun were employed by Atlanta before they were engaged as apprentices; (2) ruling that a
second apprenticeship agreement is invalid; (3) declaring that the respondents were illegally dismissed; and (4)
disregarding the compromise agreement executed by Costales and Almoite. It submits the following arguments:

First. The CA’s conclusion that the respondent workers were company employees before they were engaged as
apprentices was primarily based on the Monthly Report 16 and the Production and Work Schedule for March 7-12,
2005,17 in total disregard of the Master List 18 prepared by the company accountant, Emelita M. Bernardo. The names of
Costales, Almoite, Sebolino and Sagun do not appear as employees in the Master List which "contained the names of all
the persons who were employed by and at petitioner." 19

Atlanta faults the CA for relying on the Production and Work Schedule and the Monthly Report which were not sworn to,
and in disregarding the Master List whose veracity was sworn to by Bernardo and by Alex Go who headed the company’s
accounting division. It maintains that the CA should have given more credence to the Master List.

Second. In declaring invalid the apprenticeship agreements it entered into with the respondent workers, the CA failed to
recognize the rationale behind the law on apprenticeship. It submits that under the law, 20 apprenticeship agreements are
valid, provided they do not exceed six (6) months and the apprentices are paid the appropriate wages of at least 75% of
the applicable minimum wage.
The respondents initially executed a five-month apprenticeship program with Atlanta, at the end of which, they "voluntarily
and willingly entered into another apprenticeship agreement with the petitioner for the training of a second skill" 21 for five
months; thus, the petitioners committed no violation of the apprenticeship period laid down by the law.

Further, the apprenticeship agreements, entered into by the parties, complied with the requisites under Article 62 of the
Labor Code; the company’s authorized representative and the respondents signed the agreements and these were
ratified by the company’s apprenticeship committee. The apprenticeship program itself was approved and certified by the
TESDA.22 The CA, thus, erred in overturning the NLRC’s finding that the apprenticeship agreements were valid.

Third. There was no illegal dismissal as the respondent workers’ tenure ended with the expiration of the apprenticeship
agreement they entered into. There was, therefore, no regular employer-employee relationship between Atlanta and the
respondent workers.

The Case for Costales, Almoite, Sebolino and Sagun

In a Comment filed on August 6, 2009, 23 Costales, Almoite, Sebolino and Sagun pray for a denial of the petition for being
procedurally defective and for lack of merit.

The respondent workers contend that the petition failed to comply with Section 4, Rule 45 of the Rules of Court which
requires that the petition be accompanied by supporting material portions of the records. The petitioners failed to attach to
the petition a copy of the Production and Work Schedule despite their submission that the CA relied heavily on the
document in finding the respondent workers’ prior employment with Atlanta. They also did not attach a copy of the
compromise agreement purportedly executed by Costales and Almoite. For this reason, the respondent workers submit
that the petition should be dismissed.

The respondents posit that the CA committed no error in holding that they were already Atlanta’s employees before they
were engaged as apprentices, as confirmed by the company’s Production and Work Schedule. 24 They maintain that the
Production and Work Schedule meets the requirement of substantial evidence as the petitioners failed to question its
authenticity. They point out that the schedule was prepared by Rose A. Quirit and approved by Adolfo R. Lope, head of
the company’s PE/Spiral Section. They argue that it was highly unlikely that the head of a production section of the
company would prepare and assign work to the complainants if the latter had not been company employees.

The respondent workers reiterate their mistrust of the Master List 25 as evidence that they were not employees of the
company at the time they became apprentices. They label the Master List as "self-serving, dubious and even if considered
as authentic, its content contradicts a lot of petitioner’s claim and allegations," 26 thus -

1. Aside from the fact that the Master List is not legible, it contains only the names of inactive employees. Even
those found by the NLRC to have been employed in the company (such as Almoite, Costales and Sagun) do not
appear in the list. If Costales and Almoite had been employed with Atlanta since January 11, 2006, as the
company claimed,27 their names would have been in the list, considering that the Master List accounts for all
employees "as of May 2006" – the notation carried on top of each page of the document.

2. There were no entries of employees hired or resigned in the years 2005 and 2006 despite the "as of May 2006"
notation; several pages making up the Master List contain names of employees for the years 1999 - 2004.

3. The fact that Atlanta presented the purported Master List instead of the payroll raised serious doubts on the
authenticity of the list.

In sum, the respondent workers posit that the presentation of the Master List revealed the "intention of the herein
petitioner[s] to perpetually hide the fact of [their] prior employment." 28

On the supposed apprenticeship agreements they entered into, Costales, Almoite, Sebolino and Sagun refuse to accept
the agreements’ validity, contending that the company’s apprenticeship program is merely a ploy "to continually deprive
[them] of their rightful wages and benefits which are due them as regular employees." 29 They submit the following
"indubitable facts and ratiocinations:"30

1. The apprenticeship agreements were submitted to TESDA only in 2005 (with dates of receipt on "1/4/05" &
"2/22/05"31 ), when the agreements were supposed to have been executed in April or May 2004. Thus, the
 submission was made long after the starting date of the workers’ apprenticeship or even beyond the agreement’s
completion/termination date, in violation of Section 23, Rule VI, Book II of the Labor Code.

2. The respondent workers were made to undergo apprenticeship for occupations different from those allegedly
approved by TESDA. TESDA approved Atlanta’s apprenticeship program on "Plastic Molder" 32 and not for
extrusion molding process, engineering, pelletizing process and mixing process.

3. The respondents were already skilled workers prior to the apprenticeship program as they had been employed
and made to work in the different job positions where they had undergone training. Sagun and Sebolino, together
with Mabanag, Pedregoza, dela Cruz, Chiong, Magalang and Alegria were even given production assignments
and work schedule at the PE/Spiral Section from May 11, 2004 to March 23, 2005, and some of them were even
assigned to the 3:00 p.m. – 11:00 p.m. and graveyard shifts (11:00 p.m. – 7:00 a.m.) during the period. 33

4. The respondent workers were required to continue as apprentices beyond six months. The TESDA certificate of
completion indicates that the workers’ apprenticeship had been completed after six months. Yet, they were
suffered to work as apprentices beyond that period.

Costales, Almoite, Sebolino and Sagun resolutely maintain that they were illegally dismissed, as the reason for the
termination of their employment – notice of the completion of the second apprenticeship agreement – did not constitute
either a just or authorized cause under Articles 282 and 283 of the Labor Code.

Finally, Costales and Almoite refuse to be bound by the compromise agreement 34 that Atlanta presented to defeat the two
workers’ cause of action. They claim that the supposed agreement is invalid as against them, principally because they did
not sign it.

The Court’s Ruling

The procedural issue

The respondent workers ask that the petition be dismissed outright for the petitioners’ failure to attach to the petition a
copy of the Production and Work Schedule and a copy of the compromise agreement Costales and Almoite allegedly
entered into — material portions of the record that should accompany and support the petition, pursuant to Section 4,
Rule 45 of the Rules of Court.

In Mariners Polytechnic Colleges Foundation, Inc. v. Arturo J. Garchitorena 35 where the Court addressed essentially the
same issue arising from Section 2(d), Rule 42 of the Rules of Court, 36 we held that the phrase "of the pleadings and other
material portions of the record xxx as would support the allegation of the petition clearly contemplates the exercise of
discretion on the part of the petitioner in the selection of documents that are deemed to be relevant to the petition. The
crucial issue to consider then is whether or not the documents accompanying the petition sufficiently supported the
allegations therein."37

As in Mariners, we find that the documents attached to the petition sufficiently support the petitioners’ allegations. The
accompanying CA decision38 and resolution,39 as well as those of the labor arbiter 40 and the NLRC,41 referred to the
parties’ position papers and even to their replies and rejoinders. Significantly, the CA decision narrates the factual
antecedents, defines the complainants’ cause of action, and cites the arguments, including the evidence the parties
adduced. If any, the defect in the petition lies in the petitioners’ failure to provide legible copies of some of the material
documents mentioned, especially several pages in the decisions of the labor arbiter and of the NLRC. This defect,
however, is not fatal as the challenged CA decision clearly summarized the labor tribunal’s rulings. We, thus, find no
procedural obstacle in resolving the petition on the merits.

The merits of the case

We find no merit in the petition. The CA committed no reversible error in nullifying the NLRC decision 42 and in affirming the
labor arbiter’s ruling,43 as it applies to Costales, Almoite, Sebolino and Sagun. Specifically, the CA correctly ruled that the
four were illegally dismissed because (1) they were already employees when they were required to undergo
apprenticeship and (2) apprenticeship agreements were invalid.

The following considerations support the CA ruling.

First. Based on company operations at the time material to the case, Costales, Almoite, Sebolino and Sagun were already
rendering service to the company as employees before they were made to undergo apprenticeship. The company itself
recognized the respondents’ status through relevant operational records – in the case of Costales and Almoite, the CPS
monthly report for December 2003 44 which the NLRC relied upon and, for Sebolino and Sagun, the production and work
schedule for March 7 to 12, 200545 cited by the CA.

Under the CPS monthly report, Atlanta assigned Costales and Almoite to the first shift (7:00 a.m. to 3:00 p.m.) of the
Section’s work. The Production and Work Schedules, in addition to the one noted by the CA, showed that Sebolino and
Sagun were scheduled on different shifts vis-à-vis the production and work of the company’s PE/Spiral Section for the
periods July 5-10, 2004;46 October 25-31, 2004;47 November 8-14, 2004;48 November 16-22, 2004;49January 3-9,
2005;50 January 10-15, 2005;51 March 7-12, 200552 and March 17-23, 2005.53

We stress that the CA correctly recognized the authenticity of the operational documents, for the failure of Atlanta to raise
a challenge against these documents before the labor arbiter, the NLRC and the CA itself. The appellate court, thus,
found the said documents sufficient to establish the employment of the respondents before their engagement as
apprentices.

Second. The Master List54 (of employees) that the petitioners heavily rely upon as proof of their position that the
respondents were not Atlanta’s employees, at the time they were engaged as apprentices, is unreliable and does not
inspire belief.

The list, consisting of several pages, is hardly legible. It requires extreme effort to sort out the names of the employees
listed, as well as the other data contained in the list. For this reason alone, the list deserves little or no consideration. As
the respondents also pointed out, the list itself contradicts a lot of Atlanta’s claims and allegations, thus: it lists only the
names of inactive employees; even the names of those the NLRC found to have been employed by Atlanta, like Costales
and Almoite, and those who even Atlanta claims attained regular status on January 11, 2006, 55 do not appear in the list
when it was supposed to account for all employees "as of May 6, 2006." Despite the "May 6, 2006" cut off date, the list
contains no entries of employees who were hired or who resigned in 2005 and 2006. We note that the list contains the
names of employees from 1999 to 2004.

We cannot fault the CA for ignoring the Master List even if Bernardo, its head office accountant, swore to its correctness
and authenticity.56 Its substantive unreliability gives it very minimal probative value. Atlanta would have been better
served, in terms of reliable evidence, if true copies of the payroll (on which the list was based, among others, as Bernardo
claimed in her affidavit) were presented instead.1âwphi1

Third. The fact that Costales, Almoite, Sebolino and Sagun were already rendering service to the company when they
were made to undergo apprenticeship (as established by the evidence) renders the apprenticeship agreements irrelevant
as far as the four are concerned. This reality is highlighted by the CA finding that the respondents occupied positions such
as machine operator, scaleman and extruder operator - tasks that are usually necessary and desirable in Atlanta’s usual
business or trade as manufacturer of plastic building materials. 57 These tasks and their nature characterized the four as
regular employees under Article 280 of the Labor Code. Thus, when they were dismissed without just or authorized
cause, without notice, and without the opportunity to be heard, their dismissal was illegal under the law. 58

Even if we recognize the company’s need to train its employees through apprenticeship, we can only consider the first
apprenticeship agreement for the purpose. With the expiration of the first agreement and the retention of the employees,
Atlanta had, to all intents and purposes, recognized the completion of their training and their acquisition of a regular
employee status. To foist upon them the second apprenticeship agreement for a second skill which was not even
mentioned in the agreement itself,59 is a violation of the Labor Code’s implementing rules 60 and is an act manifestly unfair
to the employees, to say the least. This we cannot allow.

Fourth. The compromise agreement61 allegedly entered into by Costales and Almoite, together with Ramos, Villagomez
and Alegria, purportedly in settlement of the case before the NLRC, is not binding on Costales and Almoite because they
did not sign it. The company itself admitted 62 that while Costales and Almoite were initially intended to be a part of the
agreement, it did not pursue their inclusion "due to their regularization as early as January 11, 2006." 63

WHEREFORE, premises considered, we hereby DENY the petition for lack of merit.1âwphi1 The assailed decision and
resolution of the Court of Appeals are AFFIRMED. Costs against the petitioner Atlanta Industries, Inc.
ROYALE HOMES MARKETING CORPORATION vs IDEL P. ALCANTARA [deceased], substituted by his heirs

Not every form of control that a hiring party imposes on the hired party is indicative of employee-employer relationship.
Rules and regulations that merely serve as guidelines towards the achievement of a mutually desired result without
dictating the means and methods of accomplishing it do not establish employer-employee relationship. 1

This Petition for Review on Certiorari 2 assails the June 23, 2010 Decision 3 of the Court of Appeals (CA) in CA-G.R. SP
No. 109998 which (i) reversed and set aside the February 23, 2009 Decision 4 of the National Labor Relations Commission
(NLRC), (ii) ordered petitioner Royale Homes Marketing Corporation (Royale Homes) to pay respondent Fidel P.
Alcantara (Alcantara) backwages and separation pay, and (iii) remanded the case to the Labor Arbiter for the proper
determination and computation of said monetary awards.

Also assailed in this Petition isthe January 18, 2011 Resolution 5 of the CA denying Royale Homes’ Motion for
Reconsideration,6 as well as its Supplemental7 thereto.

Factual Antecedents

In 1994, Royale Homes, a corporation engaged in marketing real estates, appointed Alcantara asits Marketing Director for
a fixed period of one year. His work consisted mainly of marketing Royale Homes’ realestate inventories on an exclusive
basis. Royale Homes reappointed him for several consecutive years, the last of which covered the period January 1 to
December 31, 2003 where he held the position of Division 5 Vice-President-Sales. 8

Proceedings before the Labor Arbiter

On December 17, 2003, Alcantara filed a Complaint for Illegal Dismissal 9 against Royale Homes and its President Matilde
Robles, Executive Vice-President for Administration and Finance Ma. Melinda Bernardino, and Executive Vice- President
for Sales Carmina Sotto. Alcantara alleged that he is a regular employee of Royale Homes since he is performing tasks
that are necessary and desirable to its business; that in 2003 the company gave him ₱1.2 million for the services he
rendered to it; that in the first week of November 2003, however, the executive officers of Royale Homes told him that they
were wondering why he still had the gall to come to office and sit at his table; 10 and that the actsof the executive officers of
Royale Homes amounted to his dismissal from work without any valid or just cause and in gross disregard of the proper
procedure for dismissing employees. Thus, he alsoimpleaded the corporate officers who, he averred, effected his
dismissal in bad faith and in an oppressive manner.

Alcantara prayed to be reinstated tohis former position without loss of seniority rights and other privileges, as well as to be
paid backwages, moral and exemplary damages, and attorney’s fees. He further sought that the ownership of the
Mitsubishi Adventure with Plate No. WHD-945 be transferred to his name.

Royale Homes, on the other hand, vehemently denied that Alcantara is its employee. It argued that the appointment paper
of Alcantara isclear that it engaged his services as an independent sales contractorfor a fixed term of one year only. He
never received any salary, 13th month pay, overtime pay or holiday pay from Royale Homes as hewas paid purely on
commission basis. In addition, Royale Homes had no control on how Alcantara would accomplish his tasks and
responsibilities as he was free to solicit sales at any time and by any manner which he may deem appropriateand
necessary. He is even free to recruit his own sales personnel to assist him in pursuance of his sales target.

According to Royale Homes, Alcantara decided to leave the company after his wife, who was once connectedwith it as a
sales agent, had formed a brokerage company that directly competed with its business, and even recruited some of its
sales agents. Although this was against the exclusivity clause of the contract, Royale Homes still offered to accept
Alcantara’s wife back so she could continue to engage in real estate brokerage, albeit exclusively for Royale Homes. In a
special management committee meeting on October 8,2003, however, Alcantara announced publicly and openly that he
would leave the company by the end of October 2003 and that he would no longer finish the unexpired term of his
contract. He has decided to join his wifeand pursue their own brokerage business. Royale Homes accepted Alcantara’s
decision. It then threw a despedidaparty in his honor and, subsequently, appointed a new independent contractor. Two
months after herelinquished his post, however, Alcantara appeared in Royale Homes and submitted a letter claiming that
he was illegally dismissed.

Ruling of the Labor Arbiter

On September 7, 2005,the Labor Arbiter rendered a Decision 11 holding that Alcantara is an employee of Royale Homes
with a fixed-term employment period from January 1 to December 31, 2003 and that the pre-termination of his contract
was against the law.Hence, Alcantara is entitled to an amount which he may have earned on the average for the
unexpired portion of the contract. With regard to the impleaded corporate officers, the Labor Arbiter absolved them from
any liability.

The dispositive portion of the Labor Arbiter’s Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering the respondent Royale Homes Marketing
Corp. to pay the complainant the total amount of TWO HUNDRED SEVENTY SEVEN THOUSAND PESOS
(₱277,000.00) representing his compensation/commission for the unexpired term of his contract.

All other claims are dismissed for lack of merit.

SO ORDERED.12

Both parties appealed the Labor Arbiter’s Decision to the NLRC. Royale Homes claimed that the Labor Arbiter grievously
erred inruling that there exists an employer-employee relationship between the parties. It insisted that the contract
between them expressly statesthat Alcantara is an independent contractor and not an ordinary employee. Ithad no control
over the means and methods by which he performed his work. RoyaleHomes likewise assailed the award of ₱277,000.00
for lack of basis as it did not pre-terminate the contract. It was Alcantara who chose not to finish the contract.

Alcantara, for his part, argued that the Labor Arbiter erred in ruling that his employment was for a fixed-term and that he is
not entitled to backwages, reinstatement, unpaid commissions, and damages.

Ruling of the National LaborRelations Commission

On February 23, 2009, the NLRC rendered its Decision, 13 ruling that Alcantara is not an employee but a mere independent
contractor of Royale Homes. It based its ruling mainly on the contract which does not require Alcantara to observe regular
working hours. He was also free to adopt the selling methods he deemed most effective and can even recruit sales agents
to assist him in marketing the inventories of Royale Homes. The NLRC also considered the fact that Alcantara was not
receiving monthly salary, but was being paid on commission basis as stipulated in the contract. Being an independent
contractor, the NLRC concluded that Alcantara’s Complaint iscognizable by the regular courts.

The falloof the NLRC Decision reads:

WHEREFORE, premises considered, the Decision of Labor Arbiter Dolores Peralta-Beley dated September 5, 2005 is
REVERSED and SET ASIDE and a NEW ONE rendered dismissing the complaint for lack of jurisdiction.

SO ORDERED.14

Alcantara moved for reconsideration.15 In a Resolution16 dated May 29, 2009, however, the NLRC denied his motion.

Alcantara thus filed a Petition for Certiorari 17 with the CA imputing grave abuse of discretion on the partof the NLRC in
ruling that he is not an employee of Royale Homes and that it is the regular courts which have jurisdiction over the issue
of whether the pre-termination of the contract is valid.

Ruling of the Court of Appeals

On June 23, 2010, the CA promulgated its Decision 18 granting Alcantara’s Petition and reversing the NLRC’s Decision.
Applying the four-fold and economic reality tests, it held thatAlcantara is an employee of Royale Homes. Royale Homes
exercised some degree of control over Alcantara since his job, as observed by the CA, is subject to company rules,
regulations, and periodic evaluations. He was also bound by the company code of ethics. Moreover, the exclusivity clause
of the contract has made Alcantara economically dependent on Royale Homes, supporting the theory that he is
anemployee of said company.

The CA further held that Alcantara’s termination from employment was without any valid or just cause, and it was carried
out in violation of his right to procedural due process. Thus, the CA ruled that he isentitled to backwages and separation
pay, in lieu of reinstatement. Considering,however, that the CA was not satisfied with the proofadduced to establish the
amount of Alcantara’s annual salary, it remanded the caseto the Labor Arbiter to determine the same and the monetary
award he is entitled to. With regard to the corporate officers, the CA absolved them from any liability for want of clear
proof that they assented to the patently unlawful acts or that they are guilty of bad faith orgross negligence. Thus:

WHEREFORE, in view of the foregoing, the instant PETITION is GRANTED. The assailed decision of the National Labor
Relations Commission in NLRC NCR CASE NO. 00-12-14311-03 NLRC CA NO. 046104-05 dated February 23, 2009 as
well as the Resolution dated May 29, 2009 are hereby SET ASIDE and a new one is entered ordering the respondent
company to pay petitioner backwages which shall be computed from the time of his illegal termination in October 2003 up
to the finality of this decision, plus separation pay equivalent to one month salary for every year of service. This case is
REMANDED to the Labor Arbiter for the proper determination and computation of back wages, separation pay and other
monetary benefits that petitioner is entitled to.

SO ORDERED.19

Royale Homes filed a Motion for Reconsideration 20 and a Supplemental Motion for Reconsideration. 21 In a
Resolution22 dated January 18, 2011, however, the CA denied said motions.

Issues

Hence, this Petition where Royale Homes submits before this Court the following issues for resolution:

A.

WHETHER THE COURT OF APPEALS HAS DECIDED THE INSTANT CASE NOT IN ACCORD WITH LAW
AND APPLICABLE DECISIONS OF THE SUPREME COURT WHEN IT REVERSED THE RULING OF THE
NLRC DISMISSING THE COMPLAINT OF RESPONDENT FOR LACK OF JURISDICTION AND
CONSEQUENTLY, IN FINDING THAT RESPONDENT WAS ILLEGALLY DISMISSED[.]

B.

WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN DISREGARDING THE
EN BANCRULING OF THIS HONORABLE COURT IN THE CASEOF TONGKO VS. MANULIFE, AND IN
BRUSHING ASIDE THE APPLICABLE RULINGS OF SONZA VS. ABS CBN AND CONSULTA V. CA[.]

C.

WHETHER THE COURT OF APPEALS COMMITTED A SERIOUS ERROR OF LAW IN DENYING THE MOTION
FOR RECONSIDERATION OF PETITIONER AND IN REFUSING TO CORRECT ITSELF[.] 23

Royale Homes contends that its contract with Alcantara is clear and unambiguous −it engaged his services as an
independent contractor. This can be readily seen from the contract stating that no employer-employee relationship exists
between the parties; that Alcantara was free to solicit sales at any time and by any manner he may deem appropriate; that
he may recruit sales personnel to assist him in marketing Royale Homes’ inventories; and, thathis remunerations are
dependent on his sales performance.

Royale Homes likewise argues that the CA grievously erred in ruling that it exercised control over Alcantara based on a
shallow ground that his performance is subject to company rules and regulations, code of ethics, periodic evaluation, and
exclusivity clause of contract. RoyaleHomes maintains that it is expected to exercise some degree of control over its
independent contractors,but that does not automatically result in the existence ofemployer-employee relationship. For
control to be consideredas a proof tending to establish employer-employee relationship, the same mustpertain to the
means and method of performing the work; not on the relationship of the independent contractors among themselves or
their persons or their source of living.

Royale Homes further asserts that it neither hired nor wielded the power to dismiss Alcantara. It was Alcantara who
openly and publicly declared that he was pre-terminating his fixed-term contract.

The pivotal issue to be resolved in this case is whether Alcantara was an independent contractor or anemployee of
Royale Homes.
Our Ruling

The Petition is impressed with merit.

The determination of whether a party who renders services to another is an employee or an independent contractor
involves an evaluation of factual matters which, ordinarily, is not within the province of this Court. In view of the conflicting
findings of the tribunals below, however, this Court is constrained to go over the factual matters involved in this case. 24

The juridical relationship of the parties based on their written contract

The primary evidence of the nature of the parties’ relationship in this case is the written contract that they signed and
executed in pursuanceof their mutual agreement. While the existence of employer-employee relationship is a matter of
law, the characterization made by the parties in their contract as to the nature of their juridical relationship cannot be
simply ignored, particularly in this case where the parties’ written contractunequivocally states their intention at the time
they entered into it. In Tongko v. The Manufacturers LifeInsurance Co. (Phils.), Inc., 25 it was held that:

To be sure, the Agreement’s legal characterization of the nature of the relationship cannot be conclusive and binding on
the courts; x x x the characterization of the juridical relationship the Agreement embodied is a matter of law that is for the
courts to determine. At the same time, though, the characterization the parties gave to their relationship in the Agreement
cannot simply be brushed aside because it embodiestheir intent at the time they entered the Agreement, and they were
governed by this understanding throughout their relationship. At the very least, the provision on the absence of employer-
employee relationship between the parties can be an aid in considering the Agreement and its implementation, and in
appreciating the other evidence on record.26

In this case, the contract, 27 duly signed and not disputed by the parties, conspicuously provides that "no employer-
employee relationship exists between" Royale Homes and Alcantara, as well as his sales agents. It is clear that they did
not want to be bound by employer-employee relationship atthe time ofthe signing of the contract. Thus:

January 24, 2003

MR. FIDEL P. ALCANTARA

13 Rancho I

Marikina City

Dear Mr. Alcantara,

This will confirm yourappointment as Division 5 VICE[-]PRESIDENTSALES of ROYALE HOMES MARKETING

CORPORATION effective January 1, 2003 to December 31, 2003.

Your appointment entails marketing our real estate inventories on an EXCLUSIVE BASIS under such price, terms and
condition to be provided to you from time to time.

As such, you can solicit sales at any time and by any manner which you deem appropriate and necessary to market our
real estate inventories subject to rules, regulations and code of ethics promulgated by the company. Further, you are free
to recruit sales personnel/agents to assist you in marketing of our inventories provided that your personnel/agents shall
first attend the required seminars and briefing to be conducted by us from time to time for the purpose of familiarizing
them of terms and conditionsof sale, the natureof property sold, etc., attendance of which shall be a condition precedent
for their accreditation by us.

That as such Division 5 VICE[-]PRESIDENT-SALES you shall be entitled to:

1. Commission override of 0.5% for all option sales beginning January 1, 2003 booked by your sales agents.

2. Budget allocation depending on your division’s sale performance as per our budget guidelines.
 3. Sales incentive and other forms of company support which may be granted from time to time. It is understood,
however, that no employer-employee relationship exists between us, that of your sales personnel/agents, and that
you shall hold our company x x x, its officers and directors, free and harmless from any and all claims of liability
and damages arising from and/or incident to the marketing of our real estate inventories.

We reserve, however, our right to terminate this agreement in case of violation of any company rules and regulations,
policies and code of ethics upon notice for justifiable reason.

Your performance shall be subject toperiodic evaluation based on factors which shall be determined by the management.

If you are amenable to the foregoing terms and conditions, please indicate your conformity by signing on the space
provided below and return [to] us a duplicate copy of this letter, duly accomplished, to constitute as our agreement on the
matter.(Emphasis ours)

Since "the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of itsstipulations should control."28 No construction is even needed asthey already expressly state their intention.
Also, this Court adopts the observation of the NLRC that it is rather strange on the part of Alcantara, an educated man
and a veteran sales broker who claimed to be receiving ₱1.2 million as his annual salary, not to have contested the
portion of the contract expressly indicating that he is not an employee of Royale Homes if their true intention were
otherwise.

The juridical relationship of the parties based on Control Test

In determining the existence of an employer-employee relationship, this Court has generally relied on the four-fold test, to
wit: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
employer’s power to control the employee with respect to the means and methods by which the work is to be
accomplished.29 Among the four, the most determinative factor in ascertaining the existence of employeremployee
relationship is the "right of control test". 30 "It is deemed to be such an important factor that the other requisites may even
be disregarded."31 This holds true where the issues to be resolved iswhether a person who performs work for another is
the latter’s employee or is an independent contractor, 32 as in this case. For where the person for whom the services are
performed reserves the right to control not only the end to beachieved, but also the means by which such end is reached,
employer-employee relationship is deemed to exist.33

In concluding that Alcantara is an employee of RoyaleHomes, the CA ratiocinated that since the performance of his tasks
is subject to company rules, regulations, code of ethics, and periodic evaluation, the element of control is present.

The Court disagrees.

Not every form of control is indicative of employer-employee relationship.1âwphi1 A person who performs work for
another and is subjected to its rules, regulations, and code of ethics does not necessarily become an employee. 34 As long
as the level of control does not interfere with the means and methods of accomplishing the assigned tasks, the rules
imposed by the hiring party on the hired party do not amount to the labor law concept of control that is indicative of
employer-employee relationship. In Insular Life Assurance Co., Ltd. v. National Labor Relations Commission 35 it was
pronounced that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the
mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix
the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the
result, create no employeremployee relationship unlike the second, which address both the result and the means used to
achieve it. x x x36

In this case, the Court agrees with Royale Homes that the rules, regulations, code of ethics, and periodic evaluation
alluded to byAlcantara do not involve control over the means and methods by which he was to performhis job.
Understandably, Royale Homes has to fix the price, impose requirements on prospective buyers, and lay down the terms
and conditionsof the sale, including the mode of payment, which the independent contractors must follow. It is also
necessary for Royale Homes to allocateits inventories among its independent contractors, determine who has priority in
selling the same, grant commission or allowance based on predetermined criteria, and regularly monitor the result of their
marketing and sales efforts. But tothe mind of this Court, these do not pertain to the means and methods of how Alcantara
was to perform and accomplish his task of soliciting sales. They do not dictate upon him the details of how he would solicit
sales or the manner as to how he would transact business with prospective clients. In Tongko, this Court held that
guidelines or rules and regulations that do notpertain to the means or methodsto be employed in attaining the result are
not indicative of control as understood inlabor law. Thus:

From jurisprudence, an important lesson that the first Insular Lifecase teaches us is that a commitment to abide by the
rules and regulations of an insurance company does not ipso factomake the insurance agent an employee. Neither do
guidelines somehow restrictive of the insurance agent’s conduct necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines indicative of labor law "control," as the first Insular Lifecase tells us, should not merely relate to
the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or
methods to beemployed in attaining the result, or of fixing the methodology and of binding or restricting the party hired to
the use of these means.In fact, results-wise, the principal can impose production quotas and can determine how many
agents, with specific territories, ought to be employed to achieve the company’s objectives. These are management policy
decisions that the labor law element of control cannot reach. Our ruling in these respects in the first Insular Lifecase was
practically reiterated in Carungcong. Thus, as will be shown more fully below, Manulife’s codes of conduct, all of which do
not intrude into the insurance agents’ means and manner of conducting their sales and only control them as to the desired
results and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed
between Manulife and Tongko.37(Emphases in the original)

As the party claiming the existence of employer-employee relationship, it behoved upon Alcantara to prove the elements
thereof, particularly Royale Homes’ power of control over the means and methods of accomplishing the work. 38 He,
however, failed to cite specificrules, regulations or codes of ethics that supposedly imposed control on his means and
methods of soliciting sales and dealing with prospective clients. On the other hand, this case is replete with instances that
negate the element of control and the existence of employer-employee relationship. Notably, Alcantara was not required
to observe definite working hours. 39 Except for soliciting sales, RoyaleHomes did not assign other tasks to him. He had full
control over the means and methods of accomplishing his tasks as he can "solicit sales at any time and by any manner
which [he may] deem appropriate and necessary." He performed his tasks on his own account free from the control and
direction of Royale Homes in all matters connected therewith, except as to the results thereof. 40

Neither does the repeated hiring of Alcantara prove the existence of employer-employee relationship. 41 As discussed
above, the absence of control over the means and methodsdisproves employer-employee relationship. The continuous
rehiring of Alcantara simply signifies the renewal of his contract with Royale Homes, and highlights his satisfactory
services warranting the renewal of such contract. Nor does the exclusivity clause of contract establish the existence of the
labor law concept of control. In Consulta v. Court of Appeals, 42 it was held that exclusivity of contract does not necessarily
result in employer-employee relationship, viz:

x x x However, the fact that the appointment required Consulta to solicit business exclusively for Pamana did not mean
that Pamana exercised control over the means and methods of Consulta’s work as the term control is understood in labor
jurisprudence. Neither did it make Consulta an employee of Pamana. Pamana did not prohibit Consulta from engaging in
any other business, or from being connected with any other company, for aslong as the business [of the] company did not
compete with Pamana’s business.43

The same scenario obtains in this case. Alcantara was not prohibited from engaging in any other business as long as he
does not sell projects of Royale Homes’ competitors. He can engage in selling various other products or engage in
unrelated businesses.

Payment of Wages

The element of payment of wages is also absent in thiscase. As provided in the contract, Alcantara’s remunerations
consist only of commission override of 0.5%, budget allocation, sales incentive and other forms of company support.
There is no proof that he received fixed monthly salary. No payslip or payroll was ever presented and there is no proof
that Royale Homes deducted from his supposed salary withholding tax or that it registered him with the Social Security
System, Philippine Health Insurance Corporation, or Pag-Ibig Fund. In fact, his Complaint merely states a ballpark figure
of his alleged salary of ₱100,000.00, more or less. All of these indicate an independent contractual relationship. 44 Besides,
if Alcantara indeed consideredhimself an employee of Royale Homes, then he, an experienced and professional broker,
would have complained that he was being denied statutorily mandated benefits. But for nine consecutive years, he kept
mum about it, signifying that he has agreed, consented, and accepted the fact that he is not entitled tothose employee
benefits because he is an independent contractor.

This Court is, therefore,convinced that Alcantara is not an employee of Royale Homes, but a mere independent
contractor. The NLRC is, therefore, correct in concluding that the Labor Arbiter has no jurisdiction over the case and that
the same is cognizable by the regular courts.
WHEREFORE, the instant Petition is hereby GRANTED. The June 23, 2010 Decision of the Court of Appeals in CA-G.R.
SP No. 109998 is REVERSED and SET ASIDE. The February 23, 2009 Decision of the National Labor Relations
Commission is REINSTATED and AFFIRMED. SO ORDERED.
SAMONTE vs LA SALLE GREENHILLS

Facts:
Petitioners are medical professional hired by LSGI under a uniform one-page Contract of Retainer for the period of a spec
ific
academic calendar beginning in June of 1989 and the succeeding 15 years and terminating in March of the following year 
when the school year ends. The contract specifically provides that the retainer is only temporary in character and exclusiv
ely limited to the undertaking and/or to the job/task assigned to theretainer within the said undertaking. Furthermore, at an
y time prior to the expiration or completion date/s, LSGI may upon written notice to the retainers, terminate the contract sh
ould the retainer fail in anyway to perform his assigned job or task to the satisfaction of the school of for any just cause.

Accordingly, after 15 consecutive years of renewal each academic year, on the last day of the 15th year in 2004, the scho
ol (LSGI) informed the petitioner that their contracts will no longer be renewed for the following school year.

When petitioners’ requests for payment of their separation pay were denied, they filed a complaint for illegal dismissal wit
h prayer for separationpay, damages and attorneys’ fees. They alleged that they were regular employees because receiv
ed regular benefits, bonuses & more, that they were subjected to the school’s administrative and disciplinary rules and reg
ulations.

On the other hand, LSGI posited that petitioners were independent contractors retained by LSGI by reason of their medic
al skills and expertise to provide ancillary medical and dental services to both students and faculty. More importantly, petiti
oners were paid  retainer fees and not regular salaries and whose performance is not subject to the control of the school.

The Labor Arbiter dismissed the complaint and ruled that the petitioners were independent contractors but on the ground 
of compassionate social justice, awarded separation pay. Both parties appealed the decision to the NLRC. The NLRC dis
agreed with the appealed decision, finding petitioners as fixed term employees according to the Contract of Retainer sign
ed by theparties. In a petition for certiorari, the court of appeals affirmed the NLRC decision.

Issue:
Whether or not petitioners  were regular employees who may only be dismissed for just and authorized causes.

Ruling:
The petitioners attained retained regular employment.

A fixed-term employment is allowable under the Labor Code wherein the parties agree upon the day certain for the comm
encement and termination of their employment
relationship. A day certain being understood to be "that which must necessarily come, although it may not be known when
. Furthermore, the term must be voluntarily and knowingly entered into by the parties who must have dealt with each other 
on equal terms not one exercising moral dominance over the other.

Further, a fixed-term contract is an employment contract, the repeated renewals of which make for a regular employment. 
In Fuji Network Television v. Espiritu, the court noted that Fuji's argument that Espiritu was an independent contractor und
er a fixed-term contract is contradictory where employees under fixed-term contracts cannot be independent contractors b
ecause in fixed-term contracts, an employer-employee relationship exists.

The uniform one-page Contracts of Retainer signed by petitioners were prepared by LSGI alone. Petitioners, medical prof
essionals as they were, were still not on equal footing with LSGI as they obviously did not want to lose their jobs that they 
had stayed in for fifteen (15) years. There is no specificity in the contracts regarding terms and conditions of employment t
hat would indicate that petitioners and LSGI were on equal footing in negotiating it. Notably, without specifying what are th
e tasks assigned to petitioners, LSGI "may upon prior written notice to the retainer, terminate [the] contract should the reta
iner fail in any way to perform his assigned job/task to the satisfaction of La Salle Greenhills, Inc. or for any other just caus
e."

In all, given the following: (1) repeated renewal of petitioners' contract for fifteen years, interrupted only by the close of the 
school year; (2) the necessity of the work performed by petitioners as school physicians and dentists; and (3) the existenc
e of LSGI's power of control over the means and method pursued by petitioners in the performance of their job, we rule th
at petitioners attained regular employment, entitled to security of tenure who could only be dismissed for just and authoriz
ed causes. Consequently, petitioners were illegally dismissed and are entitled to the twin remedies of payment of separati
on pay and full back wages.
JOEB M. ALIVIADO vs PROCTER & GAMBLE PHILS., INC.

Labor laws expressly prohibit "labor-only" contracting. To prevent its circumvention, the Labor Code establishes an
employer-employee relationship between the employer and the employees of the ‘labor-only’ contractor.

The instant petition for review assails the March 21, 2003 Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No.
52082 and its October 20, 2003 Resolution 2 denying the motions for reconsideration separately filed by petitioners and
respondent Procter & Gamble Phils. Inc. (P&G). The appellate court affirmed the July 27, 1998 Decision of the National
Labor Relations Commission (NLRC), which in turn affirmed the November 29, 1996 Decision 3 of the Labor Arbiter. All
these decisions found Promm-Gem, Inc. (Promm-Gem) and Sales and Promotions Services (SAPS) to be legitimate
independent contractors and the employers of the petitioners.

Factual Antecedents 

Petitioners worked as merchandisers of P&G from various dates, allegedly starting as early as 1982 or as late as June
1991, to either May 5, 1992 or March 11, 1993, more specifically as follows:

Name Date Employed Date Dismissed

1. Joeb M. Aliviado November, 1985 May 5, 1992

2. Arthur Corpuz 1988 March 11, 1993

3. Eric Aliviado 1985 March 11, 1993

4. Monchito Ampeloquio September, 1988 March 11, 1993

5. Abraham Basmayor[, Jr.] 1987 March 11, 1993

6. Jonathan Mateo May, 1988 March 11, 1993

7. Lorenzo Platon 1985 March 11, 1993

8. Jose Fernando Gutierrez 1988 May 5, 1992

9. Estanislao Buenaventura June, 1988 March 11, 1993

10. Lope Salonga 1982 March 11, 1993

11. Franz David 1989 March 11, 1993

12. Nestor Ignacio 1982 March 11, 1993

13. Julio Rey 1989 May 5, 1992

14. Ruben [Vasquez], Jr. 1985 May 5, 1992

15. Maximino Pascual 1990 May 5, 1992

16. Ernesto Calanao[, Jr.] 1987 May 5, 1992

17. Rolando Romasanta 1983 March 11, 1993

18. [Roehl] Agoo 1988 March 11, 1993

19. Bonifacio Ortega 1988 March 11, 1993

20. Arsenio Soriano, Jr. 1985 March 11, 1993

21. Arnel Endaya 1983 March 11, 1993

22. Roberto Enriquez December, 1988 March 11, 1993

23. Nestor [Es]quila 1983 May 5, 1992

24. Ed[g]ardo Quiambao 1989 March 11, 1993

25. Santos Bacalso 1990 March 11, 1993

26. Samson Basco 1984 March 11, 1993

27. Aladino Gregor[e], Jr. 1980 May 5, 1992

28. Edwin Garcia 1987 May 5, 1992

29. Armando Villar 1990 May 5, 1992

30. Emil Tawat 1988 March 11, 1993

31. Mario P. Liongson 1991 May 5, 1992

32. Cresente J. Garcia 1984 March 11, 1993

33. Fernando Macabent[a] 1990 May 5, 1992

34. Melecio Casapao 1987 March 11, 1993

35. Reynaldo Jacaban 1990 May 5, 1992

36. Ferdinand Salvo 1985 May 5, 1992

37. Alstando Montos 1984 March 11, 1993

38. Rainer N. Salvador 1984 May 5, 1992

39. Ramil Reyes 1984 March 11, 1993

40. Pedro G. Roy 1987

41. Leonardo [F]. Talledo 1985 March 11, 1993

42. Enrique [F]. Talledo 1988 March 11, 1993

43. Willie Ortiz 1987 May 5, 1992

44. Ernesto Soyosa 1988 May 5, 1992

45. Romeo Vasquez 1985 March 11, 1993

46. Joel Billones 1987 March 11, 1993

47. Allan Baltazar 1989 March 11, 1993

48. Noli Gabuyo 1991 March 11, 1993

49. Emmanuel E. Laban 1987 May 5, 1992

50. Ramir[o] E. [Pita] 1990 May 5, 1992

51. Raul Dulay 1988 May 5, 1992

52. Tadeo Duran[o] 1988 May 5, 1992

53. Joseph Banico 1988 March 11, 1993

54. Albert Leynes 1990 May 5, 1992

55. Antonio Dacu[m]a 1990 May 5, 1992

 56. Renato dela Cruz 1982

57. Romeo Viernes, Jr. 1986

58. El[ia]s Bas[c]o 1989

59. Wilfredo Torres 1986 May 5, 1992

60. Melchor Carda[ñ]o 1991 May 5, 1992

61. [Marino] [Maranion] 1989 May 5, 1992

62. John Sumergido 1987 May 5, 1992

63. Roberto Rosales May, 1987 May 5, 1992

64. Gerry [G]. Gatpo November, 1990 March 11, 1993

65. German N. Guevara May, 1990 March 11, 1993

66. Gilbert Y. Miranda June, 1991 March 11, 1993

67. Rodolfo C. Toledo[, Jr.] May 14, 1991 March 11, 1993

68. Arnold D. [Laspoña] June 1991 March 11, 1993

69. Philip M. Loza March 5, 1992 March 11, 1993

70. Mario N. C[o]ldayon May 14, 1991 March 11, 1993

71. Orlando P. Jimenez November 6, 1992 March 11, 1993

72. Fred P. Jimenez September, 1991 March 11, 1993

73. Restituto C. Pamintuan, Jr. March 5, 1992 March 11, 1993

74. Rolando J. de Andres June, 1991 March 11, 1993

75. Artuz Bustenera[, Jr.] December, 1989 March 11, 1993

76. Roberto B. Cruz May 4, 1990 March 11, 1993

77. Rosedy O. Yordan June, 1991 May 5, 1992

78. Dennis Dacasin May. 1990 May 5, 1992

79. Alejandrino Abaton 1988 May 5, 1992

80. Orlando S. Balangue March, 1989 March 11, 19934

They all individually signed employment contracts with either Promm-Gem or SAPS for periods of more or less five
months at a time.5 They were assigned at different outlets, supermarkets and stores where they handled all the products
of P&G. They received their wages from Promm-Gem or SAPS. 6

SAPS and Promm-Gem imposed disciplinary measures on erring merchandisers for reasons such as habitual
absenteeism, dishonesty or changing day-off without prior notice. 7

P&G is principally engaged in the manufacture and production of different consumer and health products, which it sells on
a wholesale basis to various supermarkets and distributors. 8 To enhance consumer awareness and acceptance of the
products, P&G entered into contracts with Promm-Gem and SAPS for the promotion and merchandising of its products. 9

In December 1991, petitioners filed a complaint 10 against P&G for regularization, service incentive leave pay and other
benefits with damages. The complaint was later amended 11 to include the matter of their subsequent dismissal.
Ruling of the Labor Arbiter

On November 29, 1996, the Labor Arbiter dismissed the complaint for lack of merit and ruled that there was no employer-
employee relationship between petitioners and P&G. He found that the selection and engagement of the petitioners, the
payment of their wages, the power of dismissal and control with respect to the means and methods by which their work
was accomplished, were all done and exercised by Promm-Gem/SAPS. He further found that Promm-Gem and SAPS
were legitimate independent job contractors. The dispositive portion of his Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered Dismissing the above-entitled cases against
respondent Procter & Gamble (Phils.), Inc. for lack of merit.

SO ORDERED.12

Ruling of the NLRC

Appealing to the NLRC, petitioners disputed the Labor Arbiter’s findings. On July 27, 1998, the NLRC rendered a
Decision13 disposing as follows:

WHEREFORE, premises considered, the appeal of complainants is hereby DISMISSED and the decision appealed from
AFFIRMED.

SO ORDERED.14

Petitioners filed a motion for reconsideration but the motion was denied in the November 19, 1998 Resolution. 15

Ruling of the Court of Appeals

Petitioners then filed a petition for certiorari with the CA, alleging grave abuse of discretion amounting to lack or excess of
jurisdiction on the part of the Labor Arbiter and the NLRC. However, said petition was also denied by the CA which
disposed as follows:

WHEREFORE, the decision of the National Labor Relations Commission dated July 27, 1998 is AFFIRMED with the
MODIFICATION that respondent Procter & Gamble Phils., Inc. is ordered to pay service incentive leave pay to petitioners.

SO ORDERED.16

Petitioners filed a motion for reconsideration but the motion was also denied. Hence, this petition.

Issues

Petitioners now come before us raising the following issues:

I.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR
WHEN IT DID NOT FIND THE PUBLIC RESPONDENTS TO HAVE ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF OR IN EXCESS OF JURISDICTION IN RENDERING THE
QUESTIONED JUDGMENT WHEN, OBVIOUSLY, THE PETITIONERS WERE ABLE TO PROVE AND
ESTABLISH THAT RESPONDENT PROCTER & GAMBLE PHILS., INC. IS THEIR EMPLOYER AND THAT
THEY WERE ILLEGALLY DISMISSED BY THE FORMER.

II.

WHETHER X X X THE HONORABLE COURT OF APPEALS HAS COMMITTED [A] REVERSIBLE ERROR
WHEN IT DID NOT DECLARE THAT THE PUBLIC RESPONDENTS HAD ACTED WITH GRAVE ABUSE OF
DISCRETION WHEN THE LATTER DID NOT FIND THE PRIVATE RESPONDENTS LIABLE TO THE
PETITIONERS FOR PAYMENT OF ACTUAL, MORAL AND EXEMPLARY DAMAGES AS WELL AS LITIGATION
COSTS AND ATTORNEY’S FEES.17
Simply stated, the issues are: (1) whether P&G is the employer of petitioners; (2) whether petitioners were illegally
dismissed; and (3) whether petitioners are entitled for payment of actual, moral and exemplary damages as well as
litigation costs and attorney’s fees.

Petitioners’ Arguments

Petitioners insist that they are employees of P&G. They claim that they were recruited by the salesmen of P&G and were
engaged to undertake merchandising chores for P&G long before the existence of Promm-Gem and/or SAPS. They
further claim that when the latter had its so-called re-alignment program, petitioners were instructed to fill up application
forms and report to the agencies which P&G created. 18

Petitioners further claim that P&G instigated their dismissal from work as can be gleaned from its letter 19 to SAPS dated
February 24, 1993, informing the latter that their Merchandising Services Contract will no longer be renewed.

Petitioners further assert that Promm-Gem and SAPS are labor-only contractors providing services of manpower to their
client. They claim that the contractors have neither substantial capital nor tools and equipment to undertake independent
labor contracting. Petitioners insist that since they had been engaged to perform activities which are necessary or
desirable in the usual business or trade of P&G, then they are its regular employees. 20

Respondents’ Arguments

On the other hand, P&G points out that the instant petition raises only questions of fact and should thus be thrown out as
the Court is not a trier of facts. It argues that findings of facts of the NLRC, particularly where the NLRC and the Labor
Arbiter are in agreement, are deemed binding and conclusive on the Supreme Court.

P&G further argues that there is no employment relationship between it and petitioners. It was Promm-Gem or SAPS that
(1) selected petitioners and engaged their services; (2) paid their salaries; (3) wielded the power of dismissal; and (4) had
the power of control over their conduct of work.

P&G also contends that the Labor Code neither defines nor limits which services or activities may be validly outsourced.
Thus, an employer can farm out any of its activities to an independent contractor, regardless of whether such activity is
peripheral or core in nature. It insists that the determination of whether to engage the services of a job contractor or to
engage in direct hiring is within the ambit of management prerogative.

At this juncture, it is worth mentioning that on January 29, 2007, we deemed as waived the filing of the Comment of
Promm-Gem on the petition.21 Also, although SAPS was impleaded as a party in the proceedings before the Labor Arbiter
and the NLRC, it was no longer impleaded as a party in the proceedings before the CA. 22 Hence, our pronouncements
with regard to SAPS are only for the purpose of determining the obligations of P&G, if any.

Our Ruling

The petition has merit.

As a rule, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative
functions, such as the NLRC. Occasionally, however, the Court is constrained to wade into factual matters when there is
insufficient or insubstantial evidence on record to support those factual findings; or when too much is concluded, inferred
or deduced from the bare or incomplete facts appearing on record. 23 In the present case, we find the need to review the
records to ascertain the facts.

Labor-only contracting and job contracting

In order to resolve the issue of whether P&G is the employer of petitioners, it is necessary to first determine whether
Promm-Gem and SAPS are labor-only contractors or legitimate job contractors.

The pertinent Labor Code provision on the matter states:

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

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights
of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between
labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who
among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code. 

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and
placed by such person are performing activities which are directly related to the principal business of such employer.  In
such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible
to the workers in the same manner and extent as if the latter were directly employed by him . (Emphasis and underscoring
supplied.)

Rule VIII-A, Book III of the Omnibus Rules Implementing the Labor Code, as amended by Department Order No. 18-
02,24 distinguishes between legitimate and labor-only contracting:

xxxx

Section 3. Trilateral Relationship in Contracting Arrangements. In legitimate contracting, there exists a trilateral
relationship under which there is a contract for a specific job, work or service between the principal and the contractor or
subcontractor, and a contract of employment between the contractor or subcontractor and its workers. Hence, there are
three parties involved in these arrangements, the principal which decides to farm out a job or service to a contractor or
subcontractor, the contractor or subcontractor which has the capacity to independently undertake the performance of the
job, work or service, and the contractual workers engaged by the contractor or subcontractor to accomplish the job[,] work
or service.

xxxx

Section 5. Prohibition against labor-only contracting. Labor-only contracting is hereby declared prohibited. For this
purpose, 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) [T]he contractor does not exercise the right to control over the performance of the work of the contractual
employee.

The foregoing provisions shall be without prejudice to the application of Article 248 (c) of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed capitalization in the case of corporations, tools,
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 workers are
performed, to determine not only the end to be achieved, but also the manner and means to be used in reaching that end.

x x x x (Underscoring supplied.)

Clearly, the law and its implementing rules allow contracting arrangements for the performance of specific jobs, works or
services. Indeed, it is management prerogative to farm out any of its activities, regardless of whether such activity is
peripheral or core in nature. However, in order for such outsourcing to be valid, it must be made to an independent
contractor because the current labor rules expressly prohibit labor-only contracting.
To emphasize, there is labor-only contracting when the contractor or sub-contractor merely recruits, supplies or places
workers to perform a job, work or service for a principal25 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 contractualemployee. (Underscoring supplied)

In the instant case, the financial statements26 of Promm-Gem show that it

has authorized capital stock of ₱1 million and a paid-in capital, or capital available for operations, of ₱500,000.00 as of
1990.27 It also has long term assets worth ₱432,895.28 and current assets of ₱719,042.32. Promm-Gem has also proven
that it maintained its own warehouse and office space with a floor area of 870 square meters. 28 It also had under its name
three registered vehicles which were used for its promotional/merchandising business. 29Promm-Gem also has other
clients30 aside from P&G.31 Under the circumstances, we find that Promm-Gem has substantial investment which relates
to the work to be performed. These factors negate the existence of the element specified in Section 5(i) of DOLE
Department Order No. 18-02.

The records also show that Promm-Gem supplied its complainant-workers with the relevant materials, such as markers,
tapes, liners and cutters, necessary for them to perform their work. Promm-Gem also issued uniforms to them. It is also
relevant to mention that Promm-Gem already considered the complainants working under it as its regular, not merely
contractual or project, employees.32 This circumstance negates the existence of element (ii) as stated in Section 5 of
DOLE Department Order No. 18-02, which speaks of contractual employees. This, furthermore, negates – on the part of
Promm-Gem – bad faith and intent to circumvent labor laws which factors have often been tipping points that lead the
Court to strike down the employment practice or agreement concerned as contrary to public policy, morals, good customs
or public order.33

Under the circumstances, Promm-Gem cannot be considered as a labor-only contractor. We find that it is a legitimate
independent contractor.

On the other hand, the Articles of Incorporation of SAPS shows that it has a paid-in capital of only ₱31,250.00. There is
no other evidence presented to show how much its working capital and assets are. Furthermore, there is no showing of
substantial investment in tools, equipment or other assets.

In Vinoya v. National Labor Relations Commission,34 the Court held that "[w]ith the current economic atmosphere in the
country, the paid-in capitalization of PMCI amounting to ₱75,000.00 cannot be considered as substantial capital and, as
such, PMCI cannot qualify as an independent contractor." 35 Applying the same rationale to the present case, it is clear that
SAPS – having a paid-in capital of only ₱31,250 - has no substantial capital. SAPS’ lack of substantial capital is
underlined by the records36 which show that its payroll for its merchandisers alone for one month would already total
₱44,561.00. It had 6-month contracts with P&G. 37 Yet SAPS failed to show that it could complete the 6-month contracts
using its own capital and investment. Its capital is not even sufficient for one month’s payroll. SAPS failed to show that its
paid-in capital of ₱31,250.00 is sufficient for the period required for it to generate its needed revenue to sustain its
operations independently. Substantial capital refers to capitalization used in the performance or completion of the job,
work or service contracted out. In the present case, SAPS has failed to show substantial capital.

Furthermore, the petitioners have been charged with the merchandising and promotion of the products of P&G, an activity
that has already been considered by the Court as doubtlessly directly related to the manufacturing business, 38 which is the
principal business of P&G. Considering that SAPS has no substantial capital or investment and the workers it recruited
are performing activities which are directly related to the principal business of P&G, we find that the former is engaged in
"labor-only contracting".

"Where ‘labor-only’ contracting exists, the Labor Code itself establishes an employer-employee relationship between the
employer and the employees of the ‘labor-only’ contractor." 39 The statute establishes this relationship for a comprehensive
purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer
and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer.40

Consequently, the following petitioners, having been recruited and supplied

by SAPS41 -- which engaged in labor-only contracting -- are considered as the employees of P&G: Arthur Corpuz, Eric
Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao Buenaventura,
Lope Salonga, Franz David, Nestor Ignacio, Jr., Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio Soriano, Jr.,
Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos, Rainer N.
Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo, Gerry
Gatpo, German Guevara, Gilbert V. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr.,
Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin.

The following petitioners, having worked under, and been dismissed by Promm-Gem, are considered the employees of
Promm-Gem, not of P&G: Wilfredo Torres, John Sumergido, Edwin Garcia, Mario P. Liongson, Jr., Ferdinand Salvo,
Alejandrino Abaton, Emmanuel A. Laban, Ernesto Soyosa, Aladino Gregore, Jr., Ramil Reyes, Ruben Vasquez, Jr.,
Maximino Pascual, Willie Ortiz, Armando Villar, Jose Fernando Gutierrez, Ramiro Pita, Fernando Macabenta, Nestor
Esquila, Julio Rey, Albert Leynes, Ernesto Calanao, Roberto Rosales, Antonio Dacuma, Tadeo Durano, Raul Dulay,
Marino Maranion, Joseph Banico, Melchor Cardano, Reynaldo Jacaban, and Joeb Aliviado. 42

Termination of services

We now discuss the issue of whether petitioners were illegally dismissed. In cases of regular employment, the employer
shall not terminate the services of an employee except for a just 43 or authorized44 cause.

In the instant case, the termination letters given by Promm-Gem to its employees uniformly specified the cause of
dismissal as grave misconduct and breach of trust, as follows:

xxxx

This informs you that effective May 5, 1992, your employment with our company, Promm-Gem, Inc. has been terminated.
We find your expressed admission, that you considered yourself as an employee of Procter & Gamble Phils., Inc…. and
assailing the integrity of the Company as legitimate and independent promotion firm, is deemed as an act of disloyalty
prejudicial to the interests of our Company: serious misconduct and breach of trust reposed upon you as employee of our
Company which [co]nstitute just cause for the termination of your employment.

x x x x45

Misconduct has been defined as improper or wrong conduct; the transgression of some established and definite rule of
action, a forbidden act, a dereliction of duty, unlawful in character implying wrongful intent and not mere error of judgment.
The misconduct to be serious must be of such grave and aggravated character and not merely trivial and
unimportant.46 To be a just cause for dismissal, such misconduct (a) must be serious; (b) must relate to the performance
of the employee’s duties; and (c) must show that the employee has become unfit to continue working for the employer. 47

In other words, in order to constitute serious misconduct which will warrant the dismissal of an employee under paragraph
(a) of Article 282 of the Labor Code, it is not sufficient that the act or conduct complained of has violated some established
rules or policies. It is equally important and required that the act or conduct must have been performed with wrongful
intent.48 In the instant case, petitioners-employees of Promm-Gem may have committed an error of judgment in claiming
to be employees of P&G, but it cannot be said that they were motivated by any wrongful intent in doing so. As such, we
find them guilty of only simple misconduct for assailing the integrity of Promm-Gem as a legitimate and independent
promotion firm. A misconduct which is not serious or grave, as that existing in the instant case, cannot be a valid basis for
dismissing an employee.

Meanwhile, loss of trust and confidence, as a ground for dismissal, must be based on the willful breach of the trust
reposed in the employee by his employer. Ordinary breach will not suffice. A breach of trust is willful if it is done
intentionally, knowingly and purposely, without justifiable excuse, as distinguished from an act done carelessly,
thoughtlessly, heedlessly or inadvertently.49

Loss of trust and confidence, as a cause for termination of employment, is premised on the fact that the employee
concerned holds a position of responsibility or of trust and confidence. As such, he must be invested with confidence on
delicate matters, such as custody, handling or care and protection of the property and assets of the employer. And, in
order to constitute a just cause for dismissal, the act complained of must be work-related and must show that the
employee is unfit to continue to work for the employer. 50 In the instant case, the petitioners-employees of Promm-Gem
have not been shown to be occupying positions of responsibility or of trust and confidence. Neither is there any evidence
to show that they are unfit to continue to work as merchandisers for Promm-Gem.

All told, we find no valid cause for the dismissal of petitioners-employees of Promm-Gem.

While Promm-Gem had complied with the procedural aspect of due process in terminating the employment of petitioners-
employees, i.e., giving two notices and in between such notices, an opportunity for the employees to answer and rebut the
charges against them, it failed to comply with the substantive aspect of due process as the acts complained of neither
constitute serious misconduct nor breach of trust. Hence, the dismissal is illegal.

With regard to the petitioners placed with P&G by SAPS, they were given no written notice of dismissal. The records show
that upon receipt by SAPS of P&G’s letter terminating their "Merchandising Services Contact" effective March 11, 1993,
they in turn verbally informed the concerned petitioners not to report for work anymore. The concerned petitioners related
their dismissal as follows:

xxxx

5. On March 11, 1993, we were called to a meeting at SAPS office. We were told by Mr. Saturnino A. Ponce that we
should already stop working immediately because that was the order of Procter and Gamble. According to him he could
not do otherwise because Procter and Gamble was the one paying us. To prove that Procter and Gamble was the one
responsible in our dismissal, he showed to us the letter 51 dated February 24, 1993, x x x

February 24, 1993

Sales and Promotions Services

Armon’s Bldg., 142 Kamias Road,
Quezon City

Attention: Mr. Saturnino A. Ponce

President & General Manager

Gentlemen:

Based on our discussions last 5 and 19 February 1993, this formally informs you that we will not be renewing our
Merchandising Services Contract with your agency.

Please immediately undertake efforts to ensure that your services to the Company will terminate effective close of
business hours of 11 March 1993.

This is without prejudice to whatever obligations you may have to the company under the abovementioned contract.

Very truly yours,

(Sgd.)
EMMANUEL M. NON
Sales Merchandising III

6. On March 12, 1993, we reported to our respective outlet assignments. But, we were no longer allowed to work and we
were refused entrance by the security guards posted. According to the security guards, all merchandisers of Procter and
Gamble under S[APS] who filed a case in the Dept. of Labor are already dismissed as per letter of Procter and Gamble
dated February 25, 1993. x x x52

Neither SAPS nor P&G dispute the existence of these circumstances. Parenthetically, unlike Promm-Gem which
dismissed its employees for grave misconduct and breach of trust due to disloyalty, SAPS dismissed its employees upon
the initiation of P&G. It is evident that SAPS does not carry on its own business because the termination of its contract
with P&G automatically meant for it also the termination of its employees’ services. It is obvious from its act that SAPS
had no other clients and had no intention of seeking other clients in order to further its merchandising business. From all
indications SAPS, existed to cater solely to the need of P&G for the supply of employees in the latter’s merchandising
concerns only. Under the circumstances prevailing in the instant case, we cannot consider SAPS as
an independent contractor.

Going back to the matter of dismissal, it must be emphasized that the onus probandi to prove the lawfulness of the
dismissal rests with the employer. 53 In termination cases, the burden of proof rests upon the employer to show that the
dismissal is for just and valid cause. 54 In the instant case, P&G failed to discharge the burden of proving the legality and
validity of the dismissals of those petitioners who are considered its employees. Hence, the dismissals necessarily were
not justified and are therefore illegal.

Damages

We now go to the issue of whether petitioners are entitled to damages. Moral

and exemplary damages are recoverable where the dismissal of an employee was attended by bad faith or fraud or
constituted an act oppressive to labor or was done in a manner contrary to morals, good customs or public policy. 55

With regard to the employees of Promm-Gem, there being no evidence of bad faith, fraud or any oppressive act on the
part of the latter, we find no support for the award of damages.

As for P&G, the records show that it dismissed its employees through SAPS in a manner oppressive to labor. The sudden
and peremptory barring of the concerned petitioners from work, and from admission to the work place, after just a one-day
verbal notice, and for no valid cause bellows oppression and utter disregard of the right to due process of the concerned
petitioners. Hence, an award of moral damages is called for.

Attorney’s fees may likewise be awarded to the concerned petitioners who were illegally dismissed in bad faith and were
compelled to litigate or incur expenses to protect their rights by reason of the oppressive acts 56 of P&G.

Lastly, under Article 279 of the Labor Code, an employee who is unjustly dismissed from work shall be entitled to
reinstatement without loss of seniority rights and other privileges, inclusive of allowances, and other benefits or their
monetary equivalent from the time the compensation was withheld up to the time of actual reinstatement. 57 Hence, all the
petitioners, having been illegally dismissed are entitled to reinstatement without loss of seniority rights and with full back
wages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.1avvphi1

WHEREFORE, the petition is GRANTED. The Decision dated March 21, 2003 of the Court of Appeals in CA-G.R. SP No.
52082 and the Resolution dated October 20, 2003 are REVERSED and SET ASIDE. Procter & Gamble Phils., Inc. and
Promm-Gem, Inc. are ORDERED to reinstate their respective employees immediately without loss of seniority rights and
with full backwages and other benefits from the time of their illegal dismissal up to the time of their actual reinstatement.
Procter & Gamble Phils., Inc. is further ORDERED to pay each of those petitioners considered as its employees, namely
Arthur Corpuz, Eric Aliviado, Monchito Ampeloquio, Abraham Basmayor, Jr., Jonathan Mateo, Lorenzo Platon, Estanislao
Buenaventura, Lope Salonga, Franz David, Nestor Ignacio, Rolando Romasanta, Roehl Agoo, Bonifacio Ortega, Arsenio
Soriano, Jr., Arnel Endaya, Roberto Enriquez, Edgardo Quiambao, Santos Bacalso, Samson Basco, Alstando Montos,
Rainer N. Salvador, Pedro G. Roy, Leonardo F. Talledo, Enrique F. Talledo, Joel Billones, Allan Baltazar, Noli Gabuyo,
Gerry Gatpo, German Guevara, Gilbert Y. Miranda, Rodolfo C. Toledo, Jr., Arnold D. Laspoña, Philip M. Loza, Mario N.
Coldayon, Orlando P. Jimenez, Fred P. Jimenez, Restituto C. Pamintuan, Jr., Rolando J. De Andres, Artuz Bustenera, Jr.,
Roberto B. Cruz, Rosedy O. Yordan, Orlando S. Balangue, Emil Tawat, Cresente J. Garcia, Melencio Casapao, Romeo
Vasquez, Renato dela Cruz, Romeo Viernes, Jr., Elias Basco and Dennis Dacasin, ₱25,000.00 as moral damages plus
ten percent of the total sum as and for attorney’s fees.

Let this case be REMANDED to the Labor Arbiter for the computation, within 30 days from receipt of this Decision, of
petitioners’ backwages and other benefits; and ten percent of the total sum as and for attorney’s fees as stated above;
and for immediate execution.
SMART COMMUNICATIONS, INC., vs REGINA M. ASTORGA,

For the resolution of the Court are three consolidated petitions for review on certiorari under Rule 45 of the Rules of Court.
G.R. No. 148132 assails the February 28, 2000 Decision 1 and the May 7, 2001 Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP. No. 53831. G.R. Nos. 151079 and 151372 question the June 11, 2001 Decision 3 and the December 18,
2001 Resolution4 in CA-G.R. SP. No. 57065.

Regina M. Astorga (Astorga) was employed by respondent Smart Communications, Incorporated (SMART) on May 8,
1997 as District Sales Manager of the Corporate Sales Marketing Group/ Fixed Services Division (CSMG/FSD). She was
receiving a monthly salary of P33,650.00. As District Sales Manager, Astorga enjoyed additional benefits, namely, annual
performance incentive equivalent to 30% of her annual gross salary, a group life and hospitalization insurance coverage,
and a car plan in the amount of P455,000.00.5

In February 1998, SMART launched an organizational realignment to achieve more efficient operations. This was made
known to the employees on February 27, 1998. 6 Part of the reorganization was the outsourcing of the marketing and sales
force. Thus, SMART entered into a joint venture agreement with NTT of Japan, and formed SMART-NTT Multimedia,
Incorporated (SNMI). Since SNMI was formed to do the sales and marketing work, SMART abolished the CSMG/FSD,
Astorga’s division.

To soften the blow of the realignment, SNMI agreed to absorb the CSMG personnel who would be recommended by
SMART. SMART then conducted a performance evaluation of CSMG personnel and those who garnered the highest
ratings were favorably recommended to SNMI. Astorga landed last in the performance evaluation, thus, she was not
recommended by SMART. SMART, nonetheless, offered her a supervisory position in the Customer Care Department,
but she refused the offer because the position carried lower salary rank and rate. 

Despite the abolition of the CSMG/FSD, Astorga continued reporting for work. But on March 3, 1998, SMART issued a
memorandum advising Astorga of the termination of her employment on ground of redundancy, effective April 3, 1998.
Astorga received it on March 16, 1998.7

The termination of her employment prompted Astorga to file a Complaint 8 for illegal dismissal, non-payment of salaries
and other benefits with prayer for moral and exemplary damages against SMART and Ann Margaret V. Santiago
(Santiago). She claimed that abolishing CSMG and, consequently, terminating her employment was illegal for it violated
her right to security of tenure. She also posited that it was illegal for an employer, like SMART, to contract out services
which will displace the employees, especially if the contractor is an in-house agency. 9

SMART responded that there was valid termination. It argued that Astorga was dismissed by reason of redundancy, which
is an authorized cause for termination of employment, and the dismissal was effected in accordance with the
requirements of the Labor Code. The redundancy of Astorga’s position was the result of the abolition of CSMG and the
creation of a specialized and more technically equipped SNMI, which is a valid and legitimate exercise of management
prerogative.10

In the meantime, on May 18, 1998, SMART sent a letter to Astorga demanding that she pay the current market value of
the Honda Civic Sedan which was given to her under the company’s car plan program, or to surrender the same to the
company for proper disposition.11 Astorga, however, failed and refused to do either, thus prompting SMART to file a suit
for replevin with the Regional Trial Court of Makati (RTC) on August 10, 1998. The case was docketed as Civil Case No.
98-1936 and was raffled to Branch 57.12

Astorga moved to dismiss the complaint on grounds of (i) lack of jurisdiction; (ii) failure to state a cause of action; (iii) litis
pendentia; and (iv) forum-shopping. Astorga posited that the regular courts have no jurisdiction over the complaint
because the subject thereof pertains to a benefit arising from an employment contract; hence, jurisdiction over the same is
vested in the labor tribunal and not in regular courts. 13

Pending resolution of Astorga’s motion to dismiss the replevin case, the Labor Arbiter rendered a Decision 14 dated August
20, 1998, declaring Astorga’s dismissal from employment illegal. While recognizing SMART’s right to abolish any of its
departments, the Labor Arbiter held that such right should be exercised in good faith and for causes beyond its control.
The Arbiter found the abolition of CSMG done neither in good faith nor for causes beyond the control of SMART, but a
ploy to terminate Astorga’s employment. The Arbiter also ruled that contracting out the functions performed by Astorga to
an in-house agency like SNMI was illegal, citing Section 7(e), Rule VIII-A of the Rules Implementing the Labor Code. 
Accordingly, the Labor Arbiter ordered:

WHEREFORE, judgment is hereby rendered declaring the dismissal of [Astorga] to be illegal and unjust. [SMART
and Santiago] are hereby ordered to:

1. Reinstate [Astorga] to [her] former position or to a substantially equivalent position, without loss of seniority
rights and other privileges, with full backwages, inclusive of allowances and other benefits from the time of [her]
dismissal to the date of reinstatement, which computed as of this date, are as follows:

(a) Astorga
BACKWAGES; (P33,650.00 x 4 months) = P134,600.00
UNPAID SALARIES (February 15, 1998-April 3,
1998
February 15-28, 1998 = P 16,823.00
March 1-31, [1998] = P 33,650.00
April 1-3, 1998 = P 3,882.69
CAR MAINTENANCE ALLOWANCE = P 8,000.00
(P2,000.00 x 4)
FUEL ALLOWANCE  = P 14,457.83
(300 liters/mo. x 4 mos. at P12.04/liter)
TOTAL = P211,415.52

xxxx

3. Jointly and severally pay moral damages in the amount of P500,000.00 x x x and exemplary damages in the
amount of P300,000.00. x x x

4. Jointly and severally pay 10% of the amount due as attorney’s fees.

SO ORDERED.15

Subsequently, on March 29, 1999, the RTC issued an Order 16 denying Astorga’s motion to dismiss the replevin case. In
so ruling, the RTC ratiocinated that:

Assessing the [submission] of the parties, the Court finds no merit in the motion to dismiss.

As correctly pointed out, this case is to enforce a right of possession over a company car assigned to the
defendant under a car plan privilege arrangement. The car is registered in the name of the plaintiff. Recovery
thereof via replevin suit is allowed by Rule 60 of the 1997 Rules of Civil Procedure, which is undoubtedly within
the jurisdiction of the Regional Trial Court.

In the Complaint, plaintiff claims to be the owner of the company car and despite demand, defendant refused to
return said car. This is clearly sufficient statement of plaintiff’s cause of action.

Neither is there forum shopping. The element of litis penden[t]ia does not appear to exist because the judgment in
the labor dispute will not constitute res judicata to bar the filing of this case.

WHEREFORE, the Motion to Dismiss is hereby denied for lack of merit.

SO ORDERED.17

Astorga filed a motion for reconsideration, but the RTC denied it on June 18, 1999. 18
Astorga elevated the denial of her motion via certiorari to the CA, which, in its February 28, 2000 Decision, 19reversed the
RTC ruling. Granting the petition and, consequently, dismissing the replevin case, the CA held that the case is intertwined
with Astorga’s complaint for illegal dismissal; thus, it is the labor tribunal that has rightful jurisdiction over the complaint.
SMART’s motion for reconsideration having been denied, 20 it elevated the case to this Court, now docketed as G.R. No.
148132.

Meanwhile, SMART also appealed the unfavorable ruling of the Labor Arbiter in the illegal dismissal case to the National
Labor Relations Commission (NLRC). In its September 27, 1999 Decision, 21 the NLRC sustained Astorga’s dismissal.
Reversing the Labor Arbiter, the NLRC declared the abolition of CSMG and the creation of SNMI to do the sales and
marketing services for SMART a valid organizational action. It overruled the Labor Arbiter’s ruling that SNMI is an in-
house agency, holding that it lacked legal basis. It also declared that contracting, subcontracting and streamlining of
operations for the purpose of increasing efficiency are allowed under the law. The NLRC further found erroneous the
Labor Arbiter’s disquisition that redundancy to be valid must be impelled by economic reasons, and upheld the
redundancy measures undertaken by SMART.

The NLRC disposed, thus:

WHEREFORE, the Decision of the Labor Arbiter is hereby reversed and set aside. [Astorga] is further ordered to
immediately return the company vehicle assigned to her. [Smart and Santiago] are hereby ordered to pay the final
wages of [Astorga] after [she] had submitted the required supporting papers therefor.

SO ORDERED.22

Astorga filed a motion for reconsideration, but the NLRC denied it on December 21, 1999. 23

Astorga then went to the CA via certiorari. On June 11, 2001, the CA rendered a Decision 24 affirming with modification the
resolutions of the NLRC. In gist, the CA agreed with the NLRC that the reorganization undertaken by SMART resulting in
the abolition of CSMG was a legitimate exercise of management prerogative. It rejected Astorga’s posturing that her non-
absorption into SNMI was tainted with bad faith. However, the CA found that SMART failed to comply with the mandatory
one-month notice prior to the intended termination. Accordingly, the CA imposed a penalty equivalent to Astorga’s one-
month salary for this non-compliance. The CA also set aside the NLRC’s order for the return of the company vehicle
holding that this issue is not essentially a labor concern, but is civil in nature, and thus, within the competence of the
regular court to decide. It added that the matter had not been fully ventilated before the NLRC, but in the regular court.

Astorga filed a motion for reconsideration, while SMART sought partial reconsideration, of the Decision. On December 18,
2001, the CA resolved the motions, viz.:

WHEREFORE, [Astorga’s] motion for reconsideration is hereby PARTIALLY GRANTED. [Smart] is hereby
ordered to pay [Astorga] her backwages from 15 February 1998 to 06 November 1998. [Smart’s] motion for
reconsideration is outrightly DENIED.

SO ORDERED.25

Astorga and SMART came to us with their respective petitions for review assailing the CA ruling, docketed as G.R Nos.
151079 and 151372. On February 27, 2002, this Court ordered the consolidation of these petitions with G.R. No.
148132.26

In her Memorandum, Astorga argues:

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF ASTORGA’S DISMISSAL DESPITE
THE FACT THAT HER DISMISSAL WAS EFFECTED IN CLEAR VIOLATION OF THE CONSTITUTIONAL
RIGHT TO SECURITY OF TENURE, CONSIDERING THAT THERE WAS NO GENUINE GROUND FOR HER
DISMISSAL.

II
 SMART’S REFUSAL TO REINSTATE ASTORGA DURING THE PENDENCY OF THE APPEAL AS REQUIRED
BY ARTICLE 223 OF THE LABOR CODE, ENTITLES ASTORGA TO HER SALARIES DURING THE
PENDENCY OF THE APPEAL.

III

THE COURT OF APPEALS WAS CORRECT IN HOLDING THAT THE REGIONAL TRIAL COURT HAS NO
JURISDICTION OVER THE COMPLAINT FOR RECOVERY OF A CAR WHICH ASTORGA ACQUIRED AS
PART OF HER EMPLOYEE (sic) BENEFIT.27

On the other hand, Smart in its Memoranda raises the following issues:

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A

WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION OF THE HONORABLE
SUPREME COURT AND HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION WHEN IT
RULED THAT SMART DID NOT COMPLY WITH THE NOTICE REQUIREMENTS PRIOR TO TERMINATING
ASTORGA ON THE GROUND OF REDUNDANCY.

II

WHETHER THE NOTICES GIVEN BY SMART TO ASTORGA AND THE DEPARTMENT OF LABOR AND
EMPLOYMENT ARE SUBSTANTIAL COMPLIANCE WITH THE NOTICE REQUIREMENTS BEFORE
TERMINATION.

III

WHETHER THE RULE ENUNCIATED IN SERRANO VS. NATIONAL LABOR RELATIONS COMMISSION
FINDS APPLICATION IN THE CASE AT BAR CONSIDERING THAT IN THE SERRANO CASE THERE WAS
ABSOLUTELY NO NOTICE AT ALL.28

IV

WHETHER THE HONORABLE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A

WAY PROBABLY NOT IN ACCORD WITH LAW OR WITH APPLICABLE DECISION[S] OF THE HONORABLE
SUPREME COURT AND HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF THE POWER OF SUPERVISION WHEN IT
RULED THAT THE REGIONAL TRIAL COURT DOES NOT HAVE JURISDICTION OVER THE COMPLAINT
FOR REPLEVIN FILED BY SMART TO RECOVER ITS OWN COMPANY VEHICLE FROM A FORMER
EMPLOYEE WHO WAS LEGALLY DISMISSED.

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE THAT THE SUBJECT OF
THE REPLEVIN CASE IS NOT THE ENFORCEMENT OF A CAR PLAN PRIVILEGE BUT SIMPLY THE
RECOVERY OF A COMPANY CAR.

VI

WHETHER THE HONORABLE COURT OF APPEALS HAS FAILED TO APPRECIATE THAT ASTORGA CAN
NO LONGER BE CONSIDERED AS AN EMPLOYEE OF SMART UNDER THE LABOR CODE. 29

The Court shall first deal with the propriety of dismissing the replevin case filed with the RTC of Makati City allegedly for
lack of jurisdiction, which is the issue raised in G.R. No. 148132.
Replevin is an action whereby the owner or person entitled to repossession of goods or chattels may recover those goods
or chattels from one who has wrongfully distrained or taken, or who wrongfully detains such goods or chattels. It is
designed to permit one having right to possession to recover property in specie from one who has wrongfully taken or
detained the property.30 The term may refer either to the action itself, for the recovery of personalty, or to the provisional
remedy traditionally associated with it, by which possession of the property may be obtained by the plaintiff and retained
during the pendency of the action.31

That the action commenced by SMART against Astorga in the RTC of Makati City was one for replevin hardly admits of
doubt. 

In reversing the RTC ruling and consequently dismissing the case for lack of jurisdiction, the CA made the following
disquisition, viz.:

[I]t is plain to see that the vehicle was issued to [Astorga] by [Smart] as part of the employment package. We
doubt that [SMART] would extend [to Astorga] the same car plan privilege were it not for her employment as
district sales manager of the company. Furthermore, there is no civil contract for a loan between [Astorga] and
[Smart]. Consequently, We find that the car plan privilege is a benefit arising out of employer-employee
relationship. Thus, the claim for such falls squarely within the original and exclusive jurisdiction of the labor
arbiters and the NLRC.32

We do not agree. Contrary to the CA’s ratiocination, the RTC rightfully assumed jurisdiction over the suit and acted well
within its discretion in denying Astorga’s motion to dismiss. SMART’s demand for payment of the market value of the car
or, in the alternative, the surrender of the car, is not a labor, but a civil, dispute. It involves the relationship of debtor and
creditor rather than employee-employer relations.33 As such, the dispute falls within the jurisdiction of the regular courts. 

In Basaya, Jr. v. Militante,34 this Court, in upholding the jurisdiction of the RTC over the replevin suit, explained: 

Replevin is a possessory action, the gist of which is the right of possession in the plaintiff. The primary relief
sought therein is the return of the property in specie wrongfully detained by another person. It is an ordinary
statutory proceeding to adjudicate rights to the title or possession of personal property. The question of whether or
not a party has the right of possession over the property involved and if so, whether or not the adverse party has
wrongfully taken and detained said property as to require its return to plaintiff, is outside the pale of competence
of a labor tribunal and beyond the field of specialization of Labor Arbiters.

xxxx

The labor dispute involved is not intertwined with the issue in the Replevin Case. The respective issues raised in
each forum can be resolved independently on the other. In fact in 18 November 1986, the NLRC in the case
before it had issued an Injunctive Writ enjoining the petitioners from blocking the free ingress and egress to the
Vessel and ordering the petitioners to disembark and vacate. That aspect of the controversy is properly settled
under the Labor Code. So also with petitioners’ right to picket. But the determination of the question of who has
the better right to take possession of the Vessel and whether petitioners can deprive the Charterer, as the legal
possessor of the Vessel, of that right to possess in addressed to the competence of Civil Courts.

In thus ruling, this Court is not sanctioning split jurisdiction but defining avenues of jurisdiction as laid down by
pertinent laws. 

The CA, therefore, committed reversible error when it overturned the RTC ruling and ordered the dismissal of the replevin
case for lack of jurisdiction.

Having resolved that issue, we proceed to rule on the validity of Astorga’s dismissal.

Astorga was terminated due to redundancy, which is one of the authorized causes for the dismissal of an employee. The
nature of redundancy as an authorized cause for dismissal is explained in the leading case of  Wiltshire File Co., Inc. v.
National Labor Relations Commission,35 viz:

x x x redundancy in an employer’s personnel force necessarily or even ordinarily refers to duplication of work.
That no other person was holding the same position that private respondent held prior to termination of his
services does not show that his position had not become redundant. Indeed, in any well organized business
 enterprise, it would be surprising to find duplication of work and two (2) or more people doing the work of one
person. We believe that redundancy, for purposes of the Labor Code, exists where the services of an employee
are in excess of what is reasonably demanded by the actual requirements of the enterprise. Succinctly put, a
position is redundant where it is superfluous, and superfluity of a position or positions may be the outcome of a
number of factors, such as overhiring of workers, decreased volume of business, or dropping of a particular
product line or service activity previously manufactured or undertaken by the enterprise.

The characterization of an employee’s services as superfluous or no longer necessary and, therefore, properly terminable,
is an exercise of business judgment on the part of the employer. The wisdom and soundness of such characterization or
decision is not subject to discretionary review provided, of course, that a violation of law or arbitrary or malicious action is
not shown.36

Astorga claims that the termination of her employment was illegal and tainted with bad faith. She asserts that the
reorganization was done in order to get rid of her. But except for her barefaced allegation, no convincing evidence was
offered to prove it. This Court finds it extremely difficult to believe that SMART would enter into a joint venture agreement
with NTT, form SNMI and abolish CSMG/FSD simply for the sole purpose of easing out a particular employee, such as
Astorga. Moreover, Astorga never denied that SMART offered her a supervisory position in the Customer Care
Department, but she refused the offer because the position carried a lower salary rank and rate. If indeed SMART simply
wanted to get rid of her, it would not have offered her a position in any department in the enterprise. 

Astorga also states that the justification advanced by SMART is not true because there was no compelling economic
reason for redundancy. But contrary to her claim, an employer is not precluded from adopting a new policy conducive to a
more economical and effective management even if it is not experiencing economic reverses. Neither does the law
require that the employer should suffer financial losses before he can terminate the services of the employee on the
ground of redundancy. 37

We agree with the CA that the organizational realignment introduced by SMART, which culminated in the abolition of
CSMG/FSD and termination of Astorga’s employment was an honest effort to make SMART’s sales and marketing
departments more efficient and competitive. As the CA had taken pains to elucidate:

x x x a careful and assiduous review of the records will yield no other conclusion than that the reorganization
undertaken by SMART is for no purpose other than its declared objective – as a labor and cost savings device.
Indeed, this Court finds no fault in SMART’s decision to outsource the corporate sales market to SNMI in order to
attain greater productivity. [Astorga] belonged to the Sales Marketing Group under the Fixed Services Division
(CSMG/FSD), a distinct sales force of SMART in charge of selling SMART’s telecommunications services to the
corporate market. SMART, to ensure it can respond quickly, efficiently and flexibly to its customer’s requirement,
abolished CSMG/FSD and shortly thereafter assigned its functions to newly-created SNMI Multimedia
Incorporated, a joint venture company of SMART and NTT of Japan, for the reason that CSMG/FSD does not
have the necessary technical expertise required for the value added services. By transferring the duties of
CSMG/FSD to SNMI, SMART has created a more competent and specialized organization to perform the work
required for corporate accounts. It is also relieved SMART of all administrative costs – management, time and
money-needed in maintaining the CSMG/FSD. The determination to outsource the duties of the CSMG/FSD to
SNMI was, to Our mind, a sound business judgment based on relevant criteria and is therefore a legitimate
exercise of management prerogative. 

Indeed, out of our concern for those lesser circumstanced in life, this Court has inclined towards the worker and upheld
his cause in most of his conflicts with his employer. This favored treatment is consonant with the social justice policy of
the Constitution. But while tilting the scales of justice in favor of workers, the fundamental law also guarantees the right of
the employer to reasonable returns for his investment. 38 In this light, we must acknowledge the prerogative of the
employer to adopt such measures as will promote greater efficiency, reduce overhead costs and enhance prospects of
economic gains, albeit always within the framework of existing laws. Accordingly, we sustain the reorganization and
redundancy program undertaken by SMART. 

However, as aptly found by the CA, SMART failed to comply with the mandated one (1) month notice prior to termination.
The record is clear that Astorga received the notice of termination only on March 16, 1998 39 or less than a month prior to
its effectivity on April 3, 1998. Likewise, the Department of Labor and Employment was notified of the redundancy
program only on March 6, 1998.40

Article 283 of the Labor Code clearly provides:

 Art. 283. Closure of establishment and reduction of personnel. — The employer may also terminate the
employment of any employee due to the installation of labor saving devices, redundancy, retrenchment to prevent
losses or the closing or cessation of operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on the workers and the Ministry of
Labor and Employment at least one (1) month before the intended date thereof x x x.

SMART’s assertion that Astorga cannot complain of lack of notice because the organizational realignment was made
known to all the employees as early as February 1998 fails to persuade. Astorga’s actual knowledge of the reorganization
cannot replace the formal and written notice required by the law. In the written notice, the employees are informed of the
specific date of the termination, at least a month prior to the effectivity of such termination, to give them sufficient time to
find other suitable employment or to make whatever arrangements are needed to cushion the impact of termination. In
this case, notwithstanding Astorga’s knowledge of the reorganization, she remained uncertain about the status of her
employment until SMART gave her formal notice of termination. But such notice was received by Astorga barely two (2)
weeks before the effective date of termination, a period very much shorter than that required by law. 

Be that as it may, this procedural infirmity would not render the termination of Astorga’s employment illegal. The validity of
termination can exist independently of the procedural infirmity of the dismissal. 41 In DAP Corporation v. CA,42 we found the
dismissal of the employees therein valid and for authorized cause even if the employer failed to comply with the notice
requirement under Article 283 of the Labor Code. This Court upheld the dismissal, but held the employer liable for non-
compliance with the procedural requirements. 

The CA, therefore, committed no reversible error in sustaining Astorga’s dismissal and at the same time, awarding
indemnity for violation of Astorga's statutory rights. 

However, we find the need to modify, by increasing, the indemnity awarded by the CA to Astorga, as a sanction on
SMART for non-compliance with the one-month mandatory notice requirement, in light of our ruling in Jaka Food
Processing Corporation v. Pacot,43 viz.:

[I]f the dismissal is based on a just cause under Article 282 but the employer failed to comply with the notice
requirement, the sanction to be imposed upon him should be tempered because the dismissal process was, in
effect, initiated by an act imputable to the employee, and (2) if the dismissal is based on an authorized cause
under Article 283 but the employer failed to comply with the notice requirement, the sanction should
be stiffer because the dismissal process was initiated by the employer’s exercise of his management prerogative. 

We deem it proper to increase the amount of the penalty on SMART to P50,000.00.

As provided in Article 283 of the Labor Code, Astorga is, likewise, entitled to separation pay equivalent to at least one (1)
month salary or to at least one (1) month’s pay for every year of service, whichever is higher. The records show that
Astorga’s length of service is less than a year. She is, therefore, also entitled to separation pay equivalent to one (1)
month pay. 

Finally, we note that Astorga claimed non-payment of wages from February 15, 1998. This assertion was never rebutted
by SMART in the proceedings a quo. No proof of payment was presented by SMART to disprove the allegation. It is
settled that in labor cases, the burden of proving payment of monetary claims rests on the employer. 44 SMART failed to
discharge the onus probandi. Accordingly, it must be held liable for Astorga’s salary from February 15, 1998 until the
effective date of her termination, on April 3, 1998.

However, the award of backwages to Astorga by the CA should be deleted for lack of basis. Backwages is a relief given to
an illegally dismissed employee. Thus, before backwages may be granted, there must be a finding of unjust or illegal
dismissal from work.45 The Labor Arbiter ruled that Astorga was illegally dismissed. But on appeal, the NLRC reversed the
Labor Arbiter’s ruling and categorically declared Astorga’s dismissal valid. This ruling was affirmed by the CA in its
assailed Decision. Since Astorga’s dismissal is for an authorized cause, she is not entitled to backwages. The CA’s award
of backwages is totally inconsistent with its finding of valid dismissal. 

WHEREFORE, the petition of SMART docketed as G.R. No. 148132 is GRANTED. The February 28, 2000 Decision and
the May 7, 2001 Resolution of the Court of Appeals in CA-G.R. SP. No. 53831 are SET ASIDE. The Regional Trial Court
of Makati City, Branch 57 is DIRECTED to proceed with the trial of Civil Case No. 98-1936 and render its Decision with
reasonable dispatch.
On the other hand, the petitions of SMART and Astorga docketed as G.R. Nos. 151079 and 151372 are  DENIED. The
June 11, 2001 Decision and the December 18, 2001 Resolution in CA-G.R. SP. No. 57065,
are AFFIRMED with MODIFICATION. Astorga is declared validly dismissed. However, SMART is ordered to pay
Astorga P50,000.00 as indemnity for its non-compliance with procedural due process, her separation pay equivalent to
one (1) month pay, and her salary from February 15, 1998 until the effective date of her termination on April 3, 1998. The
award of backwages is DELETED for lack of basis.