DO 18-02 Cases 1

G.R. No. 146408 February 29, 2008

PHILIPPINE AIRLINES, INC., petitioner, vs.ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, BENEDICTO AUXTERO, EDUARDO MAGDADARAUG, NELSON M. DULCE, and ALLAN BENTUZAL, respondents.

CARPIO MORALES, J.:

Petitioner Philippine Airlines as Owner, and Synergy Services Corporation (Synergy) as Contractor, entered into an Agreement1 on July 15, 1991 whereby Synergy undertook to "provide loading, unloading, delivery of baggage and cargo and other related services to and from [petitioner]'s aircraft at the Mactan Station."2

The Agreement specified the following "Scope of Services" of Contractor Synergy:

1.2 CONTRACTOR shall furnish all the necessary capital, workers, loading, unloading and delivery materials, facilities, supplies, equipment and tools for the satisfactory performance and execution of the following services (the Work):a. Loading and unloading of baggage and cargo to and from the aircraft;b. Delivering of baggage from the ramp to the baggage claim area;c. Picking up of baggage from the baggage sorting area to the designated parked aircraft;d. Delivering of cargo unloaded from the flight to cargo terminal;e. Other related jobs (but not janitorial functions) as may be required and necessary;

CONTRACTOR shall perform and execute the aforementioned Work at the following areas located at Mactan Station, to wit:

a. Ramp Areab. Baggage Claim Areac. Cargo Terminal Area, andd. Baggage Sorting Area3 (Underscoring supplied)

And it expressly provided that Synergy was "an independent contractor and . . . that there w[ould] be no employer-employee relationship between CONTRACTOR and/or its employees on the one hand, and OWNER, on the other."4

On the duration of the Agreement, Section 10 thereof provided:

10. 1 Should at any time OWNER find the services herein undertaken by CONTRACTOR to be unsatisfactory, it shall notify CONTRACTOR who shall have fifteen (15) days from such notice within which to improve the services. If CONTRACTOR fails to improve the services under this Agreement according to OWNER'S specifications and standards, OWNER shall have the right to terminate this Agreement immediately and without advance notice.

10.2 Should CONTRACTOR fail to improve the services within the period stated above or should CONTRACTOR breach the terms of this Agreement and fail or refuse to perform the Work in such a manner as will be consistent with the achievement of the result therein contracted for or in any other way fail to comply strictly with any terms of this Agreement, OWNER at its option, shall have the right to terminate this Agreement and to make other arrangements for having said Work performed and pursuant thereto shall retain so much of the money held on the Agreement as is necessary to cover the OWNER's costs and damages, without prejudice to the right of OWNER to seek resort to the bond furnished by CONTRACTOR should the money in OWNER's possession be insufficient.

x x x x (Underscoring supplied)

Except for respondent Benedicto Auxtero (Auxtero), the rest of the respondents, who appear to have been assigned by Synergy to petitioner following the execution of the July 15, 1991 Agreement, filed on March 3, 1992 complaints before the NLRC Regional Office VII at Cebu City against petitioner, Synergy and their respective officials for underpayment, non-payment of premium pay for holidays, premium pay for rest days, service incentive leave pay, 13 th month pay and allowances , and for regularization of employment status with petitioner, they claiming to be "performing duties for the benefit of [petitioner] since their job is directly connected with [its] business x x x."5

Respondent Auxtero had initially filed a complaint against petitioner and Synergy and their respective officials for regularization of his employment status. Later alleging that he was, without valid ground, verbally dismissed, he filed a complaint against petitioner and Synergy and their respective officials for illegal dismissal and reinstatement with full backwages.6

The complaints of respondents were consolidated.

By Decision7 of August 29, 1994, Labor Arbiter Dominador Almirante found Synergy an independent contractor and dismissed respondents' complaint for regularization against petitioner, but granted their money claims. The fallo of the decision reads:

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

(1) Ordering respondents PAL and Synergy jointly and severally to pay all the complainants herein their 13th month pay and service incentive leave benefits;

x x x x(3) Ordering respondent Synergy to pay complainant Benedicto Auxtero a financial assistance in the amount of P5,000.00.

The awards hereinabove enumerated in the aggregate total amount of THREE HUNDRED TWENTY-TWO THOUSAND THREE HUNDRED FIFTY NINE PESOS AND EIGHTY SEVEN CENTAVOS (P322,359.87) are computed in detail by our Fiscal Examiner which computation is hereto attached to form part of this decision.

The rest of the claims are hereby ordered dismissed for lack of merit.8 (Underscoring supplied)

On appeal by respondents, the NLRC, Fourth Division, Cebu City, vacated and set aside the decision of the Labor Arbiter by Decision9 of January 5, 1996, the fallo of which reads:

WHEREFORE, the Decision of the Labor Arbiter Dominador A. Almirante, dated August 29, 1994, is hereby VACATED and SET ASIDE and judgment is hereby rendered:

1. Declaring respondent Synergy Services Corporation to be a 'labor-only' contractor;

2. Ordering respondent Philippine Airlines to accept, as its regular employees, all the complainants, . . . and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the Collective Bargaining Agreement subsisting during the period of their employment;

x x x x4. Declaring the dismissal of complainant Benedicto Auxtero to be illegal and ordering his reinstatement as helper or utility man with respondent Philippine Airlines, with full backwages, allowances and other benefits and privileges from the time of his dismissal up to his actual reinstatement; and

5. Dismissing the appeal of respondent Synergy Services Corporation, for lack of merit.10 (Emphasis and underscoring supplied)

Only petitioner assailed the NLRC decision via petition for certiorari before this Court.

By Resolution11 of January 25, 1999, this Court referred the case to the Court of Appeals for appropriate action and disposition, conformably with St. Martin Funeral Homes v. National Labor Relations Commission which was promulgated on September 16, 1998.

The appellate court, by Decision of September 29, 2000, affirmed the Decision of the NLRC.12 Petitioner's motion for reconsideration having been denied by Resolution of December 21, 2000,13 the present petition was filed, faulting the appellate court

I.. . . IN UPHOLDING THE NATIONAL LABOR RELATIONS COMMISSION DECISION WHICH IMPOSED THE RELATIONSHIP OF EMPLOYER-EMPLOYEE BETWEEN PETITIONER AND THE RESPONDENTS HEREIN.

II.. . . IN AFFIRMING THE RULING OF THE NATIONAL LABOR RELATIONS COMMISSION ORDERING THE REINSTATEMENT OF RESPONDENT AUXTERO DESPITE THE ABSENCE [OF] ANY FACTUAL FINDING IN THE DECISION THAT PETITIONER ILLEGALLY TERMINATED HIS EMPLOYMENT.

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III.. . . [IN ANY EVENT IN] COMMITT[ING] A PATENT AND GRAVE ERROR IN UPHOLDING THE DECISION OF THE NATIONAL LABOR RELATIONS COMMISSION WHICH COMPELLED THE PETITIONER TO EMPLOY THE RESPONDENTS AS REGULAR EMPLOYEES DESPITE THE FACT THAT THEIR SERVICES ARE IN EXCESS OF PETITIONER COMPANY'S OPERATIONAL REQUIREMENTS.14 (Underscoring supplied)

Petitioner argues that the law does not prohibit an employer from engaging an independent contractor, like Synergy, which has substantial capital in carrying on an independent business of contracting, to perform specific jobs.

Petitioner further argues that its contracting out to Synergy various services like janitorial, aircraft cleaning, baggage-handling, etc., which are directly related to its business, does not make respondents its employees.

Petitioner furthermore argues that none of the four (4) elements of an employer-employee relationship between petitioner and respondents, viz: selection and engagement of an employee, payment of wages, power of dismissal, and the power to control employee's conduct, is present in the case.15

Finally, petitioner avers that reinstatement of respondents had been rendered impossible because it had reduced its personnel due to heavy losses as it had in fact terminated its service agreement with Synergy effective June 30, 199816 as a cost-saving measure.

The decision of the case hinges on a determination of whether Synergy is a mere job-only contractor or a legitimate contractor. If Synergy is found to be a mere job-only contractor, respondents could be considered as regular employees of petitioner as Synergy would then be a mere agent of petitioner in which case respondents would be entitled to all the benefits granted to petitioner's regular employees; otherwise, if Synergy is found to be a legitimate contractor, respondents' claims against petitioner must fail as they would then be considered employees of Synergy.

The statutory basis of legitimate contracting or subcontracting is provided in Article 106 of the Labor Code which reads:

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 the 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, capitalization and underscoring supplied)

Legitimate contracting and labor-only contracting are defined in Department Order (D.O.) No. 18-02, Series of 2002 (Rules Implementing Articles 106 to 109 of the Labor Code, as amended) as follows:

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. (Emphasis and underscoring supplied)

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 [ sic ] present:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; OR

(ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis, underscoring and capitalization supplied)

"Substantial capital or investment" and the "right to control" are defined in the same Section 5 of the Department Order as follows:

"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. (Emphasis and underscoring supplied)

From the records of the case, it is gathered that the work performed by almost all of the respondents - loading and unloading of baggage and cargo of passengers - is directly related to the main business of petitioner. And the equipment used by respondents as station loaders, such as trailers and conveyors, are owned by petitioner.17

Petitioner asserts, however, that mere compliance with substantial capital requirement suffices for Synergy to be considered a legitimate contractor, citing Neri v. National Labor Relations Commission.18 Petitioner's reliance on said case is misplaced.

In Neri, the Labor Arbiter and the NLRC both determined that Building Care Corporation had a capital stock of P1 million fully subscribed and paid for.19 The corporation's status as independent contractor had in fact been previously confirmed in an earlier case20 by this Court which found it to be serving, among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc."

In stark contrast to the case at bar, while petitioner steadfastly asserted before the Labor Arbiter and the NLRC that Synergy has a substantial capital to engage in legitimate contracting, it failed to present evidence thereon. As the NLRC held:

The decision of the Labor Arbiter merely mentioned on page 5 of his decision that respondent SYNERGY has substantial capital, but there is no showing in the records as to how much is that capital. Neither had respondents shown that SYNERGY has such substantial capital. x x x21 (Underscoring supplied)

It was only after the appellate court rendered its challenged Decision of September 29, 2002 when petitioner, in its Motion for Reconsideration of the decision, sought to prove, for the first time, Synergy's substantial capitalization by attaching photocopies of Synergy's financial statements, e.g., balance sheets, statements of income and retained earnings, marked as "Annexes 'A' - 'A-4.'"22

More significantly, however, is that respondents worked alongside petitioner's regular employees who were performing identical work.23 As San Miguel Corporation v. Aballa24 and Dole Philippines, Inc. v. Esteva, et al.25 teach, such is an indicium of labor-only contracting.

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For labor-only contracting to exist, Section 5 of D.O. No. 18-02 which requires any of two elements to be present is, for convenience, re-quoted:

(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal, OR

(ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee. (Emphasis and CAPITALIZATION supplied)

Even if only one of the two elements is present then, there is labor-only contracting.

The control test element under the immediately-quoted paragraph (ii), which was not present in the old Implementing Rules (Department Order No. 10, Series of 1997),26 echoes the prevailing jurisprudential trend27 elevating such element as a primary determinant of employer-employee relationship in job contracting agreements.

One who claims to be an independent contractor has to prove that he contracted to do the work according to his own methods and without being subject to the employer's control except only as to the results.28

While petitioner claimed that it was Synergy's supervisors who actually supervised respondents, it failed to present evidence thereon. It did not even identify who were the Synergy supervisors assigned at the workplace.

Even the parties' Agreement does not lend support to petitioner's claim, thus:

Section 6. Qualified and Experienced Worker: Owner's Right to Dismiss Workers.

CONTRACTOR shall employ capable and experienced workers and foremen to carry out the loading, unloading and delivery Work as well as provide all equipment, loading, unloading and delivery equipment, materials, supplies and tools necessary for the performance of the Work. CONTRACTOR shall upon OWNER'S request furnish the latter with information regarding the qualifications of the former's workers, to prove their capability and experience. Contractor shall require all its workers, employees, suppliers and visitors to comply with OWNER'S rules, regulations, procedures and directives relative to the safety and security of OWNER'S premises, properties and operations. For this purpose, CONTRACTOR shall furnish its employees and workers identification cards to be countersigned by OWNER and uniforms to be approved by OWNER. OWNER may require CONTRACTOR to dismiss immediately and prohibit entry into OWNER'S premises of any person employed therein by CONTRACTOR who in OWNER'S opinion is incompetent or misconducts himself or does not comply with OWNER'S reasonable instructions and requests regarding security, safety and other matters and such person shall not again be employed to perform the services hereunder without OWNER'S permission.29 (Underscoring partly in the original and partly supplied; emphasis supplied)

Petitioner in fact admitted that it fixes the work schedule of respondents as their work was dependent on the frequency of plane arrivals.30 And as the NLRC found, petitioner's managers and supervisors approved respondents' weekly work assignments and respondents and other regular PAL employees were all referred to as "station attendants" of the cargo operation and airfreight services of petitioner.31

Respondents having performed tasks which are usually necessary and desirable in the air transportation business of petitioner, they should be deemed its regular employees and Synergy as a labor-only contractor.32

The express provision in the Agreement that Synergy was an independent contractor and there would be "no employer-employee relationship between [Synergy] and/or its employees on one hand, and [petitioner] on the other hand" is not legally binding and conclusive as contractual provisions are not valid determinants of the existence of such relationship. For it is the totality of the facts and surrounding circumstances of the case33 which is determinative of the parties' relationship.

Respecting the dismissal on November 15, 199234 of Auxtero, a regular employee of petitioner who had been working as utility man/helper since November 1988, it is not legally justified for want of just or authorized cause therefor and for non-compliance with procedural due process. Petitioner's claim that he abandoned his work does not persuade.35 The elements of abandonment being (1) the failure to report for work or

absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship manifested by some overt acts,36 the onus probandi lies with petitioner which, however, failed to discharge the same.

Auxtero, having been declared to be a regular employee of petitioner, and found to be illegally dismissed from employment, should be entitled to salary differential37 from the time he rendered one year of service until his dismissal, reinstatement plus backwages until the finality of this decision.38 In view, however, of the long period of time39 that had elapsed since his dismissal on November 15, 1992, it would be appropriate to award separation pay of one (1) month salary for each year of service, in lieu of reinstatement.40

As regards the remaining respondents, the Court affirms the ruling of both the NLRC and the appellate court, ordering petitioner to accept them as its regular employees and to give each of them the salaries, allowances and other employment benefits and privileges of a regular employee under the pertinent Collective Bargaining Agreement.

Petitioner claims, however, that it has become impossible for it to comply with the orders of the NLRC and the Court of Appeals, for during the pendency of this case, it was forced to reduce its personnel due to heavy losses caused by economic crisis and the pilots' strike of June 5, 1998.41 Hence, there are no available positions where respondents could be placed.

And petitioner informs that "the employment contracts of all if not most of the respondents . . . were terminated by Synergy effective 30 June 1998 when petitioner terminated its contract with Synergy."42

Other than its bare allegations, petitioner presented nothing to substantiate its impossibility of compliance. In fact, petitioner waived this defense by failing to raise it in its Memorandum filed on June 14, 1999 before the Court of Appeals.43 Further, the notice of termination in 1998 was in disregard of a subsisting temporary restraining order44 to preserve the status quo, issued by this Court in 1996 before it referred the case to the Court of Appeals in January 1999. So as to thwart the attempt to subvert the implementation of the assailed decision, respondents are deemed to be continuously employed by petitioner, for purposes of computing the wages and benefits due respondents.

Finally, it must be stressed that respondents, having been declared to be regular employees of petitioner, Synergy being a mere agent of the latter, had acquired security of tenure. As such, they could only be dismissed by petitioner, the real employer, on the basis of just or authorized cause, and with observance of procedural due process.

WHEREFORE, the Court of Appeals Decision of September 29, 2000 is AFFIRMED with MODIFICATION.

Petitioner PHILIPPINE AIRLINES, INC. is ordered to:

(a) accept respondents ENRIQUE LIGAN, EMELITO SOCO, ALLAN PANQUE, JOLITO OLIVEROS, RICHARD GONCER, NONILON PILAPIL, AQUILINO YBANEZ, BERNABE SANDOVAL, RUEL GONCER, VIRGILIO P. CAMPOS, JR., ARTHUR M. CAPIN, RAMEL BERNARDES, LORENZO BUTANAS, BENSON CARESUSA, JEFFREY LLENOS, ROQUE PILAPIL, ANTONIO M. PAREJA, CLEMENTE R. LUMAYNO, NELSON TAMPUS, ROLANDO TUNACAO, CHERRIE ALEGRES, EDUARDO MAGDADARAUG, NELSON M. DULCE and ALLAN BENTUZAL as its regular employees in their same or substantially equivalent positions, and pay the wages and benefits due them as regular employees plus salary differential corresponding to the difference between the wages and benefits given them and those granted to petitioner's other regular employees of the same rank; and

(b) pay respondent BENEDICTO AUXTERO salary differential; backwages from the time of his dismissal until the finality of this decision; and separation pay, in lieu of reinstatement, equivalent to one (1) month pay for every year of service until the finality of this decision.

There being no data from which this Court may determine the monetary liabilities of petitioner, the case is REMANDED to the Labor Arbiter solely for that purpose.

SO ORDERED.

G.R. No. 160798 June 8, 2005

JUANITO A. GARCIA and ALBERTO J. DUMAGO, petitioners, vs.PHILIPPINE AIRLINES, INC., respondent.

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CALLEJO, SR., J.:

This is a petition for review of the Resolution1 of the Court of Appeals (CA) in CA-G.R. SP No. 59826, dismissing the petition for certiorari of the petitioners Juanito A. Garcia and Alberto J. Dumago, as well as the Resolution2 denying the motion for reconsideration thereof.

The petition at bench stemmed from the following backdrop:

Garcia was employed by the Philippine Airlines, Inc. (PAL) on December 3, 1973. By 1995, he was already an inspector at the Aircraft Inspection Division of the PAL Technical Center. Dumago, on the other hand, was employed by PAL on April 18, 1983, and was, by 1995, a Lead Master "C" Upholsterer assigned at the Aircraft Furnishing Safety Section of the Maintenance and Engineering Department.3

At 1:30 p.m. on July 24, 1995, the petitioners were at the PAL Technical Center inside the Toolroom Section of the Plant Equipment and Maintenance Division (PEMD). With them were their co-employees Ronaldo Broas, Roberto Buan, Almario Titco and Rodrigo Arcenas, Jr.4 Momentarily, an incident ensued, thereafter to be the subject of different versions: that of the petitioners; Carmelo Villacete, then manager of the PAL Security and Investigation Division; and Field Agents Antonio P. Ramos and Ramoncito Villar, also of the PAL Security and Investigation Division. Rodrigo Arcenas, Jr. also gave his own version of the incident.

According to Villacete, Ramos and Villar, they barged into the Toolroom Section and caught the petitioners with Broas, Arcenas, Buan, and Titco sniffing shabu. The security officers found and seized from them several grams of the prohibited drug, including aluminum foil, a burner and lighter. The security officers then searched the locker of Broas and found more of the drug, and shabu paraphernalia, including P23,000.00 in cash. All this was witnessed by Jose S. Herrera and Remebito F. Gorospe, representatives of the Philippine Airlines Employee’s Association (PALEA). Eliseo Maravillas of the Office of the Vice-President for Maintenance and Engineering also witnessed the search and seizure.5 Photographs were taken of the raid. Ramos made an inventory of the items and substances that were found and seized from Rack B747-400 at the PEMD Toolroom, as follows:

1. (one) 1 plastic sachet containing undetermined amount of white substance suspected as shabu2. (four) 4 aluminum foils containing U.A.S. suspected to be shabu3. (one) 1 aluminum foil strip (containing) with residue of substance suspected to be shabu4. (one) 1 improvised tooter with residue susp. to be shabu5. (one) 1 plastic sachet containing residue of susp. shabu6. (one) 1 strip (aluminum) containing granules + white substances susp. to be shabu7. (one) 1 PAL giveaway kit containing one plastic tube8. (one) 1 improvised burner with extra needle9. (four) 4 pcs. crumpled aluminum foils with residue susp. to be shabu10. (five) 5 pcs. aluminum strips11. (six) 6 pcs. aluminum foil12. (one) 1 plastic sachet containing undetermined quantity of white substance susp. to be shabu placed inside improvised metal container13. (two) 2 plastic sachets cont. residue of white substances susp. to be shabu14. (one) 1 lighter (disposable)15. (seventeen) 17 aluminum strips with residue of substances susp. to be shabu16. (two) 2 strips of aluminum foils.6

Ramos also prepared an inventory of the items found and seized in Broas’ locker, to wit:

ITEM(QUANTITY)

DESCRIPTION

1. (one) 1 Plastic sachet containing undetermined amount of white substance suspected as shabu contained in a blue cloth with a letter.

2. (one) 1 Plastic sachet containing undetermined amount of white substance suspected as shabu.7

The security officers secured urine samples from the petitioners and Arcenas, Broas and Titco, which they turned to the Forensic and Chemistry Division of the National Bureau of Investigation (NBI). The company, through Luis T. Castro, Jr., turned over/submitted to the NBI the paraphernalia found in the locker of Broas.8 The men were, likewise, turned over to the NBI for investigation.9 The security officers also prepared and signed Security Report No. SFPSD95/07-453 dated July 25, 1995.

Forensic Chemist Salud M. Rosales signed Dangerous Drugs Report No. DD-95-1554 stating that the samples gave positive results for methamphetamine hydrochloride.10 She also signed Toxicology Report Nos. TDD-95-759 and 95-760 indicating that the urine samples given by the petitioners tested positive for amphetamine, a metabolite of methamphetamine which is a regulated drug.11 Rosales also signed Toxicology Report No. TDD-95-75712 where she stated that the urine sample of Rodrigo Arcenas yielded negative result for the presence of amphetamine.

In the signed statement13 he gave to Villacete on July 25, 1995, Arcenas alleged that he was on duty at the Toolroom Section of the PEMD that fateful day of July 24, 1995. At about 1:30 p.m., he saw the petitioners with Titco and Buan playing cards. Broas, who was beside the B747-400 tool bin, then took a white substance from a small cellophane sachet, placed the substance in a foil and lighted it with a small burner. The other men then approached Broas as the latter sniffed the substance twice and passed it around to the others who did the same. Arcenas claimed that he did not sniff the white substance. Momentarily, three persons barged into the toolroom and the men tried to escape. Additional security then arrived and helped in the inventory of the substances and materials found and seized from the men.14

Petitioners Garcia and Dumago, for their part, admitted that they were in the toolroom section of PEMD on the day in question. Garcia had wanted to ask someone where he could take the Tracster’s wheel for vulcanizing, while Dumago went there to request for an "Allen Wrench" from Titco. Suddenly, a PAL security officer armed with a handgun barged into the toolroom. He was accompanied by a video cameraman. Buan, Broas, and Titco were then each subjected to a body search and were forced to give urine specimen. Their lockers were also searched.15

The petitioners denied that they used the prohibited drug, alleging that the door to the toolroom was even open. They claimed that they were in the toolroom because they were on duty, and that the NBI agents only arrived at the scene after the security guards had already confiscated the items and paraphernalia allegedly found in the toolroom and in Broas’ locker.16

A criminal complaint against the petitioners, including Buan, Broas and Titco, for violation of Section 16 of Republic Act No. 6425, as amended by Rep. Act No. 7659 was then filed with the Department of Justice, docketed as I.S. No. 95-492. Arcenas was not included in the charge.17

On July 26, 1995, the petitioners were charged with violation of Section 6, Article 46, and Section 6, Article 48 of Chapter II of the PAL Revised Code of Discipline, as follows:

1. Violation of Law/Government Regulations-Chapter II, Section 6, Article 46

"Any employee who by substantial evidence presented at an administrative hearing is found to have violated or attempted to violate existing laws, decrees, regulations, or orders issued by the Philippine or other governments, and their agencies and instrumentalities, which violation involves moral turpitude is work-related, or which involves the safety, welfare, reputation, or standing of the company in the community, shall be penalized as prescribed in the schedule of penalties under Article 14 of this Code, depending upon the gravity and/or frequency of the offense. Where such violation constitutes serious misconduct or breach of trust, the penalty of dismissal shall be imposed."

2. Prohibited Drugs-Chapter II, Section 6, Article 48

"Any employee who, while on Company premises or on duty, is found in the possession of, or uses, or is under the influence of prohibited or controlled drugs, or hallucinogenic substances or narcotics shall suffer the penalty of dismissal."18

A formal investigation ensued during which Arcenas testified. On October 9, 1995, the Grievance Committee rendered a Decision19 finding petitioners Garcia and Dumago guilty as charged; both of them were meted the penalty of dismissal.

On October 30, 1997, the petitioners instituted separate complaints20 for illegal dismissal against private respondent PAL and its Vice-President for Maintenance and Engineering, Jacinto F. Ortega, Jr.21 In its reply to the position paper of the complainants, PAL declared that:

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(a) Complainants were caught by PAL personnel in flagrante delicto in the act of sniffing shabu. This is attested to by the Joint Affidavit of Messrs. Carmelo Villacete, Antonio Ramos and Ramoncito Villar, the security personnel who caught them in the act.

(b) An eyewitness, in the person of Rodrigo Arcenas, [Jr.] confirmed that the complainants (together with three other employees) indeed sniffed shabu inside the Toolroom of the Plant Equipment [and] Maintenance Division.

(c) The National Bureau of Investigation confirmed that the white crystalline substance found in the possession of the apprehended employees was "Methamphetamine Hydrochloride" or shabu, in ordinary parlance.

(d) Drug test conducted by the National Bureau of Investigation revealed that the complainants were positive for "AMPHETAMINE."22

On February 11, 1999, Labor Arbiter Ramon Valentin C. Reyes rendered a Decision, finding that the private respondent was guilty of illegal dismissal, thus:

WHEREFORE, conformably with the foregoing, judgment is hereby rendered finding the respondents guilty of illegal suspension and illegal dismissal and ordering them to reinstate complainants to their former position without loss of seniority rights and other privileges. Respondents are hereby further ordered to pay jointly and severally unto the complainants the following:

Alberto J. Dumago - P409,500.00 backwages as of 1/10/99P34,125.00 for 13th month payJuanito A. Garcia - P1,290,744.00 backwages as of 1/10/99P107,562.00 for 13th month pay

The amounts of P100,000.00 and P50,000.00 to each complainant as and by way of moral and exemplary damages; and

The sum equivalent to ten percent (10%) of the total award as and for attorney’s fees.

Respondents are directed to immediately comply with the reinstatement aspect of this Decision. However, in the event that reinstatement is no longer feasible, respondents are hereby ordered, in lieu thereof, to pay unto the complainants their separation pay computed at one month for every year of service.

SO ORDERED.23

The Labor Arbiter ruled that the NBI Toxicology Report on the urine samples of the complainants were not admissible in evidence. And even if they were, being positive for amphetamine does not constitute as a violation of the law.24 The private respondent appealed the decision.

On January 31, 2000, the National Labor Relations Commission (NLRC) reversed the decision of the Labor Arbiter and dismissed the case for lack of merit.25 The NLRC ruled that the joint affidavit of the three PAL security personnel, the joint affidavit of the four NBI Narcotics Division personnel, the sworn statement of Arcenas, and the NBI toxicology reports constituted substantial evidence that the petitioners had, indeed, used shabu within the private respondent’s premises during working hours. It held that the acts of the petitioners amounted to serious misconduct that justified their dismissal from employment. The petitioners moved for a reconsideration of the decision, on the ground that the urine samples were obtained from them without the assistance of counsel; hence the said samples and the Toxicology Report of the NBI Field Agents Division were inadmissible in evidence.26 The NLRC denied the said motion for lack of merit.27

Dissatisfied, the petitioners filed a petition for certiorari with the CA based on the following grounds:

6.1 The public respondent NLRC erred and committed grave abuse of discretion amounting to lack of jurisdiction in:

(a) Reversing the decision of the labor arbiter;(b) Concluding that the petitioners were caught sniffing shabu;(c) Disregarding the petitioners’ Constitutional rights to counsel and due process of law.

6.2 The contradictory findings and conclusions of the labor arbiter and the NLRC provide strong and compelling reasons to warrant judicial review of the instant case to prevent a miscarriage of justice.

6.3 There is no appeal or any other plain, speedy and adequate remedy in the ordinary course of law.28

On August 10, 2000, the CA dismissed the petition for failure to append copies of the material documents referred to therein, such as (a) the petitioners’ complaint for illegal dismissal and damages; (b) the private respondent’s position paper filed with the Labor Arbiter; and (c) the Labor Arbiter’s Order dated June 16, 1998 submitting the case for resolution.29 The petitioners received a copy of the resolution on August 21, 2000 and filed on August 29, 2000 a motion for its reconsideration, appending the pleadings and the order adverted to in the CA resolution.30

On November 5, 2003, the CA denied the petitioners’ motion for reconsideration for lack of merit, on the ground that the said motion did not contain an affidavit of proof of service under Section 13 of Rule 13 of the Rules of Court. The appellate court also held that the petitioners failed to give a valid justification for their failure to comply with the rules.31

The petitioners received a copy of the said resolution, and forthwith filed the instant petition for review on certiorari, where they raise the following issues:

1. Whether or not the Honorable Court of Appeals decided CA-G.R. SP No. 59826 in a way not in accord with the law or the decisions of this Honorable Supreme Court, and the Constitutional mandate of protection to labor, when it dismissed the Petition for Certiorari on purely technical grounds (i.e., failure to append 3 documents), and denied the petitioners’ motion for reconsideration, despite the fact that the petitioners already submitted the documents in their motion for reconsideration.

2. Whether or not the Honorable Court of Appeals departed from the accepted and usual course of judicial proceedings in deciding CA-G.R. SP No. 59826, by not resolving the case on the merits despite the conflicting findings and conclusions of the Labor Arbiter and the NLRC.32

The petitioners argue that their failure to append the three documents to their petition was not fatal because they had substantially complied with all the formal requirements under Section 1, Rule 65 of the Rules of Court, in relation to Section 3 of Rule 46. They aver that they submitted certified true copies of the decision and the resolution subject of the petition, copies of relevant pleadings, as well as the documents necessary for a complete understanding of the issues raised, and a certificate of non-forum shopping.33 They posit that should the CA disagree on what they had considered relevant to their petition, the petition should not have been dismissed outright; instead, the CA should have required them to submit the requisite documents.34

The petitioners stress that the dismissal of the petition on a purely technical ground is inconsistent with the constitutional mandate on protection to labor. They maintain that in denying their motion for reconsideration, the CA acted harshly and in complete disregard of the law’s tenderness for the plight of labor. The petitioners point out that even this Court has been lenient in more serious cases of non-observance of procedural rules, such as the failure to perfect an appeal within the reglementary period.35

The petitioners further posit that judicial review is warranted in this case since the findings of the Labor Arbiter were reversed by the NLRC; hence, the CA should have resolved the petition for certiorari on its merits. They contend that the evidence shows that no drugs were found in their possession and that as such, their dismissal could not have been based on a valid cause. They claim that the NLRC erred in giving credence to the joint affidavit of the private respondent’s security personnel and the sworn statement of Arcenas.36

For its part, the private respondent avers that the CA did not err in dismissing the petition for the petitioners’ failure to append the required pleadings and order. It asserts that the petitioners even failed to give a justification for their failure to comply with the Rules of Court. The private respondent further points out that the petitioners failed to append an affidavit of proof of service under Section 13, Rule 13 of the Rules of Court to their motion for reconsideration of the August 10, 2000 Resolution of the CA, and even failed to give a valid justification for such failure. Thus, the private respondent avers, the ruling of the CA is in accord with the Rules of Court.

The petition is meritorious.

The CA erred in dismissing the petition on the ground that the petitioner failed to comply with the last paragraph of Section 1 of Rule 65 of the Rules of Court, which provides:

DO 18-02 Cases 6

SECTION 1. Petition for certiorari. – When any tribunal, board or officer exercising judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no appeal, or any plain, speedy, and adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court, alleging the facts with certainty and praying that judgment be rendered annulling or modifying the proceedings of such tribunal, board or officer, and granting such incidental reliefs as law and justice may require.

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof, copies of all pleadings and documents relevant and pertinent thereto, and a sworn certification of non-forum shopping as provided in the third paragraph of Section 3, Rule 46.

The provision mandates that the following documents should be appended to the petition: a certified copy of the judgment, order or resolution subject of the petition; copies of all pleadings and documents relevant and pertinent thereto; and a sworn statement of non-forum shopping as provided in the third paragraph of Section 3, Rule 46, which reads:

SEC. 3. Contents and filing of petition, effect of non-compliance with requirements. –

…The petitioner shall also submit together with the petition a sworn certification that he has not theretofore commenced any other action involving the same issues in the Supreme Court, the Court of Appeals or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, he must state the status of the same; and if he should thereafter learn that a similar action or proceeding has been filed or is pending before the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency, he undertakes to promptly inform the aforesaid courts and other tribunal or agency thereof within five (5) days therefrom.

…It is evident, therefore, that aside from the assailed decision, order or resolution, not every pleading or document mentioned in the petition is required to be submitted – only those that are pertinent and relevant to the judgment, order or resolution subject of the petition. The initial determination of what pleadings, documents or orders are relevant and pertinent to the petition rests on the petitioner. If, upon its initial review of the petition, the CA is of the view that additional pleadings, documents or order should have been submitted and appended to the petition, the following are its options: (a) dismiss the petition under the last paragraph of Rule 46 of the Rules of Court; (b) order the petitioner to submit the required additional pleadings, documents, or order within a specific period of time; or (c) order the petitioner to file an amended petition appending thereto the required pleadings, documents or order within a fixed period.

If the CA opts to dismiss the petition outright and the petitioner files a motion for the reconsideration of such dismissal, appending thereto the requisite pleadings, documents or order/resolution with an explanation for the failure to append the required documents to the original petition, this would constitute substantial compliance with the Rules of Court. In such case, then, the petition should be reinstated. As this Court emphasized in Cusi-Hernandez v. Diaz:37

Under the circumstances, we hold that there was substantial compliance with Section 2, Rule 42 of the Rules of Court. In dismissing the Petition before it, the appellate court clearly put a premium on technicalities at the expense of a just resolution of the case.

We must stress that "cases should be determined on the merits after full opportunity to all parties for ventilation of their causes and defenses, rather than on technicality or some procedural imperfections. In that way, the ends of justice would be served better." Moreover, the Court has held:

"Dismissal of appeals purely on technical grounds is frowned upon and the rules of procedure ought not to be applied in a very rigid, technical sense, for they are adopted to help secure, not override, substantial justice, and thereby defeat their very aims."

Rules of procedure are mere tools designed to expedite the decision or resolution of cases and other matters pending in court. A strict and rigid application of rules that would result in technicalities that tend to frustrate rather than promote substantial justice must be avoided.38

In this case, the petitioners filed a motion for the reconsideration of the August 10, 2000 CA Resolution, and appended thereto the required pleadings and order; they likewise explained that they failed to append the same to their original petition because they believed that the said pleadings and order did not affect the substance of the petition filed before the CA. Indeed, there is merit in their contention because the substance of their complaint with the Labor Arbiter, as well as that of the private respondent’s position paper, were already embodied in the decisions of the Labor Arbiter and the NLRC, certified copies of which were appended to the original petition. The petitioners

thus believed in good faith that the pleadings and order required by the CA were no longer necessary.

It would be more in accord with substantial justice and equity to overlook the procedural lapse, and allow the petition to be resolved on its merits. It is well-settled that the application of technical rules of procedure may be relaxed to serve the demands of substantial justice, particularly in labor cases.39 Labor cases must be decided according to justice and equity and the substantial merits of the controversy.40 As the Court stressed in a recent case:41

The policy of our judicial system is to encourage full adjudication of the merits of an appeal. In the exercise of its equity jurisdiction, this Court may reverse the dismissal of appeals that are grounded merely on technicalities. Moreover, procedural niceties should be avoided in labor cases in which the provisions of the Rules of Court are applied only in suppletory manner. Indeed, rules of procedure may be relaxed to relieve a part of an injustice not commensurate with the degree of noncompliance with the process required.42

The Court thus holds that the petitioners deserve to be heard on their petition for certiorari, considering the conflicting findings and conclusions of the Labor Arbiter and the NLRC based on their calibration of the evidence on record. Moreover, the petitioners’ plea that urine samples were extracted from them without the assistance of counsel and that the Toxicology Reports of the NBI Forensic and Chemistry Division are inadmissible in evidence must also be considered. The joint affidavits of Villacete, Ramos, Villar and Arcenas that the petitioners were caught sniffing methamphetamine hydrochloride are contradicted by the NBI’s Toxicology Reports that the urine samples provided by the petitioners were found positive for amphetamine. There is thus a need for the CA to resolve the issues of whether amphetamine is indeed a metabolite of methamphetamine and whether the possession and use of such substance is a violation of the law.

We note that the petitioners indeed failed to append to their motion for reconsideration in the CA the affidavit required by Rule 13, Section 13 of the Rules of Court, to wit:

SEC. 13. Proof of service. – Proof of personal service shall consist of a written admission of the party served, or the official return of the server, or the affidavit of the party serving, containing a full statement of the date, place and manner of service. If the service is by ordinary mail, proof thereof shall consist of an affidavit of the person mailing of facts showing compliance with Section 7 of this Rule. If service is made by registered mail, proof shall be made by such affidavit and the registry receipt issued by the mailing office. The registry return card shall be filed immediately upon its receipt by the sender, or in lieu thereof the unclaimed letter together with the certified or sworn copy of the notice given by the postmaster to the addressee.

Nonetheless, in the interest of substantial justice, taking into account the fact that this is a labor case, the Court opts to overlook the procedural lapse of the petitioners, conformably with the ruling of the Court in ABD Overseas Manpower Corporation v. NLRC:43

Under the Rules of Court which were then in effect and applicable to the case at bar, when MARS failed to file an answer to petitioner’s cross-claim, it should have been declared in default with respect to such claim. In labor cases, however, technical rules of procedure are not applicable, but may apply only by analogy or in a suppletory character, for instance, when there is a need to attain substantial justice and an expeditious, practical and convenient solution to a labor problem. Hence, when the POEA opted to overlook petitioner’s cross-claim against MARS, petitioner was denied substantial justice.44

Indeed, technicalities should not be permitted to stand in the way of equitably and completely resolving the rights and obligations of the parties. The Court reiterates that where the ends of substantial justice would be better served, the application of technical rules of procedure may be relaxed.45

WHEREFORE, the Resolutions of the Court of Appeals dated August 10, 2000 and November 5, 2003 are SET ASIDE. The records of the case are REMANDED to the Court of Appeals for further proceedings. The appellate court is DIRECTED to REINSTATE CA-G.R. SP No. 59826 in its docket and to require private respondent Philippine Airlines, Inc. to file its Comment on the petition for certiorari. No costs.

SO ORDERED.

[G.R. No. 162868, July 14, 2008]

RODOLFO D. GARCIA, PETITIONER, VS. PHILIPPINE AIRLINES AND/OR CRISTINA W. TRINIDAD, MANAGER, CATERING OPERATIONS, RESPONDENTS.

REYES, R.T., J.:

DO 18-02 Cases 7

WHO is the employer of petitioner - respondent Philippine Airlines or the latter's contractor, Stellar Industrial Services, Inc.?

The question has been adjudged previously and is now barred from being relitigated under the doctrine of res judicata, a rule which pervades every well-regulated system of jurisprudence. It is founded upon two (2) grounds, namely: (1) public policy and necessity which makes it to the interest of the State that there should be an end to litigation, interest reipublicae ut sit finis litumi (sa kapakanan ng Estado ay kailangang magkaroon ng wakas ang kaso); and (2) the hardship on the individual that he should be vexed twice for the same cause, memo debet bis vexari et eadem causa (sinuman ay di dapat bagabagin ng makalawa sa iisang dahilan).[1]

The doctrine finds application in this petition for review on certiorari of the Decision[2] and Resolution[3] of the Court of Appeals (CA), absolving private respondent Philippine Airlines (PAL) of any liability for petitioner Rodolfo D. Garcia's dismissal.

The Facts

Stellar Industrial Services, Inc. (Stellar) had a standing agreement to supply PAL with workers for janitorial and sanitation functions. On August 2, 1976, petitioner was assigned by Stellar to PAL, where he was tasked to perform janitorial services at the company's in-flight kitchen until January 24, 1990.

During the course of his employment, petitioner received a warning from Stellar for absences incurred. The Memorandum, dated April 28, 1987, pertinently reads:

TO : GARCIA, RodolfoNUEDA, Ferdinand

FROM : Vice President ComptrollerSUBJECT : LAST WARNINGDATED : 28 April 1987

Our attention was called by our client Philippine Airlines - Inflight Kitchen regarding your failure to report for work last April 17, 1987.

Your absences has (sic) caused inconvenience in the operation of our client. Let this serve as our last warning, any repetition or violation of any company rules and regulations will constrain us to terminate your services with us.

(SGD.) CARLOS P. CALLANGA[4]

On January 25, 1990, petitioner was transferred to PAL's Catering Operations as a kitchen busboy in the sanitizing section.

In a Memorandum dated March 21, 1990, PAL, through Cristina W. Trinidad, then Manager of PAL's Catering Operations, requested Stellar for a replacement for petitioner.

TO : Mr. Oscar LluzOperations Manager Stellar Industrial Services

FROM : Manager-Catering OperationsSUBJECT : MR. RODOLFO GARCIA

We would like to request for the immediate replacement of Mr. Rodolfo Garcia.

He has failed to meet the performance requirement of a helper at Catering Operations.

Hereunder are the observations of his superiors from January 8 to the present.

01. Always late in completing assigned tasks.

02. Must be consistently prodded to meet deadlines.

03.Unable to identify and carry out work priorities and needs assistance from co-workers.

Worst of all, he was caught selling cigarettes while on duty.

We hope you will act on our request immediately.

(SGD.) CRISTINA W. TRINIDAD[5]

Consequently, in a letter dated March 28, 1990, Carlos P. Callanga, VP-Operations/Comptroller of Stellar, demanded from petitioner a written explanation why no disciplinary action should be taken against him, in view of the following charges:

(1) poor performance/negligence of duty; and (2) selling of cigarettes while on duty.[6]

Petitioner, in a letter-reply dated April 2, 1990, rendered an explanation in the following tenor:

April 2, 1990

Mr. Cesar LluzOperation ManagerStellar Industrial ServicesCibeles Bldg., AyalaMakati, Metro Manila

Dear Sir:

These are my answers to the charges against me as inscribed in a letter of MS. Cristina W. Trinidad dated March 21, 1990.

As to the allegation that I was always late in completing assigned task, this was not true because works in the Catering Service has (sic) no ending due to the nature of PAL's business.

As to the allegation that I must constantly (be) prodded to meet deadlines, (this) was not correct because of the above reasons.

As to the allegation that I was not able to identify and carry out work priorities and needs assistance from co-workers was not also (sic) correct because I always have a companion in the performance of my job because the nature of the work calls for it.

And as to the last allegation that I was caught selling cigarettes while on duty was not also tru (sic) because how can I sell cigarettes when I was surrounded by heavy works and the mess in my hands while on duty will make them spoiled. The cigarettes inside my pocket was (sic) only for my personal consumptions (sic).

I hope these answers will enlighten my case and I am looking forward that I will be given merit considering that I am connected with the service for a period of fourteen (14) years without being apprehended/complained of misconduct unbecoming.

Yours truly,

(Sgd.)RODOLFO GARCIA[7]

Dissatisfied with petitioner's explanation, Stellar subsequently terminated his employment.

In 1992, petitioner filed a complaint for illegal dismissal against Stellar and Lluz, as well as PAL and Trinidad. The case, docketed as NLRC Case No. 00-11-06556-92, was assigned to Labor Arbiter Emerson C. Tumanon.

It appears that sometime in 1988, Stellar employees assigned at PAL filed complaints for regularization against the air carrier. One of the complainants against PAL was petitioner. These complaints, docketed as National Labor Relations Commission (NLRC) NCR Case Nos. 00-11-04628-88, 00-12-05004-88, 00-01-00465-88, and 00-02-00828-89, were consolidated and assigned to Labor Arbiter Jose De Vera of the NLRC.[8]

On March 31, 1992, Labor Arbiter De Vera rendered judgment[9] in favor of complainants, declaring the existence of an employer-employee relationship between the Stellar employees and PAL. On appeal, the NLRC affirmed in toto the findings of the Labor Arbiter.

PAL moved for reconsideration of the April 27, 1995 NLRC Decision. Acting on PAL's motion, the NLRC, on September 25, 1996, reversed and set aside its own earlier findings, and declared complainants employees of Stellar, not of PAL.[10]

On February 6, 1998, the aggrieved complainants lodged an appeal with this Court. However, via its Resolutions dated March 2, 1998[11] and April 22, 1998,[12] this Court denied the same.NLRC Ruling

On November 29, 1995, Labor Arbiter Tumanon rendered a decision[13] in the illegal dismissal case in favor of petitioner, stating thus:WHEREFORE, premises considered, judgment is hereby rendered declaring the dismissal of complainant herein to be illegal and unauthorized; consequently, ordering herein respondents jointly and severally without loss of seniority rights and privileges and with full backwages counted from the date of his dismissal until actual reinstatement which up to the date of the promulgation of this Decision has already amounted to TWO HUNDRED FORTY THOUSAND FOUR HUNDRED SEVENTY-FIVE and 21/100 (P240,475.21) pesos, broken down as follows:Backwages in the sum of P218,810.02;13th Month pay in the sum of P18,234.16;Service Incentive Leave pay in the sum of P3,431.03;

subject to adjustment if payroll or physical reinstatement is denied.It appearing that complainant has been represented by counsel in the litigation of this case, said counsel is hereby awarded the sum of ten (10%) percent of the total award as

DO 18-02 Cases 8

and for attorney's fees in the amount of TWENTY-FOUR THOUSAND FORTY-SEVEN and 52/100 (P24,047.52) pesos, subject also for adjustment.

SO ORDERED.[14]

However, on appeal, the Third Division of the NLRC reversed Labor Arbiter Tumanon, holding that petitioner was "guilty of gross and habitual neglect and was consequently terminated for cause and with due process."[15] The NLRC declared that:x x x respondent Stellar appears to be an independent job contractor and not merely a labor only contractor. Apart from the fact that it has sufficient capitalization to the tune of more than a million pesos, its workers perform work that are not necessary and desirable to the business of PAL. Simply stated, it is a job contractor for PAL's messengerial and janitorial needs no more no less. Hence, its employees are not of PAL.

ACCORDINGLY, premises considered, the decision appealed from is hereby SET ASIDE and this case DISMISSED for lack of merits (sic).

SO ORDERED.[16]

Petitioner's motion for reconsideration was denied by the NLRC in its October 8, 2004 Resolution.[17]

CA Disposition

On certiorari, the CA "modified" both the NLRC and the Labor Arbiter rulings, thus:WHEREFORE, premises considered, the Petition is GRANTED and the assailed 27 August 2001 Resolution of respondent Commission in NLRC NCR CA No. 010218-96 and the 29 November 1995 Decision of Labor Arbiter Emerson C. Tumanon in NLRC NCR No. 00-11-06556-92 are hereby MODIFIED insofar as the pecuniary awards declared in the Labor Arbiter's Decision are the sole responsibility of private respondent Stellar, petitioner's direct employer.

SO ORDERED.[18]

In reality, however, the CA merely sustained the NLRC ruling that Stellar is an independent contractor. The CA observed:However, it is only private respondent Stellar who is responsible to petitioner as the former is an independent contractor. The issue whether or not Stellar is an independent contractor or merely engaged in labor-only contracting was already addressed and settled by the Highest Magistrate in a related case entitled Phil. Airlines vs. NLRC, 298 SCRA 430 [2000], to wit:"Aside from these stipulations in the service agreement, other pieces of evidence support the conclusion that STELLAR, not PAL, was the employer of the individual private respondents. A contract of employment existed between STELLAR and the individual private respondents, proving that it was said corporation which hired them. It was also STELLAR which dismissed them, as evidenced by Complainant Parenas' termination letter, which was signed by Carlos P. Callanga, vice president for operations and comptroller of STELLAR. Likewise, they worked under STELLAR's own supervisors, Rodel Pagsulingan, Napoleon Parungao, and Renato Topacio. STELLAR even had its own collective bargaining agreement with its employees, including the individual private respondents. Moreover, PAL had no power of control and dismissal power them (sic)."[19]

Petitioner moved for partial reconsideration asking that PAL be made solidarily liable with Stellar. However, the CA denied his motion in its Resolution dated March 17, 2004. Hence, this petition.

Issues

Petitioner submits the following assignment:

I.THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF PETITIONER BECAUSE THE LATTER PERFORMED FUNCTIONS, DUTIES AND RESPONSIBILITIES NECESSARY AND DESIRABLE TO ITS BUSINESS OPERATIONS.

II.

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF PETITIONER BECAUSE IT IS PAL WHICH EXERCISED CONTROL OVER THE MEANS AND METHODS (BY WHICH) PETITIONER PERFORMED HIS JOB AT ITS CATERING DEPARTMENT.

III.

THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION IN ABSOLVING PAL FROM LIABILITY CONSIDERING THAT IT IS THE EMPLOYER OF PETITIONER BECAUSE IT IS PAL WHICH ADOPTED RULES, REGULATIONS AND POLICIES REGARDING DISCIPLINE TO BE FOLLOWED BY ITS EMPLOYEES AT ITS CATERING DEPARTMENT.[20] (Underscoring supplied)

Simply stated, the essential issue is whether PAL is petitioner's employer and solidarily liable with Stellar for illegal dismissal.

Our Ruling

Preliminarily, We note that the instant petition was filed beyond the requested extension period. Petitioner received a copy of the CA March 17, 2004 Resolution on

March 26, 2004. He had until April 10, 2004 to file this petition. He asked the Court that he be allowed until April 25, 2004 to file the same,[21] but failed to comply when he filed the petition only on April 26, 2004. Nevertheless, inasmuch as the delay is not substantial, the greater interest of justice would be served if this petition is adjudicated on its merits. Sound policy dictates that it is far better to dispose of cases on the merits, rather than on a technicality as the latter approach may result in injustice.[22]

On its merits, however, We resolve to deny the petition.

The CA correctly found that PAL is not petitioner's employer and cannot thus be held solidarily liable with Stellar for illegal dismissal.

The issue on the existence of an employer-employee relationship between petitioner and PAL has long been resolved in the case entitled Stellar Employees Association v. Philippine Airlines and Stellar Industrial Services, Inc.[23] In that case, petitioner joined other Stellar employees in filing complaints for regularization, money claims and damages against PAL before the NLRC. The NLRC declared, on September 25, 1996, that no employer-employee relationship exists between PAL and the Stellar employees, finding that:We have re-examined the record of this case and have found that SISI assigned supervisors and timekeepers at PAL's premises where SEA's members performed their work. On the issue of SISI's capitalization, it cannot be denied that, per its Amended Articles of Incorporation, it has an authorized capital stock of P1,000,000.00. SISI has a collective bargaining agreement (CBA) with its employees, including SEA's members, under which complainants obtained substantial benefits.

x x x x

We must remember that this case is principally for regularization and relies primarily on the premise that SISI is a "labor-only" contractor of PAL. With respect to the issue of whether or not SISI is a legitimate independent contractor, SEA admits that SISI provides its employees with "soap, cleansers, mops, lawn mowers, brooms, dust pans," etc. More telling is SEA's admission that SISI has several clients other than PAL. SEA tries to avoid the application of Neri, et al. vs. NRLC, et al., 224 SCRA 717 (July 23, 1993), by distinguishing SISI's janitorial operations from the other types of employees, like the station loaders.

This argument, however, falls flat on its face considering that SISI has substantial authorized capital in the amount of P1.0 Million, since this not limited to its janitorial department. This is evidenced by SISI's Amended Articles of Incorporation which is a public document under the possession, supervision and control of the Securities and Exchange Commission and We can even take judicial notice of this fact, despite SEA's declaration to the contrary.

We are aware of the standards used to determine a "labor-only" contractor. As SEA itself has pointed out, one such gauge is the absence of substantial capital, citing Art. 106 of the Labor Code and Sec. 9, Rule VIII of its Implementing Rules. In view of SISI's possession of substantial capital, it cannot be considered a "labor-only" contractor.

On the other hand, is SISI an independent contractor? We resolve this is in the affirmative after re-thinking our earlier Resolution. Aside from its capital, it also maintains an independent business as admittedly shown by its diversified clientele and the supervision and control as to the means of work as provided by its own timekeepers, foremen, etc.

We cannot subscribe to the position by SEA that the absence of premises, tools, equipment, etc. is anachronistic to SISI's being an independent contractor. There is nothing novel about this since this has been succinctly ruled upon by the Supreme Court in its Neri decision, supra. There, the High Court refined the definition of an independent contractor in the sense that it need not possess both tools and equipment, on one hand, and substantial capitalization, on the other hand. Otherwise, as observed by the Court, the legislator ought to have used the conjunctive "and," instead of "or."

Neither is the contention concerning the direct relation of complainants' services to PAL's operations relevant to the ultimate determination of this case. In Neri, the Supreme Court cited the "general practice," even of government institutions, of contracting out certain services, and, with the finding that BCC, the contractor there, was an independent one, also said -

x x x There is even no need for it to refute petitioner's contention that the activities are directly related to the principal business of respondent bank.

x x x x

Viewed from a different standpoint, the workers have no contractual tie to PAL because SISI, as a legitimate independent contractor, is their true employer. They applied and executed employment contracts with SISI, not PAL, although SEA argues that its members were made to sign the application forms and employment contracts. What cannot be denied, however, is the brazen and undisputed fact that SISI has a CBA with its employees, including SEA's members. SISI's employees derived benefits under said CBA for the number of years it had been in force. The CBA is a clear admission of an employment relationship with SISI. It is now too late in the day for them to deny such relationship.

x x x x

DO 18-02 Cases 9

Because of the absence of a juridical tie with them, PAL's instructions cannot be considered control under the four-fold test of employment relationship. Going back to the Neri case, "x x x in legal contemplation, such instructions carry no more weight than mere requests x x x."

x x x x

All told, We hereby rule that SISI is a legitimate independent contractor and is the true employer of the individual complainants, not PAL.[24] (Underscoring supplied)Due to the failure to seasonably appeal or question the NLRC ruling,[25] its factual and legal findings have attained finality. Consequently, the holding that PAL is not petitioner's employer constitutes res judicata on the same issue in this petition.

Res judicata literally means "a matter adjudged; a thing judicially acted upon or decided; a thing or matter settled by judgment."[26] Res judicata is, in fine, a rule of preclusion to the end that facts or issues settled by final judgment should not be tried anew.[27]

The principle of res judicata in actions in personam is found in Section 49(b) and (c), Rule 39 of the Rules of Court which provides:Sec. 49. Effects of judgments. - The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

x x x x

(b) In other cases, the judgment or order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors-in-interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity;

(c) In any other litigation between the same parties or their successors-in-interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto.Res judicata has two (2) concepts. The first is "bar by prior judgment" under Rule 39, Section 47(b). This rule dictates that the judgment or decree of a court of competent jurisdiction on the merits concludes the parties and their privies to the litigation and constitutes a bar to a new action or suit involving the same cause of action either before the same or any other tribunal.[28] Stated otherwise, the judgment rendered in the first case is an absolute bar to the subsequent action since said judgment is conclusive not only as to the matters offered and received to sustain that judgment but also as to any other matter which might have been offered for that purpose and which could have been adjudged therein.[29]

The second rule of res judicata is embodied in Rule 39, Section 47(c), and is known as "conclusiveness of judgment." It provides that any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court in which a judgment or decree is rendered on the merits is conclusively settled by the judgment therein and cannot again be litigated between the parties and their privies whether or not the claim or demand, purpose, or subject matter of the two suits is the same. It refers to a situation where the judgment in the prior action operates as an estoppel only as to the matters actually determined or which were necessarily included therein.[30]

The other elements being virtually the same, the fundamental difference between the rule of res judicata as a bar by former judgment and as merely a rule on the conclusiveness of judgment is that, in the first, there is an identity in the cause of action in both cases involved whereas, in the second, the cause of action in the first case is different from that in the second case.[31]

In this petition, res judicata in the concept of conclusiveness of judgment obtains. The concept is applicable here as there is identity of parties and subject matter but not of causes of action.

First, there is identity of parties between the two (2) cases. Petitioner was one of complainants in the consolidated regularization cases and he is also the same party who initiated this action. His denial of participation in the regularization cases[32] is negated by the records, as he was awarded wage differentials and CBA benefits by the Labor Arbiter in said cases.[33] In fact, records show that petitioner was awarded the amount of P34,886.00.[34]

Second, there is identity of subject matter, defined as the matter or thing with respect to which the controversy has arisen, concerning which a wrong has been done.[35] It is quite clear that the issue and subject matter resolved in the consolidated regularization cases is the existence of an employer-employee relationship between petitioner and PAL. It is also the primordial issue for resolution in the instant petition.

However, identity of causes of action is absent between the two (2) cases. Under the rules, a cause of action is defined as an act or omission by which a party violates a right of another.[36] In the regularization cases, the cause of action is the deprivation of the status of a regular employee, while in this petition, the cause of action is the dismissal of an employee without just cause under our labor laws.

Applying the rule on conclusiveness of judgment to this case, the parties are now precluded from relitigating the same issue of the existence of an employment relationship between PAL and petitioner.

Although it does not have the same effect as bar by prior judgment which precludes subsequent actions, conclusiveness of judgment operates as estoppel with respect to matters in issue or points controverted, on the determination of which the finding or judgment was anchored.[37]

Where material facts or questions, which were in issue in a former action, were judicially determined, such facts are res judicata.[38] In Stilianopulos v. City of Legaspi,[39] the Court held that "(w)hen a right or fact has been judicially tried and determined by a court of competent jurisdiction or an opportunity for such trial has been given, the judgment of the court, as long as it remains unreversed, should be conclusive upon the parties and those in privity with them. Clearly, there should be an end to litigation by the same parties and their privies over a subject, once it is fully and fairly adjudicated."

Res judicata requires that stability be accorded to judgments. Controversies once decided on the merits shall remain in repose for there should be an end to litigation which, without the doctrine, would be endless.[40] As We declared in Camara v. Court of Appeals,[41] both concepts of res judicata are:x x x founded on the principle of estoppel, and are based on the salutary policy against unnecessary multiplicity of suits. Like the splitting of causes of action, res judicata is in pursuance of such policy. Matters settled by a Court's final judgment should not be litigated upon or invoked again. Relitigation of issues already settled merely burdens the Courts and the taxpayers, creates uneasiness and confusion, and wastes valuable time and energy that could be devoted to worthier causes. As the Roman maxim goes, Non bis in edem.[42]

The regularization cases initiated and participated in by petitioner are now final and executory, and the issues resolved in that case should no longer be disturbed. Nothing is more settled in law than that when a judgmentbecomes final and executory it becomes immutable and unalterable. The same may no longer be modified in any respect, even if the modification is meant to correct what is perceived to be an erroneous conclusion of fact or law, and whether made by the highest court of the land. The reason is grounded on the fundamental considerations of public policy and sound practice that, at the risk of occasional error, the judgments or orders of courts must be final at some definite date fixed by law.[43]

Verily, res judicata now bars petitioner from reopening, by way of this petition, the issue of the existence of an employer-employee relationship between him and PAL. Otherwise, there will never be an end to litigation on the issue.

Nevertheless, petitioner insists that We again resolve the issue by looking at "evidentiary facts of employer-employee relationship."[44] At the same time, he maintains that he raises questions of law.[45]

Evidently, the issues raised by the petitioner pertain to factual matters. If We were to determine these factual issues, We shall have to examine the documentary and testimonial evidence, as well as the factual allegations in the pleadings. In doing so, We shall have to consider the following elements to determine the existence of an employment relationship: (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 with respect to the means and methods by which the work is to be accomplished. Of these elements, the so-called "control test" is the most important.[46]

Obviously, an evaluation of the above-mentioned factual matters is embraced by the proscription found in Rule 45, Section 1 of the Rules of Court, which states that an appeal by certiorari to the Supreme Court "shall raise only questions of law which must be distinctly set forth."

Petitioner asks Us to exempt him from the proscription considering the contrasting findings of the Labor Arbiter, on one hand, and the NLRC and the CA on the other.

However, well-settled is the rule that conclusions and findings of fact by the lower courts or administrative bodies are entitled to great weight on appeal and will not be disturbed except for strong and cogent reasons. The findings of the CA by itself, which are supported by substantial evidence, are almost beyond the power of review by the Supreme Court.[47]

We find no cogent reason to disturb the NLRC and the CA findings as these are supported by substantial evidence. On the other hand, We cannot rely on the findings of the Labor Arbiter about the existence of an employer-employee relationship. His decision[48] fails to shed light on what specific findings of fact convinced him that Stellar is a labor-only contractor, and that PAL is an employer of petitioner.

Moreover, even if We relax the rule, We notice an abject failure of the petitioner to attach to the petition and subsequent pleadings, proof of these alleged facts of employment relationship. There is a patent dearth of evidence in the records to convince Us that the following material allegations exist, namely: that petitioner's duties were necessary and desirable to the business of PAL; that PAL exercised control over the means and methods of his performance at the in-flight kitchen; and that it was PAL's responsibility to issue rules and regulations regarding discipline to be followed by petitioner at that department.

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Instead, petitioner merely offered factual assertions which are unfortunately not supported by proof, documentary or otherwise. We cannot accept this as substantial evidence that is necessary to make a finding of an employer-employee relationship. It is elementary that he who alleges a fact must prove it, and a mere allegation is not evidence.[49]

On the basis of the pleadings and evidence before Us, We cannot accept the claim that petitioner was PAL's employee. Petitioner does not deny that he was selected and engaged by Stellar when he was assigned to PAL.[50] Moreover, while petitioner claims that the funds for his salary came from PAL, he did not adduce proof to support his allegation. In any event, he admits that it was Stellar that paid his wages.[51] The evidence further shows that it was Stellar, not PAL, that disciplined petitioner. It was Stellar that issued to petitioner various memoranda asking for an explanation about his infractions,[52] and petitioner explained himself to that company, not PAL.[53] In fine, petitioner recognized the disciplinary authority of Stellar over him, and not that of the air carrier.

WHEREFORE, the petition is DENIED for lack of merit.

SO ORDERED.

Ynares-Santiago, (Chairperson), Quisumbing, Austria-Martinez, and Nachura, JJ., concur.

[G.R. NO. 157647, October 15, 2007]

GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION, LANTING SECURITY AND WATCHMAN AGENCY, TOMAS LANTING, DANIEL FANILA,* HECTOR MORENO, ISAURO FERRER,** RUBIN WILFREDO, JESUS DELIMA, JR., MARIA LEGASPI, SANTIAGO NOTO, JR., AND VIRGILIO SORIANO, RESPONDENTS.

AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari of the Decision[1] dated July 25, 2002 of the Court of Appeals (CA) in CA-G.R. SP No. 61570 and the CA Resolution[2] dated March 19, 2003 which denied the motion for reconsideration thereof.

The facts:

Tomas Lanting, doing business under the name and style of Lanting Security and Watchman Agency (LSWA) entered into a Security Service Contract to provide security guards to the properties of the Government Service Insurance System (GSIS) at the contract rate of P3,000.00 per guard per month.[3]

During the effectivity of the contract, LSWA requested the GSIS for an upward adjustment of the contract rate in view of Section 7 of Wage Order No. 1 and Section 3 of Wage Order No. 2, which were issued by the Regional Tripartite Wages and Productivity Board-NCR pursuant to Republic Act No. 6727, otherwise known as the Wage Rationalization Act.

Acting on the request of LSWA, the GSIS, through its Board of Trustees and under Board Resolution No. 207, dated May 24, 1991, approved the upward adjustments of the contract price from P3,000.00 to P3,716.07 per guard, per month effective November 1, 1990 to January 7, 1991, and P4,200.00 effective January 8, 1991 to May 31, 1991.[4]

LSWA assigned security guards Daniel Fanila, Hector Moreno, Isauro Ferrer, Rubin Wilfredo, Jesus Delima, Jr., Maria Legaspi, Santiago Noto, Jr., and Virgilio Soriano (hereafter complainants) to guard one of GSIS's properties. The complainants have the following dates of employment and compensation package with LSWA:

1. Daniel Fanila 3/28/91-3/15/93 P3,100/month2. Virgilio Soriano 10/0/91-3/15/93 P3,100/month3. Hector Moreno 1/04/89-3/15/93 P3,100/month4. Isauro Torres 11/ /88-3/15/93 P3,100/month5. Rubin Wilfredo 3/08/91-3/15/93 P3,100/month6. Jesus Delima, Jr. 3/28/91-3/15/93 P3,100/month6. Jesus Delima, Jr. 3/28/91-3/15/93 P3,100/month

On March 15, 1993, GSIS terminated the Security Service Contract with LSWA. All the complainants, except Virgilio Soriano, were absorbed by the incoming security agency.

On March 7, 1994, complainants filed separate complaints against LSWA for underpayment of wages and non-payment of labor standard benefits from March 1991 to March 15, 1993. Virgilio Soriano also complained of illegal dismissal.

In its Position Paper, LSWA alleged that complainants were estopped from claiming that they were underpaid because they were informed that the pay and benefits given to them were based on the contract rate of P103.00 per eight hours of work or about P3,100.00 per month.

On August 9, 1994, LSWA filed a Third-Party Complaint[5] against GSIS for underpayment of complainants' wages.

In its Position Paper,[6] GSIS alleged that the Third-Party Complaint states no cause of action against it; that LSWA obligated itself in the Security Service Contract to be solely liable for the enforcement of and compliance with all existing labor laws, rules and regulations; that the GSIS Board of Trustees approved the upward adjustment on a month-to-month basis, at P4,200 per guard per month, effective January 8, 1991 to May 31, 1991, under Board Resolution No. 207 dated May 24, 1991, which was incorporated in the Security Service Contract; that GSIS fully paid the services of the security guards as agreed upon in the Security Service Contract.

On August 27, 1996, Labor Arbiter Renato Bugarin rendered a Decision[7] in favor of complainants, the dispositive portion of which reads:WHEREFORE, premises considered judgment is hereby rendered:

1. Ordering respondents Lanting Security and Watchman Agency and Tomas Lanting to reinstate complainant Virgilio Soriano without loss of seniority rights and benefits and to pay his backwages amounting to P161,400.47, computed up to the promulgation of this decision. Failure to reinstate complainant to his former position as hereby ordered, his backwages shall continue to run but in no case shall exceed three (3) years;

2. Ordering, respondents Lanting Security and Watchman Agency and/or Thomas Lanting and the Government Service Insurance System, jointly and severally liable to pay the complainants, their salary differentials; cash equivalent of their service incentive leaves and proportionate 13th month pay covering the period from June 1, 1991 to March 15, 1993, hereto indicated as follows:

1.Daniel Fanila,Jr. - P18, 439.50

2. Hector Moreno - P18, 439.50

3. Isauro Torres - P18, 439.504. Rubin Wilfredo - P18, 439.50

5. Jesus Delima, Jr. - P18, 439.50

6. Maria Legaspi - P18, 439.507. Virgilio Soriano - P18, 439.50

3. All other claims are hereby dismissed for lack of merit.

SO ORDERED.[8]

The Labor Arbiter held LSWA and GSIS jointly and severally liable for the payment of complainants' money claims, pursuant to Articles 106 and 107 of the Labor Code.

LSWA appealed to the NLRC. On April 14, 2000, the NLRC issued a Resolution,[9] the dispositive portion of which reads:WHEREFORE, premises considered, the Appeal is hereby GRANTED. Accordingly, the Decision appealed from is SUSTAINED subject to the modification that Complainant-Appellee Soriano was not illegally dismissed and hence, is not entitled to reinstatement to his former position and to payment of any backwages; that from the other Complainants-Appellees' awarded salary differentials from 7 March 1991 to 1 June 1991 in the amount of (sic) each should be deducted from their awarded total salary differentials in the sum of P10,917.00 each; and that the Third-Party Respondent GSIS is alone liable for payment of their salary differentials.

SO ORDERED.[10]

The NLRC held the GSIS solely liable for payment of complainants' money claims.

Dissatisfied, the GSIS filed on May 15, 2000 a Motion for Reconsideration.[11] On August 20, 2000, the NLRC issued a Resolution[12] denying GSIS's Motion for Reconsideration.

On November 6, 2000, the GSIS filed a Petition for Certiorari[13] with the CA arguing that the NLRC gravely abused its discretion in holding GSIS solely liable for complainants' money claims.

On July 25, 2002, the CA rendered a Decision,[14] the dispositive portion of which reads:WHEREFORE, the petition is GRANTED for being meritorious. The questioned resolution dated 14 April 2000 of the NLRC is hereby modified insofar as it holds petitioner GSIS solely liable for the salary differentials of the complainants. Instead, We revert back to the ruling of the Honorable Labor Arbiter and hold petitioner GSIS and respondent Lanting Security and Watchman Agency and/or Tomas Lanting jointly and severally liable for the payment of complainants' salary differentials.

SO ORDERED.[15]

While finding that the GSIS complied with its obligations under Wage Order Nos. 1 and 2 by incorporating the mandated increase in the Security Service Contract, the CA held the

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GSIS jointly and severally liable with LSWA for complainants' money claims pursuant to Articles 106 and 107 of the Labor Code.

On September 3, 2002, the GSIS filed a Motion for Reconsideration.[16] In a Resolution[17] dated March 19, 2003, the CA denied the motion for reconsideration.

Hence, the present petition anchored on the following assigned error:THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN HOLDING THAT PETITIONER GSIS IS SOLIDARILY LIABLE FOR PAYMENT OF COMPLAINANTS-RESPONDNENTS' SALARY DIFFERENTIALS.[18]

The GSIS avers that it cannot twice be held liable for complainants' salary differentials since it fully paid complainants' salaries by incorporating in the Security Service Contract the salary rate increases mandated by Wage Order Nos. 1 and 2; otherwise, it would be unjust enrichment on the part of complainants and/or LSWA at its expense. It submits that Articles 106 and 107 of the Labor Code were not contemplated by its framers to cover principals or clients of service contractors who had already paid for the wages of the contractor or subcontractor.

In its Comment,[19] LSWA maintains that the GSIS is jointly and severally liable with LSWA because Articles 106 and 107 of the Labor Code provide so and these provisions were intended to ensure that employees are paid the wages due them in case of violation of the Labor Code of either the contractor or the principal; that the GSIS cannot claim that holding it jointly and severally liable with LSWA would result in grave injustice since the law did not leave it without recourse as the GSIS has the right of reimbursement from its co-debtor under Article 1217[20] of the Civil Code.

In their Comment,[21] complainants argue that the GSIS is jointly and severally liable with LSWA for complainants' money claims since LSWA actually paid only the sum of P3,100.00 a month, even though the GSIS incorporated in the Security Service Contract the mandated wage increases in Wage Order Nos. 1 and 2; that although the Security Service Contract provided that there shall be employer-employer relationship between LSWA and/or its security guards and the GSIS, Article 106 of the Labor Code establishes an employer-employee relationship between the employer and the job contractor's employees for a limited purpose, that is, in order to ensure that the latter get paid the wages due them.

The Court gave due course to the petition and required the parties to submit their respective memoranda.[22] Only the GSIS complied.[23] In the interest of justice and speedy disposition of cases, the Court resolved to dispense with the filing of the respective memoranda of LSWA and the complainants and to decide the case based on the pleadings filed.[24]

The petition is bereft of merit.

Articles 106 and 107 of the Labor Code provide:ART. 106. Contractor or subcontractor.– Whenever an employer enters into 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 wage 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.

x x x

ART. 107 Indirect employer.– The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Emphasis supplied.)In this case, the GSIS cannot evade liability by claiming that it had fully paid complainants' salaries by incorporating in the Security Service Contract the salary rate increases mandated by Wage Order Nos. 1 and 2 by increasing the contract price from P3,000.00 to P3,176.07 per guard per month effective November 1, 1990 to January 7, 1991, and P4,200.00 effective January 8, 1991 to May 31, 1991.

In Rosewood Processing, Inc. v. National Labor Relations Commission,[25] the Court explained the rationale for the joint and several liability of the employer, thus:The joint and several liability of the employer or principal was enacted to ensure compliance with the provisions of the Code, principally those on statutory minimum wage. The contractor or subcontractor is made liable by virtue of his or her status as a direct employer, and the principal as the indirect employer of the contractor’s employees. This liability facilitates, if not guarantees, payment of the workers’ compensation, thus, giving the workers ample protection as mandated by the 1987 Constitution. This is not unduly burdensome to the employer. Should the indirect employer be constrained to pay the workers, it can recover whatever amount it had paid in accordance with the terms of the service contract between itself and the contractor.(Emphasis supplied)[26]

Thus, the Court does not agree with the GSIS's claim that a double burden would be imposed upon the latter because it would be paying twice for complainants' services. Such fears are unfounded. Under Article 1217 of the Civil Code, if the GSIS should pay the money claims of complainants, it has the right to recover from LSWA whatever

amount it has paid in accordance with the terms of the service contract between the LSWA and the GSIS.

Joint and solidary liability is simply meant to assure aggrieved workers of immediate and sufficient payment of what is due them. This is in line with the policy of the State to protect and alleviate the plight of the working class.

WHEREFORE, the petition is DENIED. The Decision dated July 25, 2002 and the Resolution dated March 19, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 61570 are AFFIRMED with the MODIFICATION that the joint and solidary liability of LSWA and the GSIS to pay complainants' salary differentials shall be without prejudice to the GSIS's right of reimbursement from LSWA.

SO ORDERED.

Ynares-Santiago, (Chairperson), Chico-Nazario, Nachura, and Reyes, JJ., concur.

[G.R. No. 145402, March 14, 2008]

MERALCO INDUSTRIAL ENGINEERING SERVICES CORPORATION, Petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, OFELIA P. LANDRITO GENERAL SERVICES and/or OFELIA P. LANDRITO, Respondents.

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to reverse and set aside (1) the Decision[1] of the Court of Appeals in CA-G.R. SP No. 50806, dated 24 April 2000, which modified the Decision[2] of the National Labor Relations Commission (NLRC), dated 30 January 1996 in NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89), and thereby held the petitioner solidarily liable with the private respondents for the satisfaction of the separation pay of the latter’s employees; and (2) the Resolution[3] of the appellate court, dated 27 September 2000, in the same case which denied the petitioner’s Motion for Reconsideration.

Petitioner Meralco Industrial Engineering Services Corporation (MIESCOR) is a corporation duly organized and existing under the laws of the Republic of the Philippines and a client of private respondents. Private respondent Ofelia P. Landrito General Services (OPLGS) is a business firm engaged in providing and rendering general services, such as janitorial and maintenance work to its clients, while private respondent Ofelia P. Landrito is the Proprietor and General Manager of OPLGS.

The factual milieu of the present case is as follows:

On 7 November 1984, petitioner and private respondents executed Contract Order No. 166-84,[4] whereby the latter would supply the petitioner janitorial services, which include labor, materials, tools and equipment, as well as supervision of its assigned employees, at petitioner’s Rockwell Thermal Plant in Makati City. Pursuant thereto, private respondents assigned their 49 employees as janitors to petitioner’s Rockwell Thermal Plant with a daily wage of P51.50 per employee.

On 20 September 1989, however, the aforesaid 49 employees (complainants) lodged a Complaint for illegal deduction, underpayment, non-payment of overtime pay, legal holiday pay, premium pay for holiday and rest day and night differentials[5] against the private respondents before the Labor Arbiter. The case was docketed as NLRC NCR Case No. 00-09-04432-89.

In view of the enactment of Republic Act No. 6727,[6] the contract between the petitioner and the private respondents was amended[7] for the 10th time on 3 November 1989 to increase the minimum daily wage per employee from P63.55 to P89.00 or P2,670.00 per month. Two months thereafter, or on 2 January 1990,[8] petitioner sent a letter to private respondents informing them that effective at the close of business hours on 31 January 1990, petitioner was terminating Contract Order No. 166-84. Accordingly, at the end of the business hours on 31 January 1990, the complainants were pulled out from their work at the petitioner’s Rockwell Thermal Plant. Thus, on 27 February 1990, complainants amended their Complaint to include the charge of illegal dismissal and to implead the petitioner as a party respondent therein.

Since the parties failed to settle amicably before the Labor Arbiter, they submitted their respective position papers and other pleadings together with their documentary evidence. Thereafter, a Decision was rendered by the Labor Arbiter on 26 March 1991, dismissing the Complaint against the petitioner for lack of merit, but ordering the private respondents to pay the complainants the total amount of P487,287.07 representing unpaid wages, separation pay and overtime pay; as well as attorney’s fees in an amount equivalent to 10% of the award or P48,728.70. All other claims of the complainants against the private respondents were dismissed. [9]

Feeling aggrieved, private respondents appealed the aforesaid Decision to the NLRC. Private respondents alleged, among other things, that: (1) 48 of the 49 complainants had executed affidavits of desistance and they had never attended any hearing nor given any authority to anyone to file a case on their behalf; (2) the Labor Arbiter erred in not conducting a full-blown hearing on the case; (3) there is only one complainant in

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that case who submitted a position paper on his own; (4) the complainants were not constructively dismissed when they were not given assignments within a period of six months, but had abandoned their jobs when they failed to report to another place of assignment; and (5) the petitioner, being the principal, was solidarily liable with the private respondents for failure to make an adjustment on the wages of the complainants.[10] On 28 May 1993, the NLRC issued a Resolution[11] affirming the Decision of the Labor Arbiter dated 26 March 1991 with the modification that the petitioner was solidarily liable with the private respondents, ratiocinating thus:We, however, disagree with the dismissal of the case against [herein petitioner]. Under Art. 107[12] of the Labor Code of the Philippines, [herein petitioner] is considered an indirect employer and can be held solidarily liable with [private respondents] as an independent contractor. Under Art. 109, [13] for purposes of determining the extent of its liability, [herein petitioner] is considered a direct employer, hence, it is solidarily liable for complainant’s (sic) wage differentials and unpaid overtime. We find this situation obtaining in this case in view of the failure of [private respondents] to pay in full the labor standard benefits of complainants, in which case liability is limited thereto and does not extend to the establishment of employer-employee relations.[14] [Emphasis supplied].Both private respondents and petitioner separately moved for reconsideration of the aforesaid Resolution of the NLRC. In their Motion for Reconsideration, private respondents reiterated that the complainants abandoned their work, so that private respondents should not be liable for separation pay; and that petitioner, not private respondents, should be liable for complainants’ other monetary claims, i.e., for wage differentials and unpaid overtime. The petitioner, in its own Motion for Reconsideration, asked that it be excluded from liability. It averred that private respondents should be solely responsible for their acts as it sufficiently paid private respondents all the benefits due the complainants.

On 30 July 1993, the NLRC issued an Order[15] noting that based on the records of the case, the judgment award in the amount of P487,287.07 was secured by a surety bond posted by the private respondents;[16] hence, there was no longer any impediment to the satisfaction of the complainants’ claims. Resultantly, the NLRC denied the private respondents’ Motion for Reconsideration. The NLRC likewise directed the Labor Arbiter to enforce the monetary award against the private respondents’ surety bond and to determine who should finally shoulder the liability therefor.[17]

Alleging grave abuse of discretion of the NLRC in its issuance of the Resolution and Order dated 28 May 1993 and 30 July 1993, respectively, private respondents filed before this Court a Petition for Certiorari with prayer for the issuance of a writ of preliminary injunction. The same was docketed as G.R. No. 111506 entitled Ofelia Landrito General Services v. National Labor Relations Commission. The said Petition suspended the proceedings before the Labor Arbiter.

On 23 May 1994, however, this Court issued a Resolution [18] dismissing G.R. No. 111506 for failure of private respondents to sufficiently show that the NLRC had committed grave abuse of discretion in rendering its questioned judgment. This Court’s Resolution in G.R. No. 111506 became final and executory on 25 July 1994.[19]

As a consequence thereof, the proceedings before the Labor Arbiter resumed with respect to the determination of who should finally shoulder the liability for the monetary awards granted to the complainants, in accordance with the NLRC Order dated 30 July 1993.

On 5 October 1994, the Labor Arbiter issued an Order,[20] which reads:As can be gleaned from the Resolution dated [28 May 1993], there is that necessity of clarifying the respective liabilities of [herein petitioner] and [herein private respondents] insofar as the judgment award in the total sum of P487, 287.07 is concerned.

The judgment award in the total sum of P487,287.07 as contained in the Decision dated [26 March 1991] consists of three (3) parts, as follows: First, the judgment award on the underpayment; Second, the judgment award on separation pay; and Third, the judgment award on the overtime pay.

The question now is: Which of these awards is [petitioner] solidarily liable with [private respondents]?

An examination of the record elicits the finding that [petitioner] is solidarily liable with [private respondents] on the judgment awards on the underpayment and on the non-payment of the overtime pay. xxx. This joint and several liability of the contractor [private respondents] and the principal [petitioner] is mandated by the Labor Code to assure compliance of the provisions therein, including the statutory minimum wage (Art. 99,[21] Labor Code). The contractor-agency is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor-agency’s employees for purposes of paying the employees their wages should the contractor-agency be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the workers performance of any work, task, job or project, thus giving the workers ample protection as mandated by the 1987 Constitution.

In sum, the complainants may enforce the judgment award on underpayment and the non-payment of overtime pay against either [private respondents] and/or [petitioner].

However, in view of the finding in the Decision that [petitioner] had adjusted its contract price for the janitorial services it contracted with [private respondents] conforming to

the provisions of Republic Act No. 6727, should the complainants enforce the judgment on the underpayment and on the non-payment of the overtime pay against (sic) [petitioner], the latter can seek reimbursement from the former [meaning (private respondents)], but should the judgment award on the underpayment and on the non-payment of the overtime pay be enforced against [private respondents], the latter cannot seek reimbursement against [petitioner].

The judgment award on separation pay is the sole liability of [private respondents].

WHEREFORE, [petitioner] is jointly and severally liable with [private respondents] in the judgment award on underpayment and on the non-payment of overtime pay. Should the complainants enforce the above judgment award against [petitioner], the latter can seek reimbursement against [private respondents], but should the aforementioned judgment award be enforced against [private respondents], the latter cannot seek reimbursement from the [petitioner].

The judgment award on the payment of separation pay is the sole liability of [private respondents].

Let an alias writ of execution be issued. [Emphasis supplied].Again, both the private respondents and the petitioner appealed the afore-quoted Order of the Labor Arbiter to the NLRC. On 25 April 1995, the NLRC issued a Resolution

[22] affirming the Order dated 5 October 1994 of the Labor Arbiter and dismissing both appeals for non-posting of the appeal or surety bond and/or for utter lack of merit.[23] When the private respondents and the petitioner moved for reconsideration, however, it was granted by the NLRC in its Order[24] dated 27 July 1995. The NLRC thus set aside its Resolution dated 25 April 1995, and directed the private respondents and the petitioner to each post an appeal bond in the amount of P487,287.62 to perfect their respective appeals.[25] Both parties complied.[26]

On 30 January 1996, the NLRC rendered a Decision modifying the Order of the Labor Arbiter dated 5 October 1994, the dispositive portion of which reads:

WHEREFORE, the [21 November 1994] appeal of [herein petitioner] is hereby granted. The [5 October 1994] Order of Labor Arbiter Donato G. Quinto, Jr., is modified to the extent that it still held [petitioner] as jointly and severally liable with [herein private respondents] in the judgment award on underpayment and on the non-payment of overtime pay, our directive being that the Arbiter should now satisfy said labor-standards award, as well as that of the separation pay, exclusively through the surety bond posted by [private respondents].[27] [Emphasis supplied].Dissatisfied, private respondents moved for the reconsideration of the foregoing Decision, but it was denied by the NLRC in an Order [28] dated 30 October 1996. This NLRC Order dated 30 October 1996 became final and executory on 29 November 1996.

On 4 December 1996, private respondents filed a Petition for Certiorari [29] before this Court assailing the Decision and the Order of the NLRC dated 30 January 1996 and 30 October 1996, respectively. On 9 December 1998, this Court issued a Resolution [30] referring the case to the Court of Appeals conformably with its ruling in St. Martin Funeral Home v. National Labor Relations Commission.[31] The case was docketed before the appellate court as CA-G.R. SP No. 50806.

The Petition made a sole assignment of error, to wit:THE HONORABLE COMMISSION GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETION IN FINDING THAT THE ULTIMATE LIABILITY SHOULD FALL ON THE [HEREIN PRIVATE RESPONDENTS] ALONE, WITHOUT REIMBURSEMENT FROM THE [HEREIN PETITIONER], IN ORDER TO SATISFY THE MONETARY AWARDS OF THE [THEREIN COMPLAINANTS].[32]

After due proceedings, the Court of Appeals rendered the assailed Decision on 24 April 2000, modifying the Decision of the NLRC dated 30 January 1996 and holding the petitioner solidarily liable with the private respondents for the satisfaction of the laborers’ separation pay. According to the Court of Appeals:The [NLRC] adjudged the payment of separation pay to be the sole responsibility of [herein private respondents] because (1) there is no employer-employee relationship between [herein petitioner] and the forty-nine (49) [therein complainants]; (2) the payment of separation pay is not a labor standard benefit. We disagree.

Again, We quote Article 109 of the Labor Code, as amended, viz:The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code

The abovementioned statute speaks of any violation of any provision of this Code. Thus, the existence or non-existence of employer-employee relationship and whether or not the violation is one of labor standards is immaterial because said provision of law does not make any distinction at all and, therefore, this Court should also refrain from making any distinction. Concomitantly, [herein petitioner] should be jointly and severally liable with [private respondents] for the payment of wage differentials, overtime pay and separation pay of the [therein complainants]. The joint and several liability imposed to [petitioner] is, again, without prejudice to a claim for reimbursement by [petitioner] against [private respondents] for reasons already discusses (sic).

WHEREFORE, premises studiedly considered, the assailed 30 January 1996 decision of [the NLRC] is hereby modified insofar as [petitioner] should be held solidarily liable with [the private respondents] for the satisfaction of the laborers’ separation pay. No pronouncement as to costs.[33] [Emphasis supplied].

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The petitioner filed a Motion for Reconsideration of the aforesaid Decision but it was denied by the Court of Appeals in a Resolution dated 27 September 2000.

Petitioner now comes before this Court via a Petition for Review on Certiorari, docketed as G.R. No. 145402, raising the sole issue of whether or not the Honorable Court of Appeals palpably erred when it went beyond the issues of the case as it modified the factual findings of the Labor Arbiter which attained finality after it was affirmed by Public Respondent NLRC and by the Supreme Court which can no longer be disturbed as it became the law of the case.[34]

Petitioner argues that in the assailed Decision dated 24 April 2000, the Court of Appeals found that the sole issue for its resolution was whether the ultimate liability to pay the monetary awards in favor of the 49 employees falls on the private respondents without reimbursement from the petitioner. Hence, the appellate court should have limited itself to determining the right of private respondents to still seek reimbursement from petitioner for the monetary awards on the unpaid wages and overtime pay of the complainants.

According to petitioner, the NLRC, in its Resolution dated 28 May 1993, already found that petitioner had fully complied with its salary obligations to the complainants. Petitioner invokes the same NLRC Resolution to support its claim that it was not liable to share with the private respondents in the payment of separation pay to complainants. When private respondents questioned the said NLRC Resolution in a Petition for Certiorari with this Court, docketed as G.R. No. 111506, this Court found that the NLRC did not commit grave abuse of discretion in the issuance thereof and accordingly dismissed private respondents Petition. Said NLRC Resolution, therefore, has since become final and executory and can no longer be disturbed for it now constitutes the law of the case.

Assuming for the sake of argument that the Court of Appeals can still take cognizance of the issue of petitioners liability for complainants separation pay, petitioner asserts that the appellate court seriously erred in concluding that it is jointly and solidarily liable with private respondents for the payment thereof. The payment of separation pay should be the sole responsibility of the private respondents because there was no employer-employee relationship between the petitioner and the complainants, and the payment of separation pay is not a labor standards benefit.

Law of the case has been defined as the opinion delivered on a former appeal. It is a term applied to an established rule that when an appellate court passes on a question and remands the case to the lower court for further proceedings, the question there settled becomes the law of the case upon subsequent appeal. It means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court.[35] Indeed, courts must adhere thereto, whether the legal principles laid down were correct on general principles or not or whether the question is right or wrong because public policy, judicial orderliness and economy require such stability in the final judgments of courts or tribunals of competent jurisdiction.[36]

Petitioners application of the law of the case principle to the case at bar as regards its liability for payment of separation pay is misplaced.

The only matters settled in the 23 May 1994 Resolution of this Court in G.R. No. 111506, which can be regarded as the law of the case, were (1) both the petitioner and the private respondents were jointly and solidarily liable for the judgment awards due the complainants; and (2) the said judgment awards shall be enforced against the surety bond posted by the private respondents. However, the issue as regards the liability of the petitioner for payment of separation pay was yet to be resolved because precisely, the NLRC, in its Order dated 30 July 1993, still directed the Labor Arbiter to make a determination on who should finally shoulder the monetary awards granted to the complainants. And it was only after G.R. No. 111506 was dismissed by this Court that the Labor Arbiter promulgated his Decision dated 5 October 1994, wherein he clarified the respective liabilities of the petitioner and the private respondents for the judgment awards. In his 5 October 1994 Decision, the Labor Arbiter explained that the solidary liability of the petitioner was limited to the monetary awards for wage underpayment and non-payment of overtime pay due the complainants, and it did not, in any way, extend to the payment of separation pay as the same was the sole liability of the private respondents.

Nonetheless, this Court finds the present Petition meritorious.

The Court of Appeals indeed erred when it ruled that the petitioner was jointly and solidarily liable with the private respondents as regards the payment of separation pay.

The appellate court used as basis Article 109 of the Labor Code, as amended, in holding the petitioner solidarily liable with the private respondents for the payment of separation pay:ART. 109. Solidary Liability. - The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. [Emphasis supplied].

However, the afore-quoted provision must be read in conjunction with Articles 106 and 107 of the Labor Code, as amended.

Article 107 of the Labor Code, as amended, defines an indirect employer as any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. To ensure that the contractor’s employees are paid their appropriate wages, Article 106 of the Labor Code, as amended, provides:ART. 106. CONTRACTOR OR SUBCONTRACTOR.“ x x x.

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. [Emphasis supplied].Taken together, an indirect employer (as defined by Article 107) can only be held solidarily liable with the independent contractor or subcontractor (as provided under Article 109) in the event that the latter fails to pay the wages of its employees (as described in Article 106).

Hence, while it is true that the petitioner was the indirect employer of the complainants, it cannot be held liable in the same way as the employer in every respect. The petitioner may be considered an indirect employer only for purposes of unpaid wages. As this Court succinctly explained in Philippine Airlines, Inc. v. National Labor Relations Commission [37]:While USSI is an independent contractor under the security service agreement and PAL may be considered an indirect employer, that status did not make PAL the employer of the security guards in every respect. As correctly posited by the Office of the Solicitor General, PAL may be considered an indirect employer only for purposes of unpaid wages since Article 106, which is applicable to the situation contemplated in Section 107, speaks of wages. The concept of indirect employer only relates or refers to the liability for unpaid wages. Read together, Articles 106 and 109 simply mean that the party with whom an independent contractor deals is solidarily liable with the latter for unpaid wages, and only to that extent and for that purpose that the latter is considered a direct employer. The term wage is defined in Article 97(f) of the Labor Code as the remuneration of 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 unwritten contract of employment for work done or to be done, or for services rendered or to be rendered and includes the fair and reasonable value, as determined by the Secretary of Labor, of board, lodging, or other facilities customarily furnished by the employer to the employee.Further, there is no question that private respondents are operating as an independent contractor and that the complainants were their employees. There was no employer-employee relationship that existed between the petitioner and the complainants and, thus, the former could not have dismissed the latter from employment. Only private respondents, as the complainants employer, can terminate their services, and should it be done illegally, be held liable therefor. The only instance when the principal can also be held liable with the independent contractor or subcontractor for the backwages and separation pay of the latter’s employees is when there is proof that the principal conspired with the independent contractor or subcontractor in the illegal dismissal of the employees, thus:

The liability arising from an illegal dismissal is unlike an order to pay the statutory minimum wage, because the workers right to such wage is derived from law. The proposition that payment of back wages and separation pay should be covered by Article 109, which holds an indirect employer solidarily responsible with his contractor or subcontractor for any violation of any provision of this Code, would have been tenable if there were proof - there was none in this case - that the principal/employer had conspired with the contractor in the acts giving rise to the illegal dismissal. [38]

It is the established fact of conspiracy that will tie the principal or indirect employer to the illegal dismissal of the contractor or subcontractor’s employees. In the present case, there is no allegation, much less proof presented, that the petitioner conspired with private respondents in the illegal dismissal of the latter’s employees; hence, it cannot be held liable for the same.

Neither can the liability for the separation pay of the complainants be extended to the petitioner based on contract. Contract Order No. 166-84 executed between the petitioner and the private respondents contains no provision for separation pay in the event that the petitioner terminates the same. It is basic that a contract is the law between the parties and the stipulations therein, provided that they are not contrary to law, morals, good customs, public order or public policy, shall be binding as between the parties.[39] Hence, if the contract does not provide for such a liability, this Court cannot just read the same into the contract without possibly violating the intention of the parties.

It is also worth noting that although the issue in CA-G.R. SP No. 50806 pertains to private respondent’s right to reimbursement from petitioner for the monetary awards in favor of the complainants, they limited their arguments to the monetary awards for underpayment of wages and non-payment of overtime pay, and were conspicuously silent on the monetary award for separation pay. Thus, private respondents sole liability for the separation pay of their employees should have been deemed settled and already beyond the power of the Court of Appeals to resolve, since it was an issue never raised before it.[40]

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Although petitioner is not liable for complainants separation pay, the Court conforms to the consistent findings in the proceedings below that the petitioner is solidarily liable with the private respondents for the judgment awards for underpayment of wages and non-payment of overtime pay.

In this case, however, private respondents had already posted a surety bond in an amount sufficient to cover all the judgment awards due the complainants, including those for underpayment of wages and non-payment of overtime pay. The joint and several liability of the principal with the contractor and subcontractor were enacted to ensure compliance with the provisions of the Labor Code, principally those on statutory minimum wage. This liability facilitates, if not guarantees, payment of the workers compensation, thus, giving the workers ample protection as mandated by the 1987 Constitution.[41] With private respondents surety bond, it can therefore be said that the purpose of the Labor Code provision on the solidary liability of the indirect employer is already accomplished since the interest of the complainants are already adequately protected. Consequently, it will be futile to continuously hold the petitioner jointly and solidarily liable with the private respondents for the judgment awards for underpayment of wages and non-payment of overtime pay.

But while this Court had previously ruled that the indirect employer can recover whatever amount it had paid to the employees in accordance with the terms of the service contract between itself and the contractor,[42] the said ruling cannot be applied in reverse to this case as to allow the private respondents (the independent contractor), who paid for the judgment awards in full, to recover from the petitioner (the indirect employer).

Private respondents have nothing more to recover from petitioner.

Petitioner had already handed over to private respondent the wages and other benefits of the complainants. Records reveal that it had complied with complainant’s salary increases in accordance with the minimum wage set by Republic Act No. 6727 by faithfully adjusting the contract price for the janitorial services it contracted with private respondents. [43] This is a finding of fact made by the Labor Arbiter,[44] untouched by the NLRC[45] and explicitly affirmed by the Court of Appeals,[46] and which should already bind this Court.

This Court is not a trier of facts. Well-settled is the rule that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court is limited to reviewing only errors of law, not of fact, unless the factual findings complained of are completely devoid of support from the evidence on record, or the assailed judgment is based on a gross misapprehension of facts. Besides, factual findings of quasi-judicial agencies like the NLRC, when affirmed by the Court of Appeals, are conclusive upon the parties and binding on this Court.[47]

Having already received from petitioner the correct amount of wages and benefits, but having failed to turn them over to the complainants, private respondents should now solely bear the liability for the underpayment of wages and non-payment of the overtime pay.

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The Decision and Resolution of the Court of Appeals dated 24 April 2000 and 27 September 2000, respectively, in CA-G.R. SP No. 50806, are hereby REVERSED AND SET ASIDE. The Decision dated 30 January 1996 of the National Labor Relations Commission in NLRC NCR CA No. 001737-91 (NLRC NCR Case No. 00-09-04432-89) is hereby REINSTATED. No costs.

SO ORDERED.

Ynares-Santiago, (Chairperson) Austria-Martinez, Nachura, and Reyes, JJ., concur.

G.R. No. 178827 March 4, 2009

JEROMIE D. ESCASINAS and EVAN RIGOR SINGCO, Petitioners, vs.SHANGRI-LA'S MACTAN ISLAND RESORT and DR. JESSICA J.R. PEPITO, Respondents.

CARPIO MORALES, J.:

Registered nurses Jeromie D. Escasinas and Evan Rigor Singco (petitioners) were engaged in 1999 and 1996, respectively, by Dr. Jessica Joyce R. Pepito (respondent doctor) to work in her clinic at respondent Shangri-la’s Mactan Island Resort (Shangri-la) in Cebu of which she was a retained physician.

In late 2002, petitioners filed with the National Labor Relations Commission (NLRC) Regional Arbitration Branch No. VII (NLRC-RAB No. VII) a complaint1 for regularization, underpayment of wages, non-payment of holiday pay, night shift differential and 13th

month pay differential against respondents, claiming that they are regular employees of Shangri-la. The case was docketed as RAB Case No. 07-11-2089-02.

Shangri-la claimed, however, that petitioners were not its employees but of respondent doctor whom it retained via Memorandum of Agreement (MOA)2 pursuant to Article 157 of the Labor Code, as amended.

Respondent doctor for her part claimed that petitioners were already working for the previous retained physicians of Shangri-la before she was retained by Shangri-la; and that she maintained petitioners’ services upon their request.

By Decision3 of May 6, 2003, Labor Arbiter Ernesto F. Carreon declared petitioners to be regular employees of Shangri-la. The Arbiter thus ordered Shangri-la to grant them the wages and benefits due them as regular employees from the time their services were engaged.

In finding petitioners to be regular employees of Shangri-la, the Arbiter noted that they usually perform work which is necessary and desirable to Shangri-la’s business; that they observe clinic hours and render services only to Shangri-la’s guests and employees; that payment for their salaries were recommended to Shangri-la’s Human Resource Department (HRD); that respondent doctor was Shangri-la’s "in-house" physician, hence, also an employee; and that the MOA between Shangri-la and respondent doctor was an "insidious mechanism in order to circumvent [the doctor’s] tenurial security and that of the employees under her."

Shangri-la and respondent doctor appealed to the NLRC. Petitioners appealed too, but only with respect to the non-award to them of some of the benefits they were claiming.

By Decision4 dated March 31, 2005, the NLRC granted Shangri-la’s and respondent doctor’s appeal and dismissed petitioners’ complaint for lack of merit, it finding that no employer-employee relationship exists between petitioner and Shangri-la. In so deciding, the NLRC held that the Arbiter erred in interpreting Article 157 in relation to Article 280 of the Labor Code, as what is required under Article 157 is that the employer should provide the services of medical personnel to its employees, but nowhere in said article is a provision that nurses are required to be employed; that contrary to the finding of the Arbiter, even if Article 280 states that if a worker performs work usually necessary or desirable in the business of the employer, he cannot be automatically deemed a regular employee; and that the MOA amply shows that respondent doctor was in fact engaged by Shangri-la on a retainer basis, under which she could hire her own nurses and other clinic personnel.

Brushing aside petitioners’ contention that since their application for employment was addressed to Shangri-la, it was really Shangri-la which hired them and not respondent doctor, the NLRC noted that the applications for employment were made by persons who are not parties to the case and were not shown to have been actually hired by Shangri-la.

On the issue of payment of wages, the NLRC held that the facts that, for some months, payment of petitioners’ wages were recommended by Shangri-la’s HRD did not prove that it was Shangri-la which pays their wages. It thus credited respondent doctor’s explanation that the recommendations for payment were based on the billings she prepared for salaries of additional nurses during Shangri-la’s peak months of operation, in accordance with the retainership agreement, the guests’ payments for medical services having been paid directly to Shanrgi-la.

Petitioners thereupon brought the case to the Court of Appeals which, by Decision5 of May 22, 2007, affirmed the NLRC Decision that no employer-employee relationship exists between Shangri-la and petitioners. The appellate court concluded that all aspects of the employment of petitioners being under the supervision and control of respondent doctor and since Shangri-la is not principally engaged in the business of providing medical or healthcare services, petitioners could not be regarded as regular employees of Shangri-la.

Petitioners’ motion for reconsideration having been denied by Resolution6 of July 10, 2007, they interposed the present recourse.

Petitioners insist that under Article 157 of the Labor Code, Shangri-la is required to hire a full-time registered nurse, apart from a physician, hence, their engagement should be deemed as regular employment, the provisions of the MOA notwithstanding; and that the MOA is contrary to public policy as it circumvents tenurial security and, therefore, should be struck down as being void ab initio. At most, they argue, the MOA is a mere job contract.

And petitioners maintain that respondent doctor is a labor-only contractor for she has no license or business permit and no business name registration, which is contrary to the requirements under Sec. 19 and 20 of the Implementing Rules and Regulations of the Labor Code on sub-contracting.

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Petitioners add that respondent doctor cannot be a legitimate independent contractor, lacking as she does in substantial capital, the clinic having been set-up and already operational when she took over as retained physician; that respondent doctor has no control over how the clinic is being run, as shown by the different orders issued by officers of Shangri-la forbidding her from receiving cash payments and several purchase orders for medicines and supplies which were coursed thru Shangri-la’s Purchasing Manager, circumstances indubitably showing that she is not an independent contractor but a mere agent of Shangri-la.

In its Comment,7 Shangri-la questions the Special Powers of Attorneys (SPAs) appended to the petition for being inadequate. On the merits, it prays for the disallowance of the petition, contending that it raises factual issues, such as the validity of the MOA, which were never raised during the proceedings before the Arbiter, albeit passed upon by him in his Decision; that Article 157 of the Labor Code does not make it mandatory for a covered establishment to employ health personnel; that the services of nurses is not germane nor indispensable to its operations; and that respondent doctor is a legitimate individual independent contractor who has the power to hire, fire and supervise the work of the nurses under her.

The resolution of the case hinges, in the main, on the correct interpretation of Art. 157 vis a vis Art. 280 and the provisions on permissible job contracting of the Labor Code, as amended.

The Court holds that, contrary to petitioners’ postulation, Art. 157 does not require the engagement of full-time nurses as regular employees of a company employing not less than 50 workers. Thus, the Article provides:

ART. 157. Emergency medical and dental services. – It shall be the duty of every employer to furnish his employees in any locality with free medical and dental attendance and facilities consisting of:

(a) The services of a full-time registered nurse when the number of employees exceeds fifty (50) but not more than two hundred (200) except when the employer does not maintain hazardous workplaces, in which case the services of a graduate first-aider shall be provided for the protection of the workers, where no registered nurse is available. The Secretary of Labor shall provide by appropriate regulations the services that shall be required where the number of employees does not exceed fifty (50) and shall determine by appropriate order hazardous workplaces for purposes of this Article;

(b) The services of a full-time registered nurse, a part-time physician and dentist, and an emergency clinic, when the number of employees exceeds two hundred (200) but not more than three hundred (300); and

(c) The services of a full-time physician, dentist and full-time registered nurse as well as a dental clinic, and an infirmary or emergency hospital with one bed capacity for every one hundred (100) employees when the number of employees exceeds three hundred (300).

In cases of hazardous workplaces, no employer shall engage the services of a physician or dentist who cannot stay in the premises of the establishment for at least two (2) hours, in the case of those engaged on part-time basis, and not less than eight (8) hours in the case of those employed on full-time basis. Where the undertaking is nonhazardous in nature, the physician and dentist may be engaged on retained basis, subject to such regulations as the Secretary of Labor may prescribe to insure immediate availability of medical and dental treatment and attendance in case of emergency. (Emphasis and underscoring supplied)

Under the foregoing provision, Shangri-la, which employs more than 200 workers, is mandated to "furnish" its employees with the services of a full-time registered nurse, a part-time physician and dentist, and an emergency clinic which means that it should provide or make available such medical and allied services to its employees, not necessarily to hire or employ a service provider. As held in Philippine Global Communications vs. De Vera:8

x x x while it is true that the provision requires employers to engage the services of medical practitioners in certain establishments depending on the number of their employees, nothing is there in the law which says that medical practitioners so engaged be actually hired as employees, adding that the law, as written, only requires the employer "to retain", not employ, a part-time physician who needed to stay in the premises of the non-hazardous workplace for two (2) hours. (Emphasis and underscoring supplied)

The term "full-time" in Art. 157 cannot be construed as referring to the type of employment of the person engaged to provide the services, for Article 157 must not be

read alongside Art. 2809 in order to vest employer-employee relationship on the employer and the person so engaged. So De Vera teaches:

x x x For, we take it that any agreement may provide that one party shall render services for and in behalf of another, no matter how necessary for the latter’s business, even without being hired as an employee. This set-up is precisely true in the case of an independent contractorship as well as in an agency agreement. Indeed, Article 280 of the Labor Code, quoted by the appellate court, is not the yardstick for determining the existence of an employment relationship. As it is, the provision merely distinguishes between two (2) kinds of employees, i.e., regular and casual. x x x10 (Emphasis and underscoring supplied)

The phrase "services of a full-time registered nurse" should thus be taken to refer to the kind of services that the nurse will render in the company’s premises and to its employees, not the manner of his engagement.

As to whether respondent doctor can be considered a legitimate independent contractor, the pertinent sections of DOLE Department Order No. 10, series of 1997, illuminate:

Sec. 8. Job contracting. – There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting. – (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such persons are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

(c) For cases not falling under this Article, the Secretary of Labor shall determine through appropriate orders whether or not the contracting out of labor is permissible in the light of the circumstances of each case and after considering the operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions and restrictions to insure the protection and welfare of the workers. (Emphasis supplied)

The existence of an independent and permissible contractor relationship is generally established by considering the following determinants: whether the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.11

On the other hand, existence of an employer- employee relationship is established by the presence of the following determinants: (1) the selection and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control the worker's conduct, with the latter assuming primacy in the overall consideration.12

Against the above-listed determinants, the Court holds that respondent doctor is a legitimate independent contractor. That Shangri-la provides the clinic premises and medical supplies for use of its employees and guests does not necessarily prove that respondent doctor lacks substantial capital and investment. Besides, the maintenance of a clinic and provision of medical services to its employees is required under Art. 157,

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which are not directly related to Shangri-la’s principal business – operation of hotels and restaurants.

As to payment of wages, respondent doctor is the one who underwrites the following: salaries, SSS contributions and other benefits of the staff13; group life, group personal accident insurance and life/death insurance14 for the staff with minimum benefit payable at 12 times the employee’s last drawn salary, as well as value added taxes and withholding taxes, sourced from her P60,000.00 monthly retainer fee and 70% share of the service charges from Shangri-la’s guests who avail of the clinic services. It is unlikely that respondent doctor would report petitioners as workers; pay their SSS premium as well as their wages if they were not indeed her employees.15

With respect to the supervision and control of the nurses and clinic staff, it is not disputed that a document, "Clinic Policies and Employee Manual"16 claimed to have been prepared by respondent doctor exists, to which petitioners gave their conformity17 and in which they acknowledged their co-terminus employment status. It is thus presumed that said document, and not the employee manual being followed by Shangri-la’s regular workers, governs how they perform their respective tasks and responsibilities.

Contrary to petitioners’ contention, the various office directives issued by Shangri-la’s officers do not imply that it is Shangri-la’s management and not respondent doctor who exercises control over them or that Shangri-la has control over how the doctor and the nurses perform their work. The letter18 addressed to respondent doctor dated February 7, 2003 from a certain Tata L. Reyes giving instructions regarding the replenishment of emergency kits is, at most, administrative in nature, related as it is to safety matters; while the letter19 dated May 17, 2004 from Shangri-la’s Assistant Financial Controller, Lotlot Dagat, forbidding the clinic from receiving cash payments from the resort’s guests is a matter of financial policy in order to ensure proper sharing of the proceeds, considering that Shangri-la and respondent doctor share in the guests’ payments for medical services rendered. In fine, as Shangri-la does not control how the work should be performed by petitioners, it is not petitioners’ employer.

WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated May 22, 2007 and the Resolution dated July 10, 2007 are AFFIRMED.

SO ORDERED.

G.R. No. 158956 April 24, 2009

ILIGAN CEMENT CORPORATION Petitioner, vs.ILIASCOR EMPLOYEES AND WORKERS UNION - SOUTHERN PHILIPPINES FEDERATION OF LABOR (IEWU-SPFL), AND ITS OFFICERS AND MEMBERS, HEADED BY CLEMENTINO DENSING, PRESIDENT, ANTONIO ACASO, FIDEL BADILLO, JR., BONIFACIO BANSAG, FELIPE BARDILAS, ALFREDO BERNALDEZ, ROMEO CARANYAGAN, MIGUEL CLAUDEL, VENERANDO DEL MONTE, ROMY DUMA-OG, JAIME DUMA-OG, EUSTIQUIO EBABIOSA, PEDRO EBABIOSA, VIRGINITO EBABIOSA, DOLIO EPAT, VIRGILIO FABRICANTE, ANACLETO JUNTILLA, JR., ROBERTO MILIJON, PACIFICO NACA, EDGARDO PACULBA, DAMACINO PANCHO, RODULFO QUARTEROS, EDGARDO RICO, GIL SECULA, SILVANO VEGA, EMEGDIO AMISTOSO, RODOLFO BABATIDO, CRISOLOGO BAGOY, PRUDENCIO BALABA, JR., ROMEO BALLANCA, PERFECTO BOHOL, JASUS BUGTAY, FRANCISCO CABALLA, ROMULO CABALUNA, ROLANDO CAGULA, RONALD CASTRO, DOMINADOR CATIAN, LUCRESIO CUNADO, PABLO DAYDAY, BERNABE DELA PENA, DISOCORO DIOSMANOS, SIXTO DUMAOG, ANASTACIO FLORIN, JOSELITO FULLIDO, LEONARDO GALLETO, APOLINARIO GUINITA, EMELIANO GUINITA, FELIX HERMOSO, RODOLFO HERMOSO, DOMINGO JAGONAL, AVELINO JORZA, ANTONIO JURADO, ISIDRO LAHOY-LAHOY, JR., SALVADOR LAURE, JIMMY MALIKSI, DEMOCRTO MAGHINAY, MANUELITO MAGSAYO, EDUARDO MALONHAO, JUANITO MANGGAS, LUCIANO MANGGAS, DIONESIO MANTALABA, FERNANDO MARIQUIT, JOSE MATA, NELSON MIANO, PERDO MIANO, JR., ALFREDO MICABALO, ELISAR MONTEJO, FELIX NAMOC, EDMUNDO NOTORIO, LUIS OGUIMAS, SILVINO OLANDAG, NARCISO OLLOVES, MARIO OLPOC, SANTIAGO MONDANG, RAUL PANILAGAO, JOLLY PESARAS, ANTONIO RAGANAS, DIOSCORO RICO, FELIPE RICO, CASEMERO RASARIO, ISIDRO RUBIO, BUENAVENTURA RUIZ, IRENIO SABINAY, JR., GILBERT SAYSON, ELESIO SANTINIAMAN, NIEVES SECULA, BALBINO SILLE, NORBERTO SUMILE, REMEGIO TAMPUS, WILFREDO TANUDRA, ANTONIO TEJANO, PABLITO TOLEDO, JOHNAN OVALO, ET AL., Respondents.

LEONARDO-DE CASTRO, J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Court assailing the twin Resolutions of the Court of Appeals in CA-G.R. SP No. 72267 dated October 17, 20021 , and July 3, 20032 which dismissed the petition for certiorari and denied petitioner’s motion for reconsideration respectively.

Petitioner Iligan Cement Corporation, is a corporation duly organized and existing under the laws of the Philippines with plant offices at Kiwalan, Iligan City.

Iligan Industrial and Agency Services Corporation (ILIASCOR), is the accredited job contractor of petitioner which provided stevedoring and arrastre services to the latter since its operations in the 1970s at its private pier in Kiwalan, Iligan City.

Respondent ILIASCOR Employees and Workers Union- Southern Philippines Federation of Labor (IEWU-SPFL) is the certified bargaining representative of ILIASCOR’s arrastre and stevedoring workers, including herein individual respondents, from August 1, 1995 to August 1, 2000.3

Vedali General Services (Vedali) is an accredited service agency which provided general services to petitioner’s various departments.

On November 11, 1999, Blue Circle Philippines, Inc. took over the management of petitioner’s business,4 and decided to bid5 out the services at petitioner’s private pier. Before the actual bidding, respondent requested that the employment of ILIASCOR’s workers be continued.6 In a letter dated November 26, 1999, Peter Brinkley, petitioner’s Vice-President for Operations denied respondent’s request as the contract with ILIASCOR had already expired.7

ILIASCOR lost the bidding to Luzon Visayas Mindanao Arrastre and Stevedoring, Inc. (LVMASI). Consequently, ILIASCOR paid the individual respondents their separation pay of half-month (1/2) pay for every year of service8 , contrary to the stipulation in the Collective Bargaining Agreement (CBA), which is one-month pay for every year of service.9

The contract between petitioner and LVMASI was not perfected when it was discovered that LVMASI was a dormant corporation which was neither a stevedoring company nor possessed with sufficient capital to engage in the stevedoring and arrastre works.10

To ensure that its operations would not be hampered, petitioner issued a service order to Vedali.11 On August 2, 2000 Vedali fielded stevedores, including herein respondents. Petitioner’s Packhouse Manager Alex Sagario readily engaged stevedores.12 On October 12, 2000, Vedali issued Charge Invoice No. 0275 to petitioner in the amount of 534,404.93 for the stevedores assigned at Packhouse from September 16-30, 200013

On October 23, 2000, individual respondents filed a complaint14 with the National Labor Relations Commission (NLRC) Sub-Regional Arbitration Branch XII against petitioner. Pursuant to Article 109 of the Labor Code respondents demanded for the declaration of their status as regular employees and for the payment of the half of their separation pay which ILIASCOR previously withheld.

On October 25, 2000, Vedali sent a Bill/ Demand Letter15 to petitioner, demanding payment in the amount of P533, 666.11 for the services of its stevedores assigned at Packhouse from October 1-15, 2000.

On November 15, 2000, petitioner entered into a stevedoring and arrastre contract with Northern Mindanao Industrial and Port Services Corporation (NMIPSC). Thereafter, NMIPSC took over the stevedoring duties of individual respondents.16

Hence, on December 14, 2000, individual respondents filed a Supplemental Complaint17 with the NLRC Sub-Regional Arbitration Branch XII for violation of Article 246 of the Labor Code, illegal dismissal, with prayer for preliminary injunction, damages and attorney’s fees.

On March 30, 2001, Labor Arbiter Guardson A. Siao rendered a Decision18 dismissing the complaint for lack of merit, thus:

x x x, this office believes that respondent ICC is not liable to pay the unpaid portion of complainant’s separation pay representing differentials since respondent is not the employer of the former. Besides, in the case of PCI Automation Center, Inc. v. NLRC, G.R. No. 145920, 29 January 1996, citing Phil. Bank of Commerce v. NLRC, 146 SCRA 347 (1986), the Hon. Supreme Court opines, viz:

Other than the payment of wages, the principal employer is not responsible for any claim made by the employee.

DO 18-02 Cases 17

As can be gleaned from the above-discussion, herein respondent ICC is merely the principal in the contract with ILIASCOR, an independent contractor, the employer of individual complainants.

xxxAnother point worth discussing is that, the separation pay is based on the collective bargaining agreement entered into between the individual complainants and the complaining union, ILIASCOR IEWU-SPFL. Respondent ICC is not a privy to that CBA, thus the former cannot be held liable or be demanded upon to pay the same to the complainants.

xxxWHEREFORE, premises considered, the instant case is hereby ordered DISMISSED for lack of merit.

All other issues not discussed above and inconsistent with the above discussions are likewise ordered dismissed for lack of merit.

SO ORDERED.

On appeal, the National Labor Relations Commission (NLRC), Fifth Division, issued a Resolution19 dated April 19, 2002, reversing the Decision of the Labor Arbiter and declaring, among others, that respondents are regular employees of petitioner, thus:

The contention of complainants that they were directly employed with respondent ICC during the period August 2 to November 15, 2000, stressing that they were in fact hired by its Packhouse Manager, Alex Sagario, is found credible. Not only has respondent failed to deny having the said Alex Sagario under its ranks, it has not given us any plausible reason why complainants would wrongfully drag the name of Sagario in this case. Complainants could not be faulted for failing to adduce evidence about their hiring by respondent. The workers’ employment papers, their payrolls and other vouchers are naturally in the possession of the employers given the mandate of the law for them to keep the same. Thus, having claimed that complainants were otherwise employed with Vedali General Services, respondent ICC is burdened to produce the employment papers of the former with the latter, but none is offered so far.

Besides, we note that respondent has avowed Vedali was a legitimate contractor which it could and in fact contracted with to provide stevedoring services, though it was only on temporary basis. However, the status of Vedali has been challenged by complainants declaring that it was actually a labor-only contractor. With "labor-only" contracting being strictly prohibited in this jurisdiction, necessity dictates for respondent to confront the charge and lay bare the records of Vedali for our scrutiny. This, it should do. After all, we have already been aptly convinced by complainants on the matter of respondent having earlier contracted the services of an unqualified contractor, Luzon Visayas Mindanao Arrastre and Stevedoring, Inc. The documentary evidence (Vol. I pp. 35-40) submitted by complainants clearly suggest that LVMASI was incorporated for the primary purpose of engaging, operating, conducting and maintaining the business of manufacturing, exporting, importing, buying or selling white cement, its by-products and other cement products, despite its corporate name; that it only had a paid-up capital of only Php 625,000.00 while the arrastre and stevedoring works up for bidding required the use of two (2) cranes and eight (8) forklifts; and, that, amazingly it was not engaged in any singular business as of October, 1999. Truly, the replacement of LVMASI with Vedali validated complainants’ submission in this regard.

For us to gloss over the aforecited matters will be tantamount to our abandonment of the constitutional mandate affording protection to labor.

Hired by respondent’s representative and working at its premises as stevedores and piers, services which were undoubtedly necessary in its business, complainants are thereby declared regular employees of respondent ICC during the period claimed. That, by the take-over of their jobs by the workforce of the Northern Mindanao Industrial and Port Services Corporation (NMIPSC) on November 15, 2000, complainants were evidently dismissed as a result. Bereft of any cause nor notice other than the actual take-over by another corporation of their jobs, the dismissal of complainants is clearly illegal.

This being the case, complainants are entitled to the reliefs of reinstatement with full backwages pursuant to Art. 279 of the Labor Code. However, the reinstatement of complainants to their previous positions is rendered impossible by the takeover of NMIPSC manpower. Thus, in lieu of thereof, the payment of separation pay proportionate to their length of service with respondent ICC is warranted.

Going to their claim for separation pay differential, the submission of complainants that respondent ICC should be held liable therefore is misplaced. Respondent ICC, as indirect employer of complainants, may only be held liable, "(I)n the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code" (Art. 106 Labor Code). Wage and salary, as differentiated from separation pay, refer to one and the same meaning, that is, a reward or recompense for services performed. Meanwhile, separation pay is that what is paid by the employer to an employee on

account of the severance of their employment relations for any of the causes authorized by law.

Thus, as this case involved the severance of the employment of complainants, only their undisputed employer, ILIASCOR, may be held answerable for the benefit sought. More so that the differential being asked is essentially a contractual obligation of ILIASCOR arising out of a specific stipulation in the collective bargaining agreement between them. Correspondingly, since respondent ICC was not privy to the CBA, it has no responsibility to comply therewith.

The claim of complainants for damage is likewise dismissed for lack of merit, but they are awarded attorney’s fees equivalent to 10% of the total money award as they were compelled to litigate this case for reliefs.

WHEREFORE, premises considered, the decision on appeal is hereby VACATED and a new one entered:

1. Declaring complainants regular employees of respondent ICC for the period August 2, 2000 to November 15, 2000;2. Declaring their dismissal from employment illegal; and3. Awarding complainants full backwages, separation pay and attorney’s fees in the amounts to be computed by the branch of origin.

SO ORDERED.20

Petitioner elevated the case to the Court of Appeals (CA) through a petition for certiorari21 under Rule 65.

On October 17, 2002, the CA issued the assailed Resolution22 dismissing the petition, thus:

The Court resolves to DISMISS the petition based on the following legal infirmities:

1. The verification and certification of non-forum-shopping was signed by Renato C. Sunico, however, petitioner failed to attach a copy of the board resolution authorizing him to sign the same in behalf of the corporation as required in Digital Microwave Corp. v. Court of Appeals (328 SCRA 286 [2001]); and

2. Petitioner failed to explain why service was done through mail as required by Section 3, Rule 13 of the 1997 Rules of Civil Procedure.

SO ORDERED.

Petitioner’s subsequent Motion for Reconsideration was denied in the other assailed Resolution23 dated July 3, 2003:

The Court has gone over the said Motion for Reconsideration and the grounds raised therein but finds no cogent reason to reverse the aforesaid Resolution particularly because the SPA granted to Renato C. Sunico on August 9, 2002 (See: Secretary’s Certificate, Records, p. 317) referred to a case filed before the NLRC.

Hence, the present petition seeking resolution as to whether the CA erred in denying the petition based merely on procedural infirmities.

We note that petitioner subsequently made up for its earlier lapse when it submitted a Secretary’s Certificate24 attesting that on August 9, 2002, the Board of Directors of the Corporation authorized Mr. Sunico "to sign the verification and/or certification of non-forum shopping of pleadings that may be filed by the corporation in the above mentioned case and in subsequent proceedings." While the authorization was submitted to the CA only after the issuance of the Resolution dismissing the petition, in view of the peculiar circumstances of the case and in the interest of substantial justice, the initial procedural lapse may be excused.25 It is well settled that the application of technical rules of procedure may be relaxed in labor cases to serve the demand of substantial justice.26

The CA’s second ground for dismissal of the petition, that petitioner failed to explain why service was done through mail, was not passed upon by the CA in its second Resolution.27 The CA must have found the explanation of petitioner in its motion for reconsideration acceptable. Counsel for petitioner admitted that the non-inclusion of an explanation on non-personal service was due to an oversight, but he explained that personal service was not feasible considering the geographical distance between counsel’s office in Makati City and the address of the other parties in Iligan City. He added that there was never any intention not to comply with the rules as shown by his subsequent compliance with all the other technical requirements.28 The Court also finds this explanation satisfactory.

DO 18-02 Cases 18

Moreover, petitioner’s argument that the failure to file an explanation on non-personal service of the petition should not automatically result to the outright dismissal of the petition, is meritorious. Section 11, Rule 13 reads:

Section 11. Priorities in modes of service and filing. Whenever practicable, the service and filing of pleadings and other papers shall be done personally. Except with respect to papers emanating from the court, a resort to other modes must be accompanied by a written explanation why the service or filing was not done personally. A violation of this Rule may be cause to consider the paper as not filed. (emphasis ours)

The use of "may," in the above quoted section signifies permissiveness and gives the court discretion whether or not to consider a pleading as not filed. While it is true that procedural rules are necessary to secure an orderly and speedy administration of justice, in this case, the rigid application of Section 11, Rule 13 may be relaxed in the interest of substantial justice.29

The procedural lapses having been cured, the CA should have reconsidered its Resolution dated October 17, 2002 and Order dated July 3, 2003 and gave due course to the petition for certiorari.

Pertinently, Section 9 of Batas Pambansa 129 (B.P. 129), known as the Judiciary Reorganization Act provides:

SEC. 9. Jurisdiction.- The Court of Appeals shall exercise:

(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari, habeas corpus, and quo warranto, and auxiliary writs or processes, whether or not in aid of its appellate jurisdiction;

x x xThe Court of Appeals shall have the power to try cases and conduct hearings, receive evidence and perform any and all acts necessary to resolve factual issues raised in cases falling within its original and appellate jurisdiction, including the power to grant and conduct new trials or further proceedings. Trials or hearings in the Court of Appeals must be continuous and must be completed within three (3) months, unless extend[ed] by the Chief Justice.

Clearly, the CA can resolve factual issues in special civil actions for certiorari from decisions and resolutions of the NLRC. However, the remand of the case to the CA would only result in further delay. Pursuant to established precedents, we deem it expedient in the interest of speedy justice, to rule on the merits of petitioner’s claims based on the records of the case including the pleadings and the evidence submitted by the parties.30

We now go to the merits of the case by re-examining the contradicting findings of the Labor Arbiter and the NLRC in order to resolve the following substantial issues: (1) whether petitioner is the employer of individual respondents, and; (2) whether individual respondents were illegally dismissed.

Petitioner maintains that it never employed the individual respondents and that it contracted Vedali to render services at its pier as a stop-gap measure so as not to hamper its activities while it was negotiating with another contractor. Petitioner claims that the elements of employer-employee relationship were not present as it did not hire, fire, pay nor exercise control over the work of individual respondents. Petitioner further argues that the allegation that it was petitioner’s Packhouse Manager Alex Sagario who hired individual respondents should not be given credence for lack of evidence.

Individual respondents, on the other hand, counter that there is no proof that petitioner and Vedali entered into a service contract to provide stevedoring services at petitioner’s pier from August 2, 2000 to November 15, 2000. In the absence of such contract, Vedali was merely utilized by petitioner as a purported contractor. With regard to their hiring by Alex Sagario, individual respondents contend that they cannot be faulted for failing to adduce evidence. Their employment papers, payrolls and other vouchers are naturally in the possession of petitioner. Thus, petitioner is burdened to produce the same. Since petitioner offered nothing to prove their contrary claim, the NLRC Decision should be upheld.

We rule for the individual respondents.

In determining the true status of Vedali viz-a-viz the petitioner, it is important to ascertain first whether Vedali is a labor-only contractor or an independent contractor.

Labor-only contracting,31 which is prohibited, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal. In labor-only contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility; and

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.

On the other hand, permissible job contracting or subcontracting32 refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal. A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

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

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

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.33

Taking into account the above mentioned elements and the facts obtaining in the present case, we are not convinced that Vedali is an independent contractor. Petitioner failed to present any service contract with Vedali in the proceedings with the Labor Arbiter. There is nothing on record that Vedali has a substantial capital or investment to actually perform the service under its own account and responsibility. Petitioner only attached to its petition with the CA Vedali’s Certificate of Registration and Business permit, which merely pertain to the registration of Vedali with the SEC as engaged in Construction and General Services.34 The Charge Invoices, billing statements and certificate of payment and inspection,35 instead of strengthening petitioner’s argument, weakened its defense and bolstered the claims of individual respondents. The Charge Invoices, billing statements and certificates of payments only show that the wages of individual respondents were paid by petitioner.

The evidence not having adequately shown that Vedali is an independent contractor, can it be considered as a labor-only contractor? We answer in the affirmative. Petitioner is a mere labor-only contractor because it only supplied workers to petitioner to work at its pier.

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. Here, Vedali is the "labor-only" contractor; individual respondents are the employees and petitioner is 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.36

Taking into consideration the factual milieu of this case, the Court agrees with the conclusion of the NLRC that petitioner and not Vedali, is the employer of individual respondents and the latter are employees of petitioner. Individual respondent’s work as stock-pilers, arrastre and stevedores were undoubtedly directly related to and in pursuit of the cement manufacturing and sales business of petitioner. Petitioner’s packing plant operations would have been hampered were it not for the work rendered by individual respondents.1awphi1.zw+

Having determined the real employer of respondents, we now proceed to ascertain the legality of their dismissal from employment.

Under the Labor Code, as amended, the requirements for the lawful dismissal of an employee are two-fold, the substantive and the procedural.37 Not only must the dismissal be for a valid or authorized cause,38 the rudimentary requirements of due process - notice and hearing – must, likewise, be observed before an employee may be

DO 18-02 Cases 19

dismissed.39 One does not suffice; without their concurrence, the termination would, in the eyes of the law, be illegal.40

As the employer, petitioner has the burden of proving that the dismissal of petitioner was for a cause allowed under the law and that petitioner was afforded procedural due process. Petitioner failed to discharge this burden. Indeed, it failed to show any valid or authorized cause under the Labor Code which allowed it to terminate the services of individual respondents. Neither did petitioner show that individual respondents were given ample opportunity to contest the legality of their dismissal. No notice of such impending termination was ever given to them. Individual respondents were definitely denied due process. Having failed to establish compliance with the requirements on termination of employment under the Labor Code, the dismissal of individual respondents was tainted with illegality.

Even if the assailed resolutions of the CA were set aside, the petition must still fail considering that we find no reversible error was committed by the NLRC in rendering its April 19, 2002 Resolution.

WHEREFORE, the petition is hereby DENIED. The Resolution of the National Labor Relations Commission dated April 19, 2002 is AFFIRMED.

Costs against petitioner. SO ORDERED.

G.R. No. 119121 August 14, 1998

NATIONAL POWER CORPORATION, petitioner, vs.COURT OF APPEALS, Fifteenth Division and PHESCO INCORPORATED, respondents.

ROMERO, J.:

On July 22, 1979, a convoy of four (4) dump trucks owned by the National Power Corporation (NPC) left Marawi city bound for Iligan city. Unfortunately, enroute to its destination, one of the trucks with plate no RFT-9-6-673 driven by a certain Gavino Ilumba figured in a head-on-collision with a Toyota Tamaraw. The incident resulted in the death of three (3) persons riding in the Toyota Tamaraw, as well as physical injuries to seventeen other passengers.

On June 10, 1980, the heirs of the victims filed a complaint for damages against National Power Corporation (NPC) and PHESCO Incorporated (PHESCO) before the then Court of First Instance of Lanao del Norte, Marawi City. When defendant PHESCO filed its answer to the complaint it contended that it was not the owner of the dump truck which collided with the Toyota Tamaraw but NPC. Moreover, it asserted that it was merely a contractor of NPC with the main duty of supplying workers and technicians for the latter's projects. On the other hand, NPC denied any liability and countered that the driver of the dump truck was the employee of PHESCO.

After trial on the merits, the trial court rendered a decision dated July 25, 1988 absolving NPC of any liability. The dispositive portion reads:

Consequently, in view of the foregoing consideration, judgment is hereby rendered ordering PHESCO, Inc. and Gavino Ilumba upon receipt hereof:

1. To pay jointly and severally the plaintiffs thru the Dansalan College the sum of P954,154.55 representing the actual or compensatory damages incurred by the plaintiffs; and

2. To pay the sum of P50,000.00 representing Attorney's fees.

SO ORDERED.

Dissatisfied, PHESCO appealed to the Court of Appeals, which on November 10, 1994 reversed the trial court's judgment. We quote the pertinent portion of the decision:

A "labor only" contractor is considered merely as an agent of the employer (Deferia vs. National Labor Relations Commission, 194 SCRA 525). A finding that a contractor is a "labor only" contractor is equivalent to a finding that there is an employer-employee relationship between the owner of the project and the employees of the "labor only" contractor (Industrial Timer

Corporation vs. National Labor Relations Commission, 202 SCRA 465). So, even if Phesco hired driver Gavino Ilumba, as Phesco is admittedly a "labor only" contractor of Napocor the statute itself establishes an employer-employee relationship between the employer (Napocor) and the employee (driver Ilumba) of the labor only contractor (Phesco). (Ecal vs. National Labor Relations Commission, 195 SCRA 224).

Consequently, we hold Phesco not liable for the tort of driver Gavino Ilumba, as there was no employment relationship between Phesco and driver Gavino Ilumba. Under Article 2180 of the Civil Code, to hold the employer liable for torts committed by his employees within the scope of their assigned task, there must exist an employer-employee relationship. (Martin vs. Court of Appeals, 205 SCRA 591).

WHEREFORE, we REVERSE the appealed decision. In lieu thereof, the Court renders judgment sentencing defendant National Power Corporation to pay plaintiffs the sum of P174,889.20 plus P20,000.00 as attorney's fees and costs.

SO ORDERED.

Chagrined by the sudden turnaround, NPC filed a motion for reconsideration of said decision which was, however, denied on February 9, 1995. 1 Hence, this petition.

The principal query to be resolved is, as between NPC and PHESCO, who is the employer of Ilumba, driver of the dumptruck which figured in the accident and which should, therefore, would be liable for damages to the victims. Specifically, NPC assigns the sole error that:

THE COURT OF APPEALS DECISION FINDING THAT PETITIONER NPC AS THE EMPLOYER OF THE DRIVER GAVINO ILUMBA, AND CONSEQUENTLY SENTENCING IT TO PAY THE ACTUAL AND COMPENSATORY DAMAGES SUSTAINED BY COMPLAINTS, IS NOT IN ACCORD WITH THE LAW OR WITH THE APPLICABLE RULINGS OF THIS HONORABLE COURT. 2

As earlier stated, NPC denies that the driver of the dump truck was its employee. It alleges that it did not have the power of selection and dismissal nor the power of control over Ilumba. 3 PHESCO, meanwhile, argues that it merely acted as a "recruiter" of the necessary workers for and in behalf of NPC. 4

Before we decide who is the employer of Ilumba, it is evidently necessary to ascertain the contractual relationship between NPC and PHESCO. Was the relationship one of employer and job (independent) contractor or one of employer and "labor only" contractor?

Job (independent) contracting is present if the following conditions are met: (a) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and (b) the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business. 5 Absent these requisites, what exists is a "labor only" contract under which the person acting as contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers in the same manner and to the same extent as if they had been directly employed by him. 6 Taking into consideration the above distinction and the provisions of the "Memorandum of Understanding" entered into by PHESCO and NPC, we are convinced that PHESCO was engaged in "labor only" contracting.

It must be noted that under the Memorandum, NPC had mandate to approve the "critical path network and rate of expenditure to be undertaken by PHESCO. 7 Likewise, the manning schedule and pay scale of the workers hired by PHESCO were subject to confirmation by NPC. 8 Then too, it cannot be ignored that if PHESCO enters into any sub-contract or lease, again NPC's concurrence is needed. 9 Another consideration is that even in the procurement of tools and equipment that will be used by PHESCO, NPC's favorable recommendation is still necessary before these tools and equipment can be purchased. 10 Notably, it is NPC that will provide the money or funding that will be used by PHESCO to undertake the project. 11 Furthermore, it must be emphasized that the project being undertaken by PHESCO, i.e., construction of power energy facilities, is related to NPC's principal business of power generation. In sum, NPC's control over PHESCO in matters concerning the performance of the latter's work is evident. It is enough that NPC has the right to wield such power to be considered as the employer. 12

Under this factual milieu, there is no doubt that PHESCO was engaged in "labor-only" contracting vis-à-vis NPC and as such, it is considered merely an agent of the latter. In labor-only contracting, an employer-employee relationship between the principal

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employer and the employees of the "labor-only" contractor is created. Accordingly, the principal employer is responsible to the employees of the "labor-only" contractor as if such employees had been directly employed by the principal employer. 13 Since PHESCO is only a "labor-only" contractor, the workers it supplied to NPC, including the driver of the ill-fated truck, should be considered as employees of NPC. 14 After all, it is axiomatic that any person (the principal employer) who enters into an agreement with a job contractor, either for the performance of a specified work or for the supply of manpower, assumes responsibility over the employees of the latter. 15

However, NPC maintains that even assuming that a "labor only" contract exists between it and PHESCO, its liability will not extend to third persons who are injured due to the tortious acts of the employee of the "labor-only" contractor. 16 Stated otherwise, its liability shall only be limited to violations of the Labor Code and not quasi-delicts.

To bolster its position, NPC cites Section 9(b), Rule VII, Book III of the Omnibus Rules Implementing the Labor Code which reads:

(b) Labor only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

In other words, NPC posits the theory that its liability is limited only to compliance with the substantive labor provisions on working conditions, rest periods, and wages and shall not extend to liabilities suffered by third parties, viz.:

Consequently, the responsibilities of the employer contemplated in a "labor only" contract, should, consistent with the terms expressed in the rule, be restricted "to the workers." The same can not be expanded to cover liabilities for damages to third persons resulting from the employees' tortious acts under Article 2180 of the Civil Code. 17

The reliance is misplaced. It bears stressing that the action was premised on the recovery of damages as a result of quasi-delict against both NPC and PHESCO, hence, it is the Civil Code and not the Labor Code which is the applicable law in resolving this case.

To be sure, the pronouncement of this Court in Filamer Christian Institute v. IAC, 18 is most instructive:

The present case does not deal with a labor dispute on conditions of employment between an alleged employee and an alleged employer. It invokes a claim brought by one for damages for injury caused by the patently negligent acts of a person, against both doer-employee and his employer. Hence, the reliance on the implementing rule on labor to disregard the primary liability of an employer under Article 2180 of the Civil Code is misplaced. An implementing rule on labor cannot be used by an employer as a shield to avoid liability under the substantive provisions of the Civil Code.

Corollarily from the above doctrine, the ruling in Cuison v. Norton & Harrison Co., 19 finds applicability in the instant case, viz.:

It is well to repeat that under the civil law an employer is only liable for the negligence of his employees in the discharge of their respective duties. The defense of independent contractor would be a valid one in the Philippines just as it would be in the United States. Here Ora was a contractor, but it does not necessarily follow that he was an independent contractor. The reason for this distinction is that the employer retained the power of directing and controlling the work. The chauffeur and the two persons on the truck were the employees of Ora, the contractor, but Ora, the contractor, was an employee of Norton & Harrison Co., charged with the duty of directing the loading and transportation of the lumber. And it was the negligence in loading the lumber and the use of minors on the truck which caused the death of the unfortunate boy. On the facts and the law, Ora was not an independent contractor, but was the servant of the defendant, and for his negligence defendant was responsible.

Given the above considerations, it is apparent that Article 2180 of the Civil Code and not the Labor Code will determine the liability of NPC in a civil suit for damages instituted by an injured person for any negligent act of the employees of the "labor only" contractor. This is consistent with the ruling that a finding that a contractor was a "labor-only" contractor is equivalent to a finding that an employer-employee relationship existed between the owner (principal contractor) and the "labor-only" contractor, including the latter's workers. 20

With respect to the liability of NPC as the direct employer, Article 2180 of the Civil Code explicitly provides:

Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks, even though the former are not engaged in any business or industry.

In this regard, NPC's liability is direct, primary and solidary with PHESCO and the driver. 21 Of course, NPC, if the judgment for damages is satisfied by it, shall have recourse against PHESCO and the driver who committed the negligence which gave rise to the action. 22

Finally, NPC, even if it truly believed that it was not the employer of the driver, could still have disclaimed any liability had it raised the defense of due diligence in the selection or supervision of PHESCO and Ilumba. 23 However, for some reason or another, NPC did not invoke said defense. Hence, by opting not to present any evidence that it exercised due diligence in the supervision of the activities of PHESCO and Ilumba, NPC has foreclosed its right to interpose the same on appeal in conformity with the rule that points of law, theories, issues of facts and arguments not raised in the proceedings below cannot be ventilated for the first time on appeal. 24 Consequently, its liability stands.

WHEREFORE, in view of the foregoing, the assailed decision of the Court of Appeals dated November 10, 1994 and its accompanying resolution dated February 9, 1995 are AFFIRMED without prejudice to the right of NPC to demand from PHESCO and Ilumba reimbursement of the damages it would be adjudged to pay to complainants. No costs.

SO ORDERED.

G.R. Nos. 92777-78 March 13, 1991

ISAGANI ECAL, CRISOLOGO ECAL, NELSON BUENAOBRA, NARDING BANDOGELIO, WILMER ECHAGUE, ROGELIO CASTILLO, ALFREDO FERNANDO, OLIGARIO BIGATA, ROBERTO FERRER AND HONESTO TANAEL, Represented by ISAGANI ECAL, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION), JIMMY MATCHUKA AND HI-LINE TIMBER, INC., respondents.

Armando A. San Antonio for petitioners.Chicote Abad & Macaisip Law Offices for private respondents. GANCAYCO, J.:p

Is there an employer-employee relationship between petitioners and private respondent Hi-Line Timber, Inc. or merely an employer-independent contractor relationship between said private respondent and petitioner Isagani Ecal with the other petitioners being mere contract workers of Ecal? In the case of the latter, is Ecal engaged in "job" contracting or "labor-only" contracting? What then is the extent of the liability of private respondent? These are the questions raised in this petition.

This case traces its origin from two consolidated complaints for illegal dismissal and money claims filed by petitioners Isagani Ecal, Crisologo Ecal, Nelson Buenaobra, Narding Bandogelio, Wilmer Echague, Rogelio Castillo, Alfredo Fernando, Oligario Bigata, Roberto Ferrer and Honesto Tanael against private respondents Hi-Line Timber, Inc. (hereinafter referred to as Hi-Line) and Jimmy Matchuka, the company foreman, with the Department of Labor and Employment docketed as NLRC case No. RAB-03-09-0107-87 and No. RAB III-09-0116-87.

In their complaints/position papers, petitioners alleged, among others, that they have been employed by Hi-Line as follows: Isagani Ecal, from February, 1986; Crisologo Ecal, Buenaobra, Bandogelio, Fernando, Bigata, Ferrer and Tanael, from March 3, 1986; and Castillo and Echague, from May 1, 1986; that except for Isagani Ecal, they were all receiving a salary of P 35.00 a day; that they were required to report for work 7 days a week including rest days, legal holidays, except Christmas and Good Friday from 7:00 A.M. to 7:00 P.M.; that they were not given living allowance, overtime pay, premium pay for rest days and legal holidays, 13th month pay and service incentive leave pay; and, that on June 6, 1987, they were not allowed to work and instead were informed that their services were no longer needed.

Private respondents, on the other hand, denied the existence of an employer-employee relationship between the company and the petitioners claiming that the latter are under the employ of an independent contractor, petitioner Isagani Ecal, an employee of the company until his resignation on February 4, 1987.

After submission of the supplemental position papers and other evidence by the parties, the labor arbiter rendered his decision dated June 10, 1988 finding no employer-

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employee relationship between the parties. Thus, he dismissed the two cases for lack of merit. 1

On appeal, public respondent National Labor Relations Commission (NLRC) affirmed the aforesaid decision of the labor arbiter in a resolution dated October 2, 1989. 2

The motion for reconsideration of petitioners was denied in a resolution dated March 12, 1990. 3

In this petition for certiorari, petitioners primarily question the finding of the public respondent NLRC that no employer-employee relationship existed between them and Hi-Line Timber, Inc. They contend that petitioner Isagani Ecal is not an independent contractor but a mere employee of Hi-Line Line.

In response, the Solicitor General points out that the issue of whether or not an employer-employee relationship exists between the parties is a question of fact and the findings of the labor arbiter and the NLRC on this issue are conclusive upon this Court if they are supported by substantial evidence 4 as in this case.

The NLRC ruled —

We have carefully examined and evaluated the basis of the decision of the Labor Arbiter and to Our mind his factual findings are indeed supported by substantial evidence. Thus, we cite a few of the clear and convincing evidence and record which compelled the Labor Arbiter to disregard the claim of the complainants that there was (an) employer-employee relationship between the contending parties. Firstly, the affidavit of respondents' personnel officer, Elizabeth Natividad, dated 22 April 1988, clearly attesting to the fact that complainants, except Isagani Ecal, who worked at their plant at Bocaue, Bulacan, from 24 April 1986 up to 4 February 1987 and who tendered his resignation on the latter date, were not at all employees of respondents; secondly, the payrolls of the respondents do not indicate that said complainants were employees of the respondents; thirdly, the Sinumpaang Salaysay of Jose Mendoza, the Secretary-Treasurer of the Hi-Line Workers Union-Confederation of Free Laborers (CFL), a registered labor Union under Reg. Cert. No. (FED-425)-6756-11, issued March, 1987, to the effect that none of the complainants, except Isagani Ecal, were listed as members of the union and/or employees of respondents; and lastly, two (2) Sinumpaang Salaysay dated 22 April 1988 executed by respondents' company guard Honorio T. Battung and Foreman Clemente S. Sales, respectively, attesting that it was only Isagani Ecal who worked with respondents but resigned on 4 February 1987 to work as (an) independent contractor. 5

Petitioners claim that the NLRC based its decision solely on the evidence aforestated and completely ignored the evidence they presented thus denying them due process. The Court carefully examined the records of the case and finds that the NLRC limited itself to a superficial evaluation of the relationship of the parties based mainly on the aforestated documents with emphasis on the company payrolls without regard to the particular circumstances of the case.

The finding of the NLRC that Isagani Ecal is no longer an employee of Hi-Line line is amply supported by the evidence on record. His resignation letter dated February 4, 1987 stating "ako po ay magreresign na sa aking trabaho bilang "laborer" sapagka't nakita ko na mas malaki ang kikitain kung mangongontrata na lamang " 6 speaks for itself. This was unsuccessfully rebutted by petitioners.

To determine whether there exists an employer-employee relationship, the four-way test should be applied, namely: (1) selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct—the last being the most important element. 7 Neither the NLRC nor the labor arbiter utilized these guides in their disposition of the complaint.

The records show that Hi-Line does not choose the workers but merely accepts whoever may be selected by petitioner Isagani Ecal. Petitioners are not included in the payroll. Instead a lump sum of P1,400.00 is given to Isagani Ecal or his representative Solomon de los Santos, every four days, to cover their wages for the period which the petitioners divide among themselves.

Private respondents allege that Isagani Ecal customarily removes some of his laborers at the Hi-Line sawmill and assigns them to other sawmills; however, there was no evidence adduced to show that indeed Ecal regularly or even once transferred some of his workers to other sawmills. Petitioners worked at the company compound at Wakas, Bocaue, Bulacan, at least eight hours a day, for seven days a week so that it would be impossible for them to find time to work in some other sawmill. On June 6, 1987, the company unilaterally terminated the services of petitioners without notice allegedly on the ground that its contract with Isagani Ecal has already expired.

As to the matter of control, it would seem that petitioners were mostly left on their own to devise the most expeditious way of segregating lumber materials as to sizes and of loading and unloading the same in the chamber for drying. However, their task is performed within the work premises of Hi-Line, specifically at its Kiln Drying Section, so it cannot be said that no amount of control and supervision is exerted upon them by the company through their foremen, private respondent Matchuka and Clemente S. Sales. Moreover, the very nature of the task performed by petitioners requires very limited supervision as there are only so many ways of segregating lumber according to their sizes and of loading and unloading them in the dryer so that all that the company has to do is to check on the results of their work.

The foregoing observation suggests that there is a certain relationship existing between the parties although a clear-cut characterization of such relationship — whether it is an employer-employee relationship or an employer-independent contractor relationship — is unavailing. Hence, a closer scrutiny of said relationship is in order.

Petitioners urge that even assuming arguendo that Isagani Ecal is an independent contractor, he should be considered only a labor supplier who is deemed an agent of the company so that petitioners should enjoy the status of being its employees; therefore, Hi-Line should be held liable for illegally dismissing petitioners and for the non-payment of benefits due them. Private respondents, however, maintain that Isagani Ecal is an independent contractor or a job contractor.

The Solicitor General adopts the theory that Ecal is an independent contractor. However, he faults the labor arbiter for his failure to determine the benefits due petitioners, an issue raised by the latter, on the ground that Hi-Line, being an indirect employer, is jointly and severally liable with Isagani Ecal to the extent of the work performed by the employees as if they were directly employed by it. He, therefore, seeks the remand of the case to the labor arbiter for determination of the unpaid benefits of petitioners.

The pertinent provisions of the Labor Code, as amended, are:

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.

Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

Under the provisions of Article 106, paragraphs 1 and 2, an employer who enters into a contract with a contractor for the performance of work for the employer does not thereby establish an employer-employee relationship between himself and the employees of the contractor. The law itself, however, creates such a relationship when a contractor fails to pay the wages of his employees in accordance with the Labor Code, and only for this limited purpose, i.e. to ensure that the latter will be paid the wages due them. 8

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On the other hand, the legal effect of a finding that a contractor is merely a "labor only" contractor was explained in Philippine Bank of Communications vs. National Labor Relations Commission, et al., 9 —

. . . The "labor-only" contractor — i.e., "the person or intermediary" — is considered "merely as an agent of the employer." The employer is made by the statute responsible to the employees of the "labor only" contractor as if such employee had been directly employed by the employer. Thus, where "labor-only" contracting exists in a given case, the statute itself implies or establishes an employer-employee relationship between the employer (the owner of the project) and the employees of the "labor-only" contractor, this time for a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code." The law in effect holds both the employer and the 'labor-only' contractor responsible to the latter's employees for the more effective safeguarding of the employees' rights under the Labor Code.

Sections 8 and 9, Rule VIII, Book III of the Omnibus Rules implementing the Labor Code set forth the distinctions between "job" contracting and "labor-only" contracting —

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipments, machineries, work premises, and other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting — (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipments, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

xxx xxx xxx

Applying the foregoing provisions, the Court finds petitioner Isagani Ecal to be a "labor-only" contractor, a mere supplier of manpower to Hi-Line. Isagani Ecal was only poor laborer at the time of his resignation on February 4, 1987 who cannot even afford to have his daughter treated for malnutrition. He resigned and became a supplier of laborers for Hi-Line, because he saw an opportunity for him to earn more than what he was earning while still in the payroll of the company. At the same time, he continued working for the company as a laborer at the kiln drying section. He definitely does not have sufficient capital to invest in tools and machineries. Private respondents, however, claim that the business contracted by Ecal did not require the use of tools, equipment and machineries and the contracted task had to be executed in the premises of Hi-Line. Precisely, the job assigned to petitioners has to be executed within the work premises of Hi-Line where they use the machineries and equipment of the company for the drying of lumber materials. Even the company's personnel officer Elizabeth Natividad admitted that Ecal resigned in order to supply manpower to the company on a task basis. 10 By the very allegations of private respondents, it is quite clear that Isagani Ecal only supplies manpower to Hi-Line within the context of "labor-only" contracting as defined by law.

There is also no question that the task performed by petitioners is directly related to the business of Hi-Line. Petitioners were assigned to sort out the lumber materials whether wet or fresh kiln as to sizes and to carry them from the stockpile to the dryer where they are loaded for drying after which they are unloaded. The work of petitioners is an integral part of the operation of the sawmill of Hi-Line without which production and company sales will suffer.

A finding that Isagani Ecal is a "labor-only" contractor is equivalent to a finding that an employer-employee relationship exists between the company and Ecal including the latter's "contract workers" herein petitioners, the relationship being such as provided by the law itself. 11

Indeed, the law prohibits "labor-only" contracting and creates an employer- employee relationship for the protection of the laborers. The Court had in fact observed that businessmen, with the aid of lawyers, have tried to avoid the bringing about of an employer-employee relationship in some of their enterprises because that juridical relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay and unionism. 12

This unscrupulous practice is quite evident in the case at bar. It is company policy that once an employee is assigned to the kiln drying section, he is no longer included in the payroll and is then paid on a task basis, even if he had long been employed with the company. Since the employee will no longer be included in the payroll, it becomes easy for the company to deny the regular employment of such a worker and is able to avoid whatever obligations it may have under an employer-employee relationship. Moreover, Hi-Line limits the period of undertaking to only four days presumably to make termination of the services of petitioners easier and to prevent them from attaining regular status. The company had no doubt taken advantage of these laborers in order to escape liability for benefits and privileges accruing to one holding a regular employment. Without a law prohibiting "labor-only" contracting to protect the rights of labor, these poor workers will always be at the mercy of the employer.

Since petitioners perform tasks which are usually necessary or desirable in the main business of Hi-Line, they should be deemed regular employees of the latter 13 and as such are entitled to all the benefits and rights appurtenant to regular employment.

Being regular employees, they should have been afforded due process prior to their dismissal. 14 Instead they were unceremoniously dismissed on June 6, 1987 when they were not allowed to enter the company's premises by the security guards. The argument of private respondents that the contract of Ecal with the company expired cannot be sustained. Petitioners may only be dismissed for an authorized or just cause and after due process.

At this juncture, We note that petitioners and private respondents allege conflicting dates of employment of the former. Petitioners claim that as early as March or May, 1986, they have already been working with Hi-Line Line, while private respondents contend that it was only in April, 1987 that they had been engaged by the company. This Court is not a trier of facts and there is not enough basis in the records to enable Us to come up with definite dates of employment. However, whatever be the date of their employment, petitioners will still be considered employees of the company. If petitioners had started their employment in 1986, they would have rendered more than 1 year of service at the time of their dismissal and, therefore, should be considered regular employees. Even if they have been engaged only in April of 1987, they will still be deemed regular employees for as earlier indicated, Isagani Ecal is a "labor-only" contractor and petitioners perform activities directly related to the principal business of Hi-Line Line.

Petitioners, having been illegally dismissed on June 6, 1987, are entitled to backwages equivalent to three years without qualifications and deductions in line with prevailing jurisprudence.

WHEREFORE, the decision of public respondent NLRC is hereby REVERSED and SET ASIDE. Private respondent Hi-Line Timber, Inc. is hereby ordered to reinstate petitioners to their former positions with backwages equivalent to three (3) years without deductions and qualifications. The records of the case are remanded to the labor arbiter for determination of the unpaid benefits due petitioners. No costs.

SO ORDERED.

G.R. No. 106108 February 23, 1995

CABALAN PASTULAN NEGRITO LABOR ASSOCIATION (CAPANELA) and JOSE ALVIZ, SR. petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION and FERNANDO SANCHEZ, respondents.

REGALADO, J.:

A man said to the Universe,Behold, I am born!However, replied the Universe,The fact does not create in meA sense of obligation.

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To most, these familiar verses express the article of faith for self-reliance. To the racist in some countries, however, they mean that the world does not owe the Negroid or other colored people equal solicitude. The neo-colonial in the Philippines would hold the Negrito or a member of indigenous cultural communities to the same social bondage. But our Constitution and our laws were precisely formulated under a sense of obligation to the marginalized and the under privileged. Under such mandates, this Court has always accorded them scrupulous and compassionate attention. In now resolving their predicament in the case at bar, it call once again on the old Castilian tenet: A él que la vida ha dado menos, désele mas por la ley. 1

In this petition for certiorari, the resolution of the National Labor Relations Commission (hereafter, NLRC) dated February 28, 1992 2 which dismissed the appeal of herein petitioners from the decision of the labor arbiter 3 for failure to file a supersedeas bond, as well as its April 30, 1992 4 denying their motion for reconsideration, are assailed for having been rendered with grave abuse of discretion.

The antecedents of the present recourse, as culled from the records, are that herein private respondent, Fernando Sanchez, filed a complaint for illegal dismissal, non-payment of back wages and other benefits on January 3, 1991 with Regional Office No. III of the Department of Labor and Employment in Olongapo City originally docketed therein as NLRC Case No. RAB III 01-1931-91. The complaint, naming Cabalan Pastulan Negrito Labor Association (CAPANELA, for brevity) and its president, Jose Alviz, Sr., as respondents, alleged that the former was employed by CAPANELA as a foreman with a monthly salary of P3,245.70 from March, 1977 until he was illegally dismissed on January 1, 1990. 5

Said complaint was later amended on February 22, 1991 to introduce the correction that private respondent was illegally dismissed on March 27, 1990 (instead of January 1, 1990), and to further pray for reinstatement without loss of seniority rights and payment of full back wages and moral and exemplary damages. 6 As no amicable settlement was arrived at during the mandatory pre-conference despite efforts exerted by the labor arbiter, the parties were required to simultaneously submit their respective position papers and/or affidavits. 7 The case was submitted for resolution on March 11, 1991 on the bases of said position papers and other evidence, but the parties were further allowed to submit their respective memoranda, 8 after which the case was deemed submitted for decision on May 29, 1991. 9

A decision was rendered on June 24, 1991 in favor of herein private respondent, declaring his dismissal illegal, and ordering herein petitioners, jointly and severally —

1. To pay the backwages of complainant from March 24, 1990 until June 24, 1991 and for 15 months at P3,245.70 a month equals P48,685.50;

2. To immediately reinstate complainant to his former or equivalent position without loss of seniority rights and other privileges, and for this purpose, respondents are hereby ordered to submit proof of the physical or payroll reinstatement of the complainant within five (5) working days from receipt hereof, provided further that should reinstatement (be) not feasible due to any supervening event, respondents are further ordered to pay the separation pay of complainant equivalent to one month salary for every year of service, a fraction of at least six (6) months service considered as in addition to his respondents are further one (1) whole year, in addition to his backwages; . . . .

but dismissing the claim for moral and exemplary damages for want of substantial evidence. 10

The records further reveal that private respondent subsequently filed a motion for the issuance of a writ of 11 This was opposed by execution on July 15, 1991. 11 This was opposed by CAPANELA 12 through its new counsel, Atty. Isagani M. Jungco, who at the same time filed a memorandum of appeal 13 in its behalf, although admittedly without posting a supersedeas bond because of want of funds of either CAPANELA or its president and co-petitioner Alviz, Sr. Private respondent, in his answer to CAPANELA's memorandum of, appeal 14 and reply to opposition to motion for execution, 15 was unconvinced and adamantly insisted on the dismissal of the appeal due to non-perfection thereof for failure to comply with the legal requirement of posting a cash or surety bond as a requisite for the perfection of an appeal.

A partial writ of execution 16 was issued by Labor Arbiter Saludares on August 15, 1991 ordering the physical or payroll reinstatement of private respondent. The sheriff's return of November 4, 1991, signed by Numeriano S. Reyes, Sheriff II of the NLRC Regional Arbitration Branch No. III, stated that the writ expired without any indication of private respondent having been reinstated. 17

As stated at the outset, the NLRC dismissed the appeal on February 28, 1992 for failure of petitioners to post the supersedeas bond required by law, stating that "(r)espondents' contention that it cannot post bond because it is insolvent deserve(s)

scant consideration not being accompanied by proof there(of)," and denied petitioner's motion for reconsideration.

The present controversy raises as principal issues for resolution by the Court whether or not (1) the dismissal of private respondent was legal, and; (2) the appeal was perfected despite failure to file a supersedeas bond.

Anent the first issue, before we delve into the matter of the alleged illegal dismissal of private respondent Sanchez by petitioner CAPANELA, it is evidently necessary to ascertain the existence of an employer-employee relationship between them.

Petitioners asseverate that CAPANELA is an association composed of Negritos who worked inside the American naval base in Subic Bay (hereinafter referred to as the Base). They initially received a daily wage of P100.00 and thus earned, on the average, less than P3,000.00 per month. Said association organized the system of employment of members of this cultural community who were accorded special treatment concededly because of the occupancy of their ancestral lands as part of the operational area and military facility used by the Base authorities.

CAPANELA, through its officers, saw to it that its members reported for work, recorded their attendance, and distributed the workers' salaries paid by the Base at the end of a specific pay period, without gaining any amount from such undertakings petitioner Alviz, Sr., for his part and as president of CAPANELA, was himself only an employee at the Base. In other words, neither CAPANELA nor its president was the employer of private respondent Sanchez; rather, it was the United States Government acting through the military base authorities. 18

Contrarily, private respondent maintains that there existed an employer-employee relationship, as allegedly supported by the evidence on record, and that petitioners CAPANELA and Alviz, Sr. exercised control as employer over the means and methods by which the work was accomplished. He further argues that since the determination of the existence of an employer-employee relationship is a factual question, the findings of the labor officials thereon should be considered conclusive and binding upon and respected by the appellate courts. 19

It is hence clearly apparent that the judgment of the labor arbiter, as affirmed by respondent commission, declaring the dismissal of private respondent illegal and ordering the payment of back wages to him together with his payroll or physical reinstatement, was premised on the finding that there was an existing employer-employee relationship.

Indeed, findings of fact and conclusions of the labor arbiter, 20 as well as those of the NLRC, 21 or, for that matter, any other adjudicative body which can be considered as a trier of facts on specific matters within its field of expertise, 22 should be considered as binding and conclusive upon the appellate courts. This is in addition to the fact that they were in a better position to assess and evaluate the credibility of the contending parties and the validity of their respective evidence. 23 However, these doctrinal strictures hold true only when such findings and conclusions are supported by substantial evidence. 24

In the case at bar, we are hard put to find sufficient evidential support for public respondent's conclusion on the putative existence of an employer-employee relationship between petitioners and private respondent. We are accordingly persuaded that there is ample justification to disturb the findings of respondent NLRC and to hold that a reconsideration of its challenged resolutions is in order.

A careful reevaluation of the documentary evidence of record belies the finding that CAPANELA, through its president and co-petitioner, Jose Alviz, Sr., wielded control as an employer over private respondent. It will be noted that in his affidavit dated March 4, 1991, 25 private respondent himself declared that through the intervention of CAPANELA, by way of its June 13, 1389 letter 26 to Lt. Mark S. Kistner, he was cleared of the charge of larceny of U.S. government property. Thereafter, in an indorsement dated July 11, 1989 from the Director of Security, U.S. Navy Public Works Center, the recommendation for his reinstatement and the release of his gate pass to the Base was addressed to the Director, Investigation Section, U.S. Facility Security Department via the Director of the Contracts Administration Division. 27

This only goes to show that CAPANELA had in fact no control over the continued employment of its members working in the U.S. naval base. For, after conducting its own investigation, CAPANELA could only intervene in behalf of its members facing charges through a recommendatory action request for favorable consideration. It could not, on its own authority, exonerate such members from the charges, much less effect their reinstatement without the approval of the Base authorities. Interestingly, in order to comply with the labor arbiter's decision of June 24, 1991, CAPANELA even had to write to the Resident Officer-in-Charge of the Facility Support Contracts at Subic Bay recommending the reinstatement of private respondent to his former position. 28

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Under their arrangement, CAPANELA, through its officers, could only impose disciplinary sanctions upon its members for infractions of its own rules and regulations, to the extent of ousting a member from the association when called for under the circumstances. Nonetheless, such called termination of membership in the association, which could result in curtailment of the privilege of working at the Base inasmuch as employment therein was conditioned upon membership in CAPANELA, is not equivalent to the illegal dismissal from employment contemplated in our labor laws. Petitioners, not being the employer, obviously could not arrogate unto themselves an employer's prerogatives of hiring and firing workers.

As succinctly pointed out by the Solicitor General:

True, there was a stipulation to the effect that Fernando Sanchez was employed by petitioner CAPANELA, but the real employer was the United States government and petitioner was just a "labor-only contractor." Annexes "G" and "H" of CAPANELA's Memorandum on Appeal show that the award or contract of work was between CAPANELA and the United States government through the U.S. Navy. The same contract likewise clearly stipulated that CAPANELA was "to provide labor and material to perform trash sorting services in the Base period for all work specified in Section C." Annex "A" of complainant Fernando Sanchez' Answer to petitioner's Memorandum on Appeal itself proves that the negotiation was between CAPANELA and the U.S. Navy, with the former supplying the labor and the U.S. government paying the wages. Since CAPANELA merely provided the labor force, it cannot be deduced therefrom that CAPANELA should also compensate the laborers; it is a case of non sequitur. In other words, the actual mechanical act of making payments was done by CAPANELA, but the monies therefor were provided and disbursements made by the disbursing officer of the U.S. Naval Supply Depot, Subic Bay (see Annexes "G" and "H").

Moreover, ingress and egress in the work premises were controlled not by CAPANELA but by the U.S. Base authorities who could even reject entry of CAPANELA members then duly employed as part of the project, and impose disciplinary sanctions against them. Annex "1" of petitioners' Position Paper as respondent in the NLRC Case No. RAB-III-01-193 1-91, which was the letter of Lt. M.E. Kistner of the U.S. Navy, clearly proves this. 29 (Emphasis in the original text.)

Prevailing case law enumerates the essential elements of an employer-employee relationship as: (a) the selection and engagement of the employee;(b) the payment of wages; (c) the power of dismissal; and (d) the power of control with regard to the means and methods by which the work is to be accomplished, with the power of control being the most determinative factor. 30

The Solicitor General pertinently illustrates the glaring absence of these elements in the present case:

. . . , as aforeshown, CAPANELA had no control of the premises as it was the U.S. naval authorities who had the power to issue passes or deny their issuance. In fact, CAPANELA did not have absolute control on the disciplinary measures to be imposed on its members employed in the Base. Annex "1" of CAPANELA's Position Paper submitted before the NLRC Regional Arbitration Branch established the U.S. Navy's right to impose disciplinary measures for violations or infractions of its rules and regulations as well as the right to recommend suspensions or dismissals of the workers. Moreover, it was not shown that CAPANELA had control of the means and methods or manner by which the workers were to go about their work. These are indeed strong indicia of the U.S. Navy's right of control over the workers as direct employer.

Third, there is evidence to prove that payment of wages was merely done through CAPANELA, but the source of payment was actually the U.S. government paying workers according to the volume of work accomplished on rates agreed upon between CAPANELA and the U.S. government. . . . 31

It would, therefore, be inutile to discuss the matter of the legality or illegality of the dismissal of private respondent. Considering that petitioners cannot legally be considered as the employer of herein private respondent, it follows that it cannot be made liable as such nor be required to bear the responsibility for the legal consequences of the charge of illegal dismissal. Granting arguendo that private respondent was illegally dismissed, the action should properly be directed against the U.S. government which, through the Base authorities, was the true employer in this case.

Neither can petitioners be deemed to have been engaged in permissible job contracting under the law, for failure to satisfy the following prescribed conditions:

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

2. The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business. 32

In the present case, the setup was such that CAPANELA was merely tasked with organizing the Negritos to facilitate the orderly administration of work made available to them at the base facilities, that is, sorting scraps for recycling. CAPANELA recorded the attendance of its members and submitted the same to the Base authorities for the determination of wages due them and the preparation of the payroll. Payment of wages was coursed through CAPANELA but the funds therefor came from the coffers of the Base. Once inside the Base, control over the means and methods of work was exercised by the Base authorities. Accordingly, CAPANELA functioned as just an administrator of its Negrito members employed at the Base.

From the legal standpoint, CAPANELA's activities may at most be considered akin to that of labor-only contracting, albeit of a special or peculiar type, wherein CAPANELA, operating like a contractor, merely acted as an agent or intermediary of the employer. 33

The Solicitor General ramifies this aspect:

. . . , petitioner CAPANELA could not be classified as an "independent contractor" because it was not shown that it has substantial capital or investments to qualify as such under the law. On the other hand, it was apparent that the premises, tools, equipment, and other paraphernalia used by the workers were all supplied by the U.S. government through the U.S. Navy. What CAPANELA supplied was only the local labor force, complainant Fernando Sanchez among them. It is therefore clear that CAPANELA had no capital outlay involved in the business or in the maintenance thereof. 34

While it is not denied that an association or a labor organization or union can at times be an employer insofar as people hired by it to dispose of its business are concerned, 35 the situation in this case is altogether different. A proper and necessary distinction should be made between the employees of CAPANELA who actually attended to its myriad functions as an association and its members who were employed in the jobsite inside the Base vis-a-vis CAPANELA's relative position as the employer of the former and a mere administrator with respect to the latter.

On the matter of the perfection of an appeal from the decision of the NLRC, petitioners plead for a more considerate and humane application of the law as would allow their appeal to prosper despite non-posting of a supersedeas bond on account of their insolvency. To dismiss the appeal for failure to post said bond, petitioners aver, is tantamount to denial of the constitutionally guaranteed right of access to courts by reason of poverty. 36 Private respondent, on the other hand, argues that perfection of an appeal within the reglementary period and in compliance with all requirements of the law therefor is jurisdictional. That petitioners do not have the funds for the premiums for posting a supersedeas bond or for a cash deposit, disdainfully says private respondent, "is not in the least our problem." 37

We have no quarrel with the provision of Article 223 of the Labor Code which, in part and among others, requires that in case of a judgment involving a monetary award, an appeal by the employer may be perfected only upon posting of a cash or surety bond issued by a reputable bonding company duly accredited by the commission in the amount equivalent to the monetary award in the judgment appealed from. Perfection of an appeal within the period and in the manner prescribed by law is jurisdictional 38 and non-compliance with such legal requirements is fatal and has the effect of rendering the judgment final and executory. 39

However, in a number of recent cases, 40 the Court has eased the requirement of posting a bond, as a condition for perfection of appeals in labor cases, when to do so would bring about the immediate and appropriate resolution of controversies on the merits without over-indulgence in technicalities, 41 ever mindful of the underlying spirit and intention of the Labor Code to ascertain the facts of each case speedily and objectively without regard to technical rules of law and procedure, all in the interest of due process. 42 Punctilious adherence to stringent technical rules may be relaxed in the interest of the working man, 43 and should not defeat the complete and equitable resolution of the rights and obligations of the parties. 44 Moreover, it is the duty of labor officials to consider their decisions and inquire into the correctness of execution, as supervening events may affect such execution. 45

The Solicitor General realistically assesses the situation, thus:

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. . . As aforestated, above the technical consideration on whether failure to post a supersedeas bond was fatal to petitioners' appeal is the importance of first resolving whether there was indeed an employer-employee relationship in this case so as not to render the execution of the NLRC's resolution unenforceable or impossible to implement. . . . Besides, it is of public notice that the U.S. Navy had withdrawn from the Subic Base in view of the termination of the Bases Treaty. Even if CAPANELA were ordered to reinstate complainant Fernando Sanchez, this is obviously an impossible thing to perform as there is no longer any work to be done inside the Base. Nor is petitioner CAPANELA in a position to pay Sanchez's back wages considering that it was the U.S. Navy that paid his wages. . . . 46

In light of the circumstances in this case, the Solicitor General further suggests two ways of writing finis to this dispute, i.e., to reconsider public respondent's resolution of February 28, 1992 and April 30, 1992 and reinstate petitioner's appeal to give the latter a chance to prove CAPANELA's insolvency or poverty, or to reverse the decision of the labor arbiter on the ground that there was no employer-employee relationship between petitioner CAPANELA and private respondent Sanchez. Harmonizing our evaluation of the facts of this case with the greater interests of social justice, and considering that the parties involved are those upon whose socio-economic status we prefaced this opinion, we opt for the latter.

While this Court, when it finds that a lower court or quasi-judicial body is in error, may simply and conveniently nullify the challenged decision, resolution or order and remand the case thereto for further appropriate action, it is well within the conscientious exercise of its broad review powers to refrain from doing so and instead choose to render judgment on the merits when all material facts have been duly laid before it as would buttress its ultimate conclusion, in the public interest and for the expeditious administration of justice, such as where the ends of justice would not be subserved by the remand of the case. 47

IN VIEW OF ALL THE FOREGOING PREMISES, the resolutions of February 28, 1992 and April 30, 1992 of respondent National Labor Relations Commission are accordingly ANNULLED, and the adjudgment of Labor Arbiter Dominador B. Saludares in NLRC Case No. RAB III 01-1931-91 is hereby REVERSED and SET ASIDE.

SO ORDERED.

Narvasa, C.J., Bidin, Puno and Mendoza, JJ., concur.

G.R. No. 115920 January 29, 1996

PCI AUTOMATION CENTER, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and HECTOR SANTELICES, respondents.

PUNO, J.:

This is a special civil action for certiorari under Rule 65 of the Revised Rules of Court for the annulment of the Decision of the National Labor Relations Commission (NLRC) dated December 29, 19931 and its Resolution dated April 15, 1994.2

In 1985, Philippine Commercial International Bank (PCIB) commenced its 4th GL Environment Conversion Project intended to link all existing computer systems within PCIB and its various branches around the country. It entered into a Computer Services Agreement with petitioner PCI Automation Center, Inc. (PCI-AC), under which petitioner obligated itself to direct, supervise and run the development of the software, computer software applications and computer system of PCIB. On the other hand, PCIB agreed to provide the petitioner with encoders and computer attendants, among others.3

To comply with its obligation to procure manpower for the petitioner, PCIB engaged the services of Prime Manpower Resources Development, Inc. (Prime). PCIB and Prime entered into an External Job Contract4 which provides:

1. Services — PRIME shall provide qualified and adequate personnel services required by the CLIENT within two (2) working days from time of receipt of the notice of the CLIENT's requisition.

2. Selection — The CLIENT shall have the right to select, refuse, or change any or all of the personnel assigned to deliver these services to the CLIENT upon two (2) working days notice to PRIME.

3. Supervision — The CLIENT shall be responsible in supervising all PRIME personnel contracted and assigned to deliver such services to the CLIENT. However, PRIME shall check the time cards of the assigned personnel for

payroll and other related purposes. Any change or discontinuance in the work assignment of the assigned personnel shall be conveyed in writing to PRIME by CLIENT within two (2) days from such change or termination.

4. Liability/Responsibility — It is expressly agreed that the personnel assigned to the client are not employees of the CLIENT, and as such PRIME shall at all times stand solely liable and/or responsible for the enforcement of and compliance with all existing laws, rules and regulations such as, but not limited to the Labor Code, Social Security Act, Employer's (sic) Compensation Commission Act as amended, Medical Care; provided finally, that PRIME hereby agrees and binds itself to save and hold CLIENT free and harmless from any civil and criminal liability with respect thereof and/or which may arise therefrom.

5. Direct Hiring/Absorption — Since the personnel assigned to the CLIENT are PRIME employees, said employees cannot be absorbed or hired directly by the CLIENT without PRIME's prior written consent. In which case, CLIENT shall be charged by PRIME a placement fee equivalent to ten percent (10%) of the commencing annual gross compensation of the employee concerned if said employees have worked with CLIENT for less than five (5) months. If said employees have worked with CLIENT as temporary employee for more than five (5) months CLIENT shall not be charged any fee.

6. Injury/Damage — PRIME shall not be responsible for any loss or damage caused by the assigned personnel to the CLIENT's properties as well as properties of the customers of the CLIENT unless the loss or damage is caused by the fact that the assigned personnel lacks the capacity to work by reason of any mental or physical defect or he was manifestly unfit or unqualified to perform the tasks for which he has been assigned by PRIME to the client.

In the event of injury to assigned PRIME personnel under this contract, due to accidents which are work-related, the CLIENT shall reimburse PRIME for medical expenses incurred which under existing laws are required to be defrayed by the employers. In the case of assigned PRIME personnel under regular status, medical expenses due to accidents or illnesses, whether or not work related, shall be defrayed by PRIME under its Hospitalization Insurance Scheme.

7. Confidentiality — PRIME shall guarantee the confidentiality of CLIENT's nature of job where PRIME personnel are involved.

8. Mode/Term of Payment — For and in consideration of the abovementioned services, the CLIENT shall pay PRIME the corresponding hourly billing rate listed in Annex A which is an integral part of this contract. Annex A consists of letter agreement dated May 20, 1986 duly conformed by PRIME and CLIENT as to the specific hourly rates per job category and status as well as the composition of the billing rates, basis for computation and the provision of reserves for additional benefits granted to assigned regular PRIME employees whenever those are applicable and/or payable. Such rates apply only to work done by our employees during the first eight (8) hours on any work day.

For work rendered by the assigned personnel in excess of the regular work period agreed upon, the CLIENT shall be billed by PRIME the rates on overtime pay set by the New Labor Code. The schedule of hourly billing rates per job category for work rendered on overtime whether done on a regular work day; legal holiday, special holiday or rest day is herein attached as Annex B and shall become an integral part of this contract.

PRIME shall bill the CLIENT for actual services rendered by sending CLIENT its statement of account on the 16th and on the last day of each month. CLIENT shall make payment within seven (7) working days from receipt of said statement of account, unless the CLIENT, within the same period, communicates to PRIME its refusal to pay on some valid grounds, e.g. errors in computation etc. In the latter case, CLIENT shall make payment within seven (7) working days after the cause for non-payment is settled.

9. Provision for Rate Adjustment — In the event that wages are increased and increased (sic) and additional fringe benefits in favor of the employees are promulgated by law, decrees or regulation or granted by mutual agreements between PRIME and CLIENT, the above mentioned billing rates shall be automatically adjusted to conform with the new levels set by law or by both parties.

On September 20, 1985, private respondent Hector Santelices was hired by Prime and assigned to petitioner as a data encoder to work on the 4th GL Environment Conversion Project of PCIB.5 However, on March 18, 1991, Prime decided to terminate private

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respondent's services after it was informed by the petitioner that his services were no longer needed in the project.6

Private respondent filed before the NLRC a complaint for illegal dismissal against Prime and PCI-AC.7 In his position paper, private respondent prayed for the payment of his 14th month pay, 13th month pay, separation pay, unpaid service incentive leave, unpaid vacation leave, termination pay, as well as moral and exemplary damages and attorney's fees.8

On April 30, 1993, Labor Arbiter Melquiades Sol Del Rosario rendered a Decision9 finding that private respondent's dismissal was illegal. The dispositive portion of the Decision states:

CONFORMABLY with the foregoing, judgment is hereby rendered finding complainant's dismissal to be illegal and without legal basis. Consequently, complainant should be immediately reinstated to his former or equivalent position as data encoder at PCI-AC. Should reinstatement be impossible or impractical due to a strained relation, then in lieu thereof, payment of separation pay by Prime at one month's pay (P3,060.00) per year of service reckoned from September 20, 1985, a fraction of six (6) months service being considered as one (1) whole year.

Respondents (sic) companies are further ordered to pay in solidum the complainant the following amounts:

1. P78,030.00 as backwages (March 16, 1991 to April 30, 1993) not exceeding 3 years without qualification or deduction at P3,060.00 a month;2. P30,000.00 as moral damages;3. P10,000.00 as exemplary damages; and4. P5,000.00 as attorney's fees.All other claims are hereby denied for lack of merit. 10

Prime and PCI-AC appealed to the NLRC.

On June 18, 1993, during the pendency of the appeal, Prime paid private respondent the amount of P24,480.00 as separation pay in lieu of reinstatement. This was in partial satisfaction of the judgment rendered by the Labor Arbiter. Private respondent, for his part, waived his right to be reinstated to his former position in Prime and/or PCI-AC. Accordingly, Prime and private respondent executed and filed before the office of the Labor Arbiter a document entitled "Partial Satisfaction of Judgment and Waiver of Right".11

On December 291 1993, public respondent NLRC affirmed the Decision of the Labor Arbiter, but deleted the award of moral and exemplary damages and attorney's fees.12

PCI-AC filed the present petition on the following ground:

. . . the public respondent acted with grave abuse of discretion amounting to lack of jurisdiction when it disregarded the substantial evidence in this case clearly showing that private respondent was not illegally dismissed by petitioner.13

The petition must fail.

Petitioner contends that private respondent, being a project employee, was validly dismissed when the project for which he was hired was completed on March 15, 1991. Petitioner avers that the 4th GL Environment Conversion Project involved a phase-by-phase conversion of PCIB's computer system. Private respondent was assigned to work as data encoder in the Consolidated Financing System/Budget Monitoring phase of the said computer conversion project. Allegedly, this phase was completed on March 15, 1991. Petitioner makes the submission that the completion of the work therein terminated further need for private respondent's services.14

The public respondent, however, held otherwise after assessing the evidence on record. It affirmed the findings of the Labor Arbiter, thus:

Going now to the second point of inquiry, which is the completion or non-completion of the 4 GL conversion system project, the testimony of Danilo Calauag, the assistant vice-president and manager of International Operations of Prime Manpower is most explicit. He testified on July 22, 1992 as follows:

Mr. Santelices was assigned initially to Tower 2; (p. 33 TSN) then he was assigned to Tower 1 (ibid) because there was work to be done in Tower 1 that necessitated his (complainant's)

transfer there (p. 35 ibid) although the work he (complainant) was performing in Tower II was still existing (supra) and Tower II is still in progress (supra) meaning his original assignment is still on-going up to the present (p. 36 ibid).

The foregoing testimony expressly and clearly admitted that 4 GL conversion project, more particularly Tower II to which complainant was originally assigned is still an on-going project, and not yet completed as posited by respondents. There was therefore no reason for complainant's dismissal on March 15, 1991 on the pretended ground which is completion of the project. . . .15

We find no valid reason to disturb public respondent's findings. No less than the assistant vice-president and manager for International Operations of Prime testified that the project for which private respondent was hired was still existing at the time of his dismissal. It is settled that factual findings of quasi-judicial agencies like the Labor Arbiter and the NLRC are generally accorded not only respect but even finality if such findings are supported by substantial evidence.16

The petitioner also faults the public respondent in affirming the disposition of the Labor Arbiter holding it solidarily liable with Prime for all the monetary claims of private respondent. It insists that it is not an employer of private respondent. It contends that private respondent is an employee of Prime and he was merely assigned by Prime to the petitioner to work on the 4th GL Environment Conversion Project of PCIB.

We are not persuaded.

The petitioner, through PCIB, contracted Prime to provide it with qualified personnel to work on the computer conversion project of PCIB.17 The External Job Contract between Prime and PCIB must be read in conjunction with the Computer Services Agreement between PCIB and the petitioner. Under the Computer Services Agreement, the petitioner shall direct and supervise the computer conversion project of PCIB while PCIB shall provide the petitioner with data encoders and computer attendants to work on the project. Pursuant to said Agreement, PCIB called on Prime to furnish the petitioner with the needed personnel, one of whom was private respondent. Hence, although the parties in the External Job Contract are only Prime and PCIB, the legal consequences of such contract must also be made to apply to the petitioner. Under the circumstances, PCIB merely acted as a conduit between the petitioner and Prime. The project was under the management and supervision of the petitioner and it was the petitioner which exercised control over the persons working on the project.

Under the law, any person (hereinafter referred to as the "principal employer") who enters into an agreement with a job contractor, either for the performance of a specified work or for the supply of manpower, assumes responsibility over the employees of the latter.18 However, for the purpose of determining the extent of the principal employer's liability, the law makes a distinction between legitimate job contracting and labor-only contracting. Article 106 of the Labor Code 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 persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

DO 18-02 Cases 27

In legitimate job contracting, no employer-employee relationship exists between the employees of the job contractor and the principal employer. Even then, the principal employer becomes jointly and severally liable with the job contractor for the payment of the employees' wages whenever the contractor fails to pay the same. In such case, the law creates an employer-employee relationship between the principal employer and the job contractor's employees for a limited purpose, that is, to ensure that the employees are paid their wages. Other than the payment of wages, the principal employer is not responsible for any claim made by the employees.19

On the other hand, in labor-only contracting, an employer-employee relationship is created by law between the principal employer and the employees of the labor-only contractor. In this case, the labor-only contractor is considered merely an agent of the principal employer. The principal employer is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees.20

Thus, in legitimate job contracting, the principal employer is considered only an indirect employer,21 while in labor-only contracting, the principal employer is considered the direct employer of the employees.22

Considering the terms of the External Job Contract executed by Prime and PCIB, it cannot be doubted that Prime is a labor-only contractor. Under the contract, Prime merely acted as a placement agency providing manpower to the petitioner through PCIB. The service rendered by Prime in favor of the petitioner was not the performance of a specific job, but the supply of qualified personnel to work as data encoders and computer attendants in connection with the petitioner's project.

Rule VIII Book III of the Omnibus Implementing Rules and Regulations of the Labor Code defines job contracting and labor-only contracting:

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting when such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

xxx xxx xxx

In short, the legitimate job contractor provides services while the labor-only contractor provides only manpower. The legitimate job contractor undertakes to perform a specific job for the principal employer while the labor-only contractor merely provides the personnel to work for the principal employer.

As Prime is a labor-only contractor, the workers it supplied to the petitioner, including private respondent, should be considered employees of the petitioner.23 The admissions made by private respondent in his affidavits and position paper that he is a regular employee of Prime are not conclusive on this Court as the existence of an employer-employee relationship is a question of law which may not be made the subject of stipulation.24

We hold that public respondent did not commit grave abuse of discretion in affirming the ruling of the Labor Arbiter adjudging the petitioner solidarily liable with Prime for the payment of all the monetary claims of private respondent. This is in accord with Article 106 of the Labor Code, as amended.

IN VIEW WHEREOF, the petition is DISMISSED. The assailed Decision and Resolution are hereby AFFIRMED. No costs.

SO ORDERED.

G.R. Nos. 97320-27 July 30, 1993

VALLUM SECURITY SERVICES and BAGUIO LEISURE CORPORATION (HYATT TERRACES BAGUIO), petitioners, vs.THE NATIONAL LABOR RELATIONS COMMISSION, RUBEN ABELLERA, MANUEL GANANCIAL, SAMSON ALEJERA, ROMEO BAUTISTA, CARLOS BANIAGO, GABRIEL CABASAL, ARTEMIO CARIÑO, BENJAMIN LARON, SANTIAGO PACULAN, FRANCISCO OBEDOZA, CEFERINO GARCIA, ARNOLD PAMINLAN, ROMAN PALIMA, JOSEFINO LOZANO, PEDRO DULAY, JR., CLAUDIO PANGANIBAN, RONNIE BALDERAS, AVELINO PINTO, BEN ENRIQUE ESTOCAPIO, ESABELITO ANGARA, ROBERT AGUIMBAG, WILSON ESTAVILLO, FELIXBERTO NARVASA, PABLITO ROSARIO, EDGAR PALISOC, DONIE PERALTA, WILLY QUESADA, MARIO URBANO, EDWIN JACOB, JOSE VIRGILIO LUSTERIO, MA. NESTOR LABADOR, ROMEO LOPEZ, MANOLO MAGAT, MARIANO MARCENA, WILSON MUNAR. ROSEMARIE DUMLAO, FLORENTINO CASTAÑEDA, RUBEN PANTERIA, JOHNNY VILLANUEVA, DELIA ROSARIO, GARY JAVATE, DEAN PASAMIC, VALERIE BRIONES, NEMENCIO CUTCHON, PHILIP MORIS, VINCENT NOEL CABRERA and JAIME GIMENO, respondents.

Sanidad Law Offices for petitioners.Cabato Law Office for respondents.

FELICIANO, J.:

On 1 September 1986, petitioner Baguio Leisure Corporation (Hyatt Terraces Baguio) ("Hyatt Baguio") and petitioner Vallum Security Services ("Vallum") entered into a contract for security services under the terms of which Vallum agreed to protect the properties and premises of Hyatt Baguio by providing fifty (50) security guards, on a 24-hour basis, a day.

On 1 June 1988, Heinrich L. Maulbecker, Hyatt Baguio's General Manager, wrote to Domingo A. Inocentes, President of Vallum advising that effective 1 July 1988, the contract of security services would be terminated.

Vallum informed Mr. Maulbecker, on 22 June 1988, that it was agreeable to the termination of the contract.

On 30 June 1988, private respondents, who were security guards provided by Vallum to Hyatt Baguio, were informed by Vallum's Personnel Officer that the contract between the two (2) had already expired. Private respondents were directed to report to Vallum's head office at Sucat Road, in Muntinlupa, Metropolitan Manila, not later than 15 July 1988 for re-assignment. They were also told that failure to report at Sucat would be taken to mean that they were no longer interested in being re-assigned to some other client of Vallum.

None of the private respondents reported at Sucat for re-assignment. Instead, between July and September 1988, private respondents filed several complaints against petitioners in the National Labor Relations Commission's Office ("NLRC") in Baguio City for illegal dismissal and unfair labor practices; for violation of labor standards relating to underpayment of wages, premium holiday and restday pay, uniform allowances and meal allowances. They prayed for reinstatement with full backwages. The several cases were consolidated together.

On 19 May 1989, the Labor Arbiter rendered a decision dismissing the complaints. He found Vallum to be an independent contractor and, consequently, declined to hold Hyatt Baguio liable for dismissal of private respondents. He also held that the termination of services of private respondents by Vallum did not constitute an unfair labor practice, considering that such termination had been brought about by lack of work. Furthermore, the Labor Arbiter held that private respondents were not entitled to backwages or separation pay, in line with the "no work, no pay" principle. Lastly, he found no violation of the labor standard provisions on payment of wages and other employee benefits. 1

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Private respondents appealed the Labor Arbiter's decision to the NLRC. On 31 July 1990, the NLRC promulgated a resolution reversing the Labor Arbiter's decision, the dispositive portion of which resolution reads as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and set aside and a new one entered ordering the respondent Hyatt Terraces Baguio to reinstate the complainants to their former positions with full backwages limited to one (1) year. In view of supervening event which makes the reinstatement imposible, respondents Hyatt Terraces Baguio and Vallum Security Services Corporation, are directed, jointly and severally to pay complainants, in lieu of reinstatement, separation pay equal to one (1) month per year of service. Service of six month shall be considered a year for the purpose of the same. 2

Petitioners moved for reconsideration, without success.

Vallum and Hyatt Baguio are hence before this Court on certiorari seeking to: (a) reverse and annul the Resolutions of the NLRC of 31 July 1990 and 31 January 1991; and (b) reinstate the decision of the Labor Arbiter dated 19 May 1989. Petitioners assert that the NLRC's finding that an employer-employee relationship had existed between Hyatt Baguio and private respondents, is tainted with arbitrariness.

The main issue here presented and addressed below is whether or not private respondent security guards are indeed employees of petitioner Hyatt Baguio.

In determining whether a given set of circumstances constitute or exhibit an employer-employee relationship, the accepted rule is that the elements or circumstances relating to the following matters shall be examined and considered:

1. the selection and engagement of the employee;.2. the payment of wages;3. the power of dismissal; and4. the power to control the employees' conduct. 3

Of the above, control of the employees' conduct is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. 4 We examine below the circumstances of the relationship between petitioners and private respondents under the above four (4) rubrics.

In respect of the selection and engagement of the employees, the records here show that private respondents filled up Hyatt employment application forms and submitted the executed forms directly to the Security Department of Hyatt Baguio. 5 It appears that these executed application forms were returned to the respective applicants; 6 nonetheless, however, a few days after the applications to Hyatt Baguio were submitted, Vallum sent letters of acceptance to private respondents. Petitioners do not deny that private respondent had applied for employment at Hyatt's Security Department and that Security Department was used to process the applications. Petitioners argue that because the premises to be secured were located in Baguio, Vallum found it more advantageous to recruit security guards from the Baguio area. It would have been most inconvenient for applicants from the Baguio area to have gone all the way to Sucat in Makati to file and follow-up their applications; accordingly, Vallum was provided with its own office at Hyatt Baguio and there the applications, with the assistance of Hyatt Baguio's Security Department, were processed. 7 Petitioners' argument here, while understandable, does not negate the fact that the process of selection and engagement of private respondents had been carried out in Hyatt Baguio and subject to the scrutiny of officers and employees of Hyatt Baguio.

In respect of the mode or manner of payment of wages, private respondents submitted in evidence four hundred twenty-three (423) pay slips (Exhibits "A" for complainants-private respondents), which bore Hyatt Baguio's logo. 8 These pay slips show that it was Hyatt Baguio which paid their wages directly and that Hyatt Baguio deducted therefrom the necessary amounts for SSS premiums, internal revenue withholding taxes, and medicare contributions. The Labor Arbiter had found that a separate payroll was maintained for Vallum by Hyatt Baguio; the NLRC, however, held that this finding had no factual basis, and we are compelled to agree with this finding. It is true that a subsequent agreement (10 September 1986) between Vallum and Hyatt Baguio had provided:

1. That for the purposes of facilitating and prevention of delays in the distribution of payroll to all Security guards assigned at the premises of the company and as embraced in the contract of Security services, the [vallum] shall herewith authorize the [Hyatt Baguio] to undertake the distribution of the payroll directly to the guards as mentioned herein. (Emphasis supplied)

2. That for purposes of the payroll distribution as stated above, the company shall devise ways to ensure the efficient and prompt distribution to the guards of their respective salaries. 9 (Emphasis supplied)

The fact that this agreement had stipulated for direct payment by Hyatt Baguio of private respondents' wages did not, of course, dissolve the relevance of such direct payment as an indicator of an employer-employee relationship between Hyatt Baguio and private respondents. Vallum did not even provide Hyatt Baguio with Vallum's own pay slips or payroll vouchers for such direct payments. What clearly emerges is that Hyatt Baguio discharged a function which was properly a function of the employer.

Turning to the matter of location of the power of dismissal, we note that the contract provided that upon loss of confidence on the part of Hyatt Baguio vis-a-vis any security guard furnished by Vallum, such security guard "may be changed immediately upon the request to [Vallum] by [Hyatt Baguio]." Notwithstanding the terms of the formal contract between petitioners, the NLRC found that, in operative fact, it was Hyatt Baguio's Chief Security Officer who exercised the power of enforcing disciplinary measures over the security guards. 10 In the matter of termination of services of particular security guards, Hyatt Baguio had merely used Vallum as a channel to implement its decisions, much as it had done in the process of selection and recruitment of the guards.

Coming then to the location of the power of control over the activities of the security guards, the following factors lead us to the conclusion that power was effectively located in Hyatt Baguio rather than in Vallum:

(a) the assignments of particular security guards was subject to the approval of Hyatt Baguio's Chief Security Officer; 11

(b) promotions of the security guards from casual to regular employees were approved or ratified by the Chief Security Officer of Hyatt Baguio; 12

(c) Hyatt Baguio's Chief Security Officer decided who among the various security guards should be an duty or on call, as well as who, in cases of disciplinary matters, should be suspended or dismissed; 13

(d) the petitioners themselves admitted that Hyatt Baguio, through its Chief Security Officer, awarded citations to individual security guards for meritorious services. 14

Petitioners contend that what existed between Vallum and Hyatt Baguio was simply close coordination and dove-tailing of operations, rather than control and supervision by one over the operations of the other, and that Hyatt Baguio's Chief Security Officer had acted as the conduit between Hyatt Baguio and Vallum in respect of the implementation of the contract of security services. That is not, however, the characterization given by the NLRC to the details of the factual relationships between Hyatt Baguio (acting through its Chief Security Officer) and Vallum and private respondent security guards and it is clear to the Court that the characterization reached by the NLRC is not without the support of substantial evidence of record. We agree with the NLRC's characterization.

One final circumstance seems worthy of note: orders received by private respondent security guards were set forth on paper bearing the letterheads of both Hyatt Baguio and Vallum. 15 It appears to us, therefore, that Hyatt Baguio explicitly purported, at the very least, to share with Vallum the exercise of the power of control and supervision with Vallum over the security guards, if indeed Vallum was not functioning merely as an alter ego of Hyatt Baguio in respect of the operations of the security guards. In the ordinary course of business, security guard agencies are engaged because of their specialized capabilities in the matter of physical security. It is a security agency's business to know the most efficacious manner of protecting and securing a particular place at a particular time. In the case at bar, the functions performed by Hyatt Baguio's Chief Security Officer were precisely the duties which the head or senior officer of a legitimate security agency would be exercising over its own employees.

Finally, we note that the contract for security services between Vallum and Hyatt Baguio contained the following provisions:

xxx xxx xxx

3. The AGENCY shall exercise discipline, supervision, control and administration over the security guard so assigned to the premises of the COMPANY in accordance with the Rules and Regulations of the PCSUSIA, the Local Police Departments, the AGENCY and the COMPANY.

4. The AGENCY shall provide at its own expense all necessary, proper and duly licensed firearms, ammunitions, nightsticks, and other paraphernalia for security purposes, to the guards it assigns to the COMPANY and shall shoulder all taxes and licenses relating to the Security Services referred to in this agreement.

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5. It is expressly understood and mutually agreed by the parties hereto that the AGENCY shall be held solely liable for any claim for security guards' wages and/or damages arising out of personal injury including death caused, either by the AGENCY's guard upon a third party or by the AGENCY'S guard or third party upon a guard assigned by the AGENCY to the COMPANY, and should the COMPANY be held liable therefore, the AGENCY shall reimburse the COMPANY for any and all amounts that it may have been called upon to pay.

xxx xxx xxx

7. The AGENCY shall always detail within the hours the period provided for and in the paragraph 1 of this contract, an authorized representative who shall handle for the AGENCY all matters regarding security and enforcement which the COMPANY may wish to implement.

The thrust of the foregoing discussion, however, is that the relationship between Vallum and Hyatt Baguio as actually conducted departed significantly from the formal written terms of their agreement. It is to us self-evident that the characterization in law of such relationship cannot conclusively be made in terms alone of the written agreement — which constitutes but one factor out of many that the Court must take into account — but must rest upon an examination of the detailed facts of such relationship in the world of time and space.

We find no basis for overturning the conclusions reached by the NLRC that Vallum, in the specific circumstances of this case, was not an independent contractor but was, rather, a "labor-only" contracor. Section 9 of Rule VII of Book III entitled "Conditions of Employment" of the Omnibus Rules Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

xxx xxx xxx

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

In the case at bar, we noted that Vallum did not have a branch office in Baguio City and that Hyatt Baguio provided Vallum with offices at Hyatt's own premises and allowed Vallum to use its Security Department in the processing of applications. That was the reason too why Vallum had stipulated that Hyatt Baguio was to distribute the salaries of the security guards directly to them and that Hyatt had used its own corporate forms and pay slips in doing so. The security guards were clearly performing activities directly related to the business operations of Hyatt Baguio, since the undertaking to safeguard the person and belongings of hotel guests is one of the obligations of a hotel vis-a-vis its guests and the general public.

Where labor-only contracting exists in a given case, the law itself implies or establishes an employer-employee relationship between the employer (the owner of the project or establishment) (here, Hyatt Baguio) and the employees of the labor-only contractor

(here, Vallum) to prevent any violation or circumvention of provisions of the Labor Code. 16

The issue of illegal dismissal need not detain us for long. It has not been alleged by petitioners that a just or authorized cause for terminating private respondents' services had existed. And even if such lawful cause existed, it is not alleged that private respondents' rights to procedural due process in that connection had been appropriately observed.

We conclude that petitioners have not shown any grave abuse of discretion or any act without or any in excess of jurisdiction on the part of the National Labor Relations Commission in rendering its Resolutions dated 31 July 1990 and 31 January 1991.

WHEREFORE, premises considered, the Petition for Certiorari is hereby DISMISSED for lack of merit. Costs against petitioners.

Bidin, Romero, Melo and Vitug, JJ., concur.

G.R. No. L-66598 December 19, 1986

PHILIPPINE BANK OF COMMUNICATIONS, petitioner, vs.THE NATIONAL LABOR RELATIONS COMMISSION, HONORABLE ARBITER TEODORICO L. DOGELIO and RICARDO ORPIADA respondents.

Marcelino Lontok, Jr. for respondents.

FELICIANO, J.:

Petitioner Philippine Bank of Communications and the Corporate Executive Search Inc. (CESI) entered into a letter agreement dated January 1976 under which (CESI) undertook to provide "Tempo[rary] Services" to petitioner Consisting of the "temporary services" of eleven (11) messengers. The contract period is described as being "from January 1976—." The petitioner in truth undertook to pay a "daily service rate of P18, " on a per person basis.

Attached to the letter agreement was a "List of Messengers assigned at Philippine Bank of Communications" which list included, as item No. 5 thereof, the name of private respondent Ricardo Orpiada.

Ricardo Orpiada was thus assigned to work with the petitioner bank. As such, he rendered services to the bank, within the premises of the bank and alongside other people also rendering services to the bank. There was some question as to when Ricardo Orpiada commenced rendering services to the bank. As noted above, the letter agreement was dated January 1976. However, the position paper submitted by (CESI) to the National Labor Relations Commission stated that (CESI) hired Ricardo Orpiada on 25 June 1975 as a Tempo Service employee, and assigned him to work with the petitioner bank "as evidenced by the appointment memo issued to him on 25 June 1975. " Be that as it may, on or about October 1976, the petitioner requested (CESI) to withdraw Orpiada's assignment because, in the allegation of the bank, Orpiada's services "were no longer needed."

On 29 October 1976, Orpiada instituted a complaint in the Department of Labor (now Ministry of Labor and Employment) against the petitioner for illegal dismissal and failure to pay the 13th month pay provided for in Presidential Decree No. 851. This complaint was docketed as Case No. R04-1010184-76-E. After investigation, the Office of the Regional Director, Regional Office No. IV of the Department of Labor, issued an order dismissing Orpiada's complaint for failure of Mr. Orpiada to show the existence of an employer-employee relationship between the bank and himself.

Despite the foregoing order, Orpiada succeeded in having his complaint certified for compulsory arbitration in Case No. RB-IV-11187-77 entitled "Ricardo Orpiada, complaint vs. Philippine Bank of Communications, respondent." During the compulsory arbitration

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proceedings, CE SI was brought into the picture as an additional respondent by the bank. Both the bank and (CESI) stoutly maintained that (CESI) (and not the bank) was the employer of Orpiada.

On 12 September 1977, respondent Labor Arbiter Dogelio rendered a decision in Case No. RB-IV-11187-77, the dispositive portion of which read as follows:

WHEREFORE, premises considered, respondent bank is hereby ordered to reinstate complainant to the same or equivalent position with full back wages and to pay the latter's 13th month pay for the year 1976.

On 26 October 1977, the bank appealed the decision of the Labor Arbiter to the respondent NLRC. More than six years later—and the record is silent on why the proceeding in the NLRC should have taken more than six years to resolve the NLRC promulgated its decision affirming the award of the Labor Arbiter and stating as follows:

WHEREFORE, except for the modification reducing the complainant's back wages to two (2) years without qualification, the Decision appealed from is hereby AFFIRMED in an other respects.

Accordingly, on 2 April 1984, the bank filed the present petition for certiorari with this Court seeking to annul and set aside (a) the decision of respondent Labor Arbiter Dogelio dated 12 September 1977 in Labor Case No. RB-IV-1118-77 and (b) the decision of the NLRC promulgated on 29 December 1983 affirming with some modifications the decision of the Labor Arbiter. This Court granted a temporary restraining order on 11 April 1984. The main issue as litigated by the parties in this case relates to whether or not an employer-employee relationship existed between the petitioner bank and private respondent Ricardo Orpiada. The petitioner bank maintains that no employer-employee relationship was established between itself and Ricardo Orpiada and that Ricardo Orpiada was an employee of (CESI) and not of the bank. The bank documents its position by pointing to the following provisions of its letter agreement with CE SI

1. The individual/s you i.e. (CESI) will assign to us i.e. petitioner) will be subject to our acceptance and will observe work-days, hours, and methods of work (sic); on the other hand, they will not be asked to perform job (sic) not normally related to the position/s for which Tempo Services were contracted.

2. Such individuals will nevertheless remain your own employees and you will therefore, retain all liabilities arising from the new Labor Code as amended Social Security Act and other applicable Governmental decrees, rules and regulations, provided that, on our part, we shaIl

a. Require your employers assigned to us to properly accomplish your daily time record, to faithfully reflect all hours worked in our behalf whether such work be within or beyond eight hours of any day.

b. Notify you of any change in the work assignment or contract period affecting any of your employers assigned to us within 24 hours, after such change is made.

— (Emphasis supplied)

The above language of the agreement between the bank and CE SI is of course relevant and important as manifesting an intent to refrain from constituting an employer-employee relationship between the bank and the persons assigned or seconded to the bank by (CESI) That extent to which the parties were successful in realizing their intent is another matter, one that is dependent upon applicable law and not merely upon the terms of their contract.

In the case of Viana vs. AI-Lagdan and Pica, 99 Phil. 408 (1956), this Court listed certain factors to be taken into account in determining the existence of an employer-employee relationship. These factors are:

1) The selection and engagement of the putative employee; 2) The payment of wages; 3) The power of dismissal- and 4) The power to control the putative employees' conduct, although the latter is the most important element. ... (99 Phil. at 411- 412; Emphasis supplied)

In the present case, Orpiada was not previously selected by the bank. Rather, Orpiada was assigned to work in the bank by (CESI) Orpiada could not have found his way to the bank's offices had he not been first hired by (CESI) and later assigned to work in the bank's offices. The selection of Orpiada by (CESI) was, however, subject to the

acceptance of the bank and the bank did accept him As will be seen shortly, (CESI) had hired Orpiada from the outside world precisely for the purpose of assigning or seconding him to the bank.

With respect to the payment of Orpiada's wages, the bank remitted to CE SI amounts corresponding to the "daily service rate" of Orpiada and the others similarly assigned by (CESI) to the bank, and (CESI) paid to Orpiada and the others the wages pertaining to to them. It is not clear from the record whether the amounts remitted to (CESI) included some factor for CESIs fees; it seems safe to assume that (CESI) had required some amount in excess of the wages paid by (CESI) to Orpiada and the others to cover its own overhead expenses and provide some contribution to profit. The bank alleged that Orpiada did not appear in its payroll and this allegation was not denied by Orpiada. Indeed, the Labor Arbiter in Case No. R04-184-76-B found that Orpiada was listed in the payroll of (CESI) with (CESI) deducting amounts representing his Medicare and Social Security System premiums. A copy of the (CESI) payroll was presented, strangely enough, by Orpiada himself to Regional Office No. IV.

In respect of the power of dismissal we note that the bank requested (CESI) to withdraw Orpiada's assignment and that (CESI) did, in fact, withdraw such assignment. Upon such withdrawal from his assignment with the bank, Orpiada was also terminated by (CESI) Indeed, it appears clear that Orpiada was hired by (CESI) specifically for assignment with the bank and that upon his withdrawal from such assignment upon request of the bank, Orpiada's employment with (CESI) was also severed, until some other client of (CESI) showed up in the horizon to which Orpiada could once more be assigned. In the position paper dated August 5, 1977 submitted by (CESI) before the NLRC, (CESI) explained the relationship between itself and Orpiada in lucid terms:

5. That as Petitioner herein was very well aware of from the very beginning, he was hired by Corporate Executive Search, Inc. as a temporary employee and as such, was being assigned to work with the latter's client Respondent herein that the rationale behind his hiring was the existence of a service contract between Corporate Executive Search Inc. and its client-company, the Philippine Bank of Communications, the herein Respondent, and that when this service contract was 0terminated, then the reason for his employment with Corporate Executive Search, Inc., ceased to exist and that therefore Corporate Executive Search Inc. had no alternative but to discontinue his employment until another opportune time for his hiring would present itself;

6. That Petitioner was not given his 13th-month pay under P.D. 851, because Corporate Executive Search Inc. gave the 13th month pay for 1976 to its employees in December 1976, and since the company had lost contact with the Petitioner by reason of his having ceased to be connected with it as of 22 October 1976, he was not among those given the 13th-month pay. (Emphasis supplied)

Turning to the power to control Orpiada's conduct, it should be noted immediately that Orpiada performed his sections within the bank's premises, and not within the office premises of (CESI) As such, Orpiada must have been subject to at least the same control and supervision that the bank exercises over any other person physically within its premises and rendering services to or for the bank, in other words, any employee or staff member of the bank. It seems unreasonable to suppose that the bank would have allowed Orpiada and the other persons assigned to the bank by CE SI to remain within the bank's premises and there render services to the bank, without subjecting them to a substantial measure of control and supervision, whether in respect of the manner in which they discharged their functions, or in respect of the end results of their functions or activities, or both.

Application of the above factors in the specific context of this case appears to yield mixed results so far as concerns the existence of an employer- employer relationship between the bank and Orpiada. The second ("payment of wages") and third ("power of dismissal") factors suggest that the relevant relationship was that subsisting between (CESI) and Orpiada, a relationship conceded by (CESI) to be one between employer and employee. Upon the other hand, the first ("selection and engagement") and fourth ("control of employee's conduct") factors indicate that some direct relationship did exist between Orpiada and the bank and that such relationship may be assimilated to employment. Perhaps the most important circumstance which emerges from an examination of the facts of the tri-lateral relationship between the bank, (CESI) and Orpiada is that the employer-employee relationship between (CESI) and Orpiada was established precisely in anticipation of, and for the very purpose of making possible, the secondment of Orpiada to the bank. It is therefore necessary to confront the task of determining the appropriate characterization of the relationship between the bank and (CESI) was that relationship one of employer and job (independent) contractor or one of employer and "labor-only" contractor?

Articles 106 and 107 of the Labor Code of the Philippines (Presidential Decree No. 442, as amended) provides as follows:

DO 18-02 Cases 31

ART. 106. Contractor or sub-contractor.—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 in this Code.

In the event that the contractor or sub-contractor 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 sub-contractor to such employees to the extent of the work performed under the contract in the same manner and extent that he is liable to employees directly employed by him

The Secretary of Labor may, by appropriate regulations, restrict or prohibit the contracting out of labor to protect the rights of workers established under this Code. In so prohibiting or restricting, he may make appropriate distinctions between labor-only contracting and job contracting as well as differentiations within these types of contracting and determine who among the parties involved shall be considered the employer for purposes of this Code, to prevent any violation or circumvention of any provisions of this Code.

There is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

ART. 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, part, nership association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Emphasis supplied)

Under the general rule set out in the first and second paragraphs of Article 106, an employer who enters into a contract with a contractor for the performance of work for the employer, does not thereby create an employer-employees relationship between himself and the employees of the contractor. Thus, the employees of the contractor remain the contractor's employees and his alone. Nonetheless when a contractor fails to pay the wages of his employees in accordance with the Labor Code, the employer who contracted out the job to the contractor becomes jointly and severally liable with his contractor to the employees of the latter "to the extent of the work performed under the contract" as such employer were the employer of the contractor's employees. The law itself, in other words, establishes an employer-employee relationship between the employer and the job contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the wages due to them.

A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor-i.e "the person or intermediary" is considered "merely as an agent of the employer. " The employer is made by the statute responsible to the employees of the "labor only" contractor as if such employees had been directly employed by the employer. Thus, where "labor only" contracting exists in a given case, the statute itself implies or establishes an employer-employee relationship between the employer (the owner of the project) and the employees of the "labor only" contractor, this time for a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code. " The law in effect holds both the employer and the "labor-only" contractor responsible to the latter's employees for the more effective safeguarding of the employees' rights under the Labor Code.

Both the petitioner bank and (CESI) have insisted that (CESI) was not a "labor only" contractor. Section 9 of Rule VIII of Book III entitled "Conditions of Employment," of the Omnibus Rules Implementing the Labor Code provides as follows:

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to an employer shag be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are to the principal business or operations of the c workers are habitually employed,

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him

(c) For cases not file under this Article, the Secretary of Labor shall determine through appropriate orders whether or not the contracting out of labor is permissible in the light of the circumstances of each case and after considering the operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions and restrictions to insure the protection and welfare of the workers. (Emphasis supplied)

In contrast, job contracting-contracting out a particular job to an independent contractor is defined by the Implementing Rules as follows:

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business. (Emphasis supplied)

The bank and (CESI) urge that (CESI) is not properly regarded as a "labor-only" contractor upon n the ground that (CESI) is possessed of substantial capital or investment in the form of office equipment, tools and trained service personnel.

We are unable to agree with the bank and (CESI) on this score. The definition of "labor-only" contracting in Rule VIII, Book III of the Implementing Rules must be read in conjunction with the definition of job contracting given in Section 8 of the same Rules. The undertaking given by CESI in favor of the bank was not the performance of a specific — job for instance, the carriage and delivery of documents and parcels to the addresses thereof. There appear to be many companies today which perform this discrete service, companies with their own personnel who pick up documents and packages from the offices of a client or customer, and who deliver such materials utilizing their own delivery vans or motorcycles to the addresses. In the present case, the undertaking of (CESI) was to provide its client-the bank-with a certain number of persons able to carry out the work of messengers. Such undertaking of CESI was complied with when the requisite number of persons were assigned or seconded to the petitioner bank. Orpiada utilized the premises and office equipment of the bank and not those of (CESI) Messengerial work-the delivery of documents to designated persons whether within or without the bank premises — is of course directly related to the day-to-day operations of the bank. Section 9(2) quoted above does not require for its applicability that the petitioner must be engaged in the delivery of items as a distinct and separate line of business.

Succinctly put, CESI is not a parcel delivery company: as its name indicates, it is a recruitment and placement corporation placing bodies, as it were, in different client companies for longer or shorter periods of time. It is this factor that, to our mind, distinguishes this case from American President v. Clave et al, 114 SCRA 826 (1982) if indeed distinguishing way is needed.

The bank urged that the letter agreement entered into with CESI was designed to enable the bank to obtain the temporary services of people necessary to enable the bank to cope with peak loads, to replace temporary workers who were out on vacation or sick leave, and to handle specialized work. There is, of course, nothing illegal about hiring persons to carry out "a specific project or undertaking the completion or termination of which [was] determined at the time of the engagement of [the] employee, or where the work or service to be performed is seasonal in nature and the employment is for the duration of the season" (Article 281, Labor Code).<äre||anº•1àw> The letter agreement itself, however, merely required (CESI) to furnish the bank with eleven 11) messengers for " a contract period from January 19, 1976 —." The eleven (11) messengers were thus supposed to render "temporary" services for an indefinite or unstated period of time. Ricardo Orpiada himself was assigned to the bank's offices from 25 June 1975 and rendered services to the bank until sometime in October 1976, or a period of about sixteen months. Under the Labor Code, however, any employee who has rendered at least one year of service, whether such service is continuous or not, shall be considered a regular employee (Article 281, Second paragraph). Assuming, therefore, that Orpiada could properly be regarded as a casual (as distinguished from a regular) employee of the bank, he became entitled to be regarded as a regular employee of the bank as soon as he had completed one year of service to the bank. Employers may not terminate the service of a regular employee except for a just cause or when authorized under the Labor Code (Article 280, Labor Code). It is not difficult to see that to uphold the contractual arrangement between the bank and (CESI) would in effect be to permit

DO 18-02 Cases 32

employers to avoid the necessity of hiring regular or permanent employees and to enable them to keep their employees indefinitely on a temporary or casual status, thus to deny them security of tenure in their jobs. Article 106 of the Labor Code is precisely designed to prevent such a result.

We hold that, in the circumstances 'instances of this case, (CESI) was engaged in "labor-only" or attracting vis-a-vis the petitioner and in respect c Ricardo Orpiada, and that consequently, the petitioner bank is liable to Orpiada as if Orpiada had been directly, employed not only by (CESI) but also by the bank. It may well be that the bank may in turn proceed against (CESI) to obtain reimbursement of, or some contribution to, the amounts which the bank will have to pay to Orpiada; but this it is not necessary to determine here.

WHEREFORE, the petition for certiorari is DENIED and the decision promulgated on 29 December 1983 of the National Labor Relations Commission is AFFIRMED. The Temporary Restraining Order issued by this Court on 11 April 1984 is hereby lifted. Costs against petitioner.

SO ORDERED.

Yap (Chairman), Narvasa, Melencio-Herrera and Cruz, JJ., concur.

G.R. No. 179546 February 13, 2009

COCA-COLA BOTTLERS PHILS., INC., Petitioner, vs.ALAN M. AGITO, REGOLO S. OCA III, ERNESTO G. ALARIAO, JR., ALFONSO PAA, JR., DEMPSTER P. ONG, URRIQUIA T. ARVIN, GIL H. FRANCISCO, and EDWIN M. GOLEZ, Respondents.

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari, under Rule 45 of the Rules of Court, assailing the Decision1 dated 19 February 2007, promulgated by the Court of Appeals in CA-G.R. SP No. 85320, reversing the Resolution2 rendered on 30 October 2003 by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 036494-03. The Court of Appeals, in its assailed Decision, declared that respondents Alan M. Agito, Regolo S. Oca III, Ernesto G. Alariao, Jr., Alfonso Paa, Jr., Dempster P. Ong, Urriquia T. Arvin, Gil H. Francisco, and Edwin M. Golez were regular employees of petitioner Coca-Cola Bottlers Phils., Inc; and that Interserve Management & Manpower Resources, Inc. (Interserve) was a labor-only contractor, whose presence was intended merely to preclude respondents from acquiring tenurial security.

Petitioner is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) and engaged in manufacturing, bottling and distributing soft drink beverages and other allied products.

On 15 April 2002, respondents filed before the NLRC two complaints against petitioner, Interserve, Peerless Integrated Services, Inc., Better Builders, Inc., and Excellent Partners, Inc. for reinstatement with backwages, regularization, nonpayment of 13th month pay, and damages. The two cases, docketed as NLRC NCR Case No. 04-02345-2002 and NLRC NCR Case No. 05-03137-02, were consolidated.

Respondents alleged in their Position Paper that they were salesmen assigned at the Lagro Sales Office of petitioner. They had been in the employ of petitioner for years, but were not regularized. Their employment was terminated on 8 April 2002 without just cause and due process. However, they failed to state the reason/s for filing a complaint against Interserve; Peerless Integrated Services, Inc.; Better Builders, Inc.; and Excellent Partners, Inc.3

Petitioner filed its Position Paper (with Motion to Dismiss),4 where it averred that respondents were employees of Interserve who were tasked to perform contracted services in accordance with the provisions of the Contract of Services5 executed between petitioner and Interserve on 23 March 2002. Said Contract between petitioner and Interserve, covering the period of 1 April 2002 to 30 September 2002, constituted legitimate job contracting, given that the latter was a bona fide independent contractor with substantial capital or investment in the form of tools, equipment, and machinery necessary in the conduct of its business.

To prove the status of Interserve as an independent contractor, petitioner presented the following pieces of evidence: (1) the Articles of Incorporation of Interserve;6 (2) the Certificate of Registration of Interserve with the Bureau of Internal Revenue;7 (3) the Income Tax Return, with Audited Financial Statements, of Interserve for 2001;8 and (4) the Certificate of Registration of Interserve as an independent job contractor, issued by the Department of Labor and Employment (DOLE).9

As a result, petitioner asserted that respondents were employees of Interserve, since it was the latter which hired them, paid their wages, and supervised their work, as proven by: (1) respondents’ Personal Data Files in the records of Interserve;10 (2) respondents’ Contract of Temporary Employment with Interserve;11 and (3) the payroll records of Interserve.12

Petitioner, thus, sought the dismissal of respondents’ complaint against it on the ground that the Labor Arbiter did not acquire jurisdiction over the same in the absence of an employer-employee relationship between petitioner and the respondents.13

In a Decision dated 28 May 2003, the Labor Arbiter found that respondents were employees of Interserve and not of petitioner. She reasoned that the standard put forth in Article 280 of the Labor Code for determining regular employment (i.e., that the employee is performing activities that are necessary and desirable in the usual business of the employer) was not determinative of the issue of whether an employer-employee relationship existed between petitioner and respondents. While respondents performed activities that were necessary and desirable in the usual business or trade of petitioner, the Labor Arbiter underscored that respondents’ functions were not indispensable to the principal business of petitioner, which was manufacturing and bottling soft drink beverages and similar products.

The Labor Arbiter placed considerable weight on the fact that Interserve was registered with the DOLE as an independent job contractor, with total assets amounting to P1,439,785.00 as of 31 December 2001. It was Interserve that kept and maintained respondents’ employee records, including their Personal Data Sheets; Contracts of Employment; and remittances to the Social Securities System (SSS), Medicare and Pag-ibig Fund, thus, further supporting the Labor Arbiter’s finding that respondents were employees of Interserve. She ruled that the circulars, rules and regulations which petitioner issued from time to time to respondents were not indicative of control as to make the latter its employees.

Nevertheless, the Labor Arbiter directed Interserve to pay respondents their pro-rated 13th month benefits for the period of January 2002 until April 2002.14

In the end, the Labor Arbiter decreed:

WHEREFORE, judgment is hereby rendered finding that [herein respondents] are employees of [herein petitioner] INTERSERVE MANAGEMENT & MANPOWER RESOURCES, INC. Concomitantly, respondent Interserve is further ordered to pay [respondents] their pro-rated 13th month pay.

The complaints against COCA-COLA BOTTLERS PHILS., INC. is DISMISMMED for lack of merit.

In like manner the complaints against PEERLESS INTEGRATED SERVICES, INC., BETTER BUILDING INC. and EXCELLENT PARTNERS COOPERATIVE are DISMISSED for failure of complainants to pursue against them.

Other claims are dismissed for lack of merit.

The computation of the Computation and Examination Unit, this Commission if (sic) made part of this Decision. 15

Unsatisfied with the foregoing Decision of the Labor Arbiter, respondents filed an appeal with the NLRC, docketed as NLRC NCR CA No. 036494-03.

In their Memorandum of Appeal,16 respondents maintained that contrary to the finding of the Labor Arbiter, their work was indispensable to the principal business of petitioner. Respondents supported their claim with copies of the Delivery Agreement17 between petitioner and TRMD Incorporated, stating that petitioner was "engaged in the manufacture, distribution and sale of soft drinks and other related products with various plants and sales offices and warehouses located all over the Philippines." Moreover, petitioner supplied the tools and equipment used by respondents in their jobs such as forklifts, pallet, etc. Respondents were also required to work in the warehouses, sales offices, and plants of petitioner. Respondents pointed out that, in contrast, Interserve did not own trucks, pallets cartillas, or any other equipment necessary in the sale of Coca-Cola products.

Respondents further averred in their Memorandum of Appeal that petitioner exercised control over workers supplied by various contractors. Respondents cited as an example the case of Raul Arenajo (Arenajo), who, just like them, worked for petitioner, but was made to appear as an employee of the contractor Peerless Integrated Services, Inc. As proof of control by petitioner, respondents submitted copies of: (1) a Memorandum18 dated 11 August 1998 issued by Vicente Dy (Dy), a supervisor of petitioner, addressed to Arenajo, suspending the latter from work until he explained his disrespectful acts toward the supervisor who caught him sleeping during work hours; (2) a Memorandum19

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dated 12 August 1998 again issued by Dy to Arenajo, informing the latter that the company had taken a more lenient and tolerant position regarding his offense despite having found cause for his dismissal; (3) Memorandum20 issued by Dy to the personnel of Peerless Integrated Services, Inc., requiring the latter to present their timely request for leave or medical certificates for their absences; (4) Personnel Workers Schedules, 21 prepared by RB Chua, another supervisor of petitioner; (5) Daily Sales Monitoring Report prepared by petitioner;22 and (6) the Conventional Route System Proposed Set-up of petitioner. 23

The NLRC, in a Resolution dated 30 October 2003, affirmed the Labor Arbiter’s Decision dated 28 May 2003 and pronounced that no employer-employee relationship existed between petitioner and respondents. It reiterated the findings of the Labor Arbiter that Interserve was an independent contractor as evidenced by its substantial assets and registration with the DOLE. In addition, it was Interserve which hired and paid respondents’ wages, as well as paid and remitted their SSS, Medicare, and Pag-ibig contributions. Respondents likewise failed to convince the NLRC that the instructions issued and trainings conducted by petitioner proved that petitioner exercised control over respondents as their employer.24 The dispositive part of the NLRC Resolution states:25

WHEREFORE, the instant appeal is hereby DISMISSED for lack of merit. However, respondent Interserve Management & Manpower Resources, Inc., is hereby ordered to pay the [herein respondents] their pro-rated 13th month pay.

Aggrieved once more, respondents sought recourse with the Court of Appeals by filing a Petition for Certiorari under Rule 65, docketed as CA-G.R. SP No. 85320.

The Court of Appeals promulgated its Decision on 9 February 2007, reversing the NLRC Resolution dated 30 October 2003. The appellate court ruled that Interserve was a labor-only contractor, with insufficient capital and investments for the services which it was contracted to perform. With only P510,000.00 invested in its service vehicles and P200,000.00 in its machineries and equipment, Interserve would be hard-pressed to meet the demands of daily soft drink deliveries of petitioner in the Lagro area. The Court Appeals concluded that the respondents used the equipment, tools, and facilities of petitioner in the day-to-day sales operations.

Additionally, the Court of Appeals determined that petitioner had effective control over the means and method of respondents’ work as evidenced by the Daily Sales Monitoring Report, the Conventional Route System Proposed Set-up, and the memoranda issued by the supervisor of petitioner addressed to workers, who, like respondents, were supposedly supplied by contractors. The appellate court deemed that the respondents, who were tasked to deliver, distribute, and sell Coca-Cola products, carried out functions directly related and necessary to the main business of petitioner. The appellate court finally noted that certain provisions of the Contract of Service between petitioner and Interserve suggested that the latter’s undertaking did not involve a specific job, but rather the supply of manpower.

The decretal portion of the Decision of the Court of Appeals reads:26

WHEREFORE, the petition is GRANTED. The assailed Resolutions of public respondent NLRC are REVERSED and SET ASIDE. The case is remanded to the NLRC for further proceedings.

Petitioner filed a Motion for Reconsideration, which the Court of Appeals denied in a Resolution, dated 31 August 2007.27

Hence, the present Petition, in which the following issues are raised28:

IWHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH EVIDENCE ON RECORD, APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT RULED THAT INTERSERVE IS A LABOR-ONLY CONTRACTOR;

IIWHETHER OR NOT THE COURT OF APPEALS ACTED IN ACCORDANCE WITH APPLICABLE LAWS AND ESTABLISHED JURISPRUDENCE WHEN IT CONCLUDED THAT RESPONDENTS PERFORMED WORK NECESSARY AND DESIRABLE TO THE BUSINESS OF [PETITIONER];

IIIWHETHER OR NOT THE COURT OF APPEALS COMMITTED SERIOUS ERROR WHEN IT DECLARED THAT RESPONDENTS WERE EMPLOYEES OF [PETITIONER], EVEN ABSENT THE FOUR ELEMENTS INDICATIVE OF AN EMPLOYMENT RELATIONSHIP; AND

IVWHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED WHEN IT CONCLUDED THAT INTERSERVE WAS ENGAGED BY [PETITIONER] TO SUPPLY MANPOWER ONLY.

The Court ascertains that the fundamental issue in this case is whether Interserve is a legitimate job contractor. Only by resolving such issue will the Court be able to determine whether an employer-employee relationship exists between petitioner and the respondents. To settle the same issue, however, the Court must necessarily review

the factual findings of the Court of Appeals and look into the evidence presented by the parties on record.

As a general rule, factual findings of the Court of Appeals are binding upon the Supreme Court. One exception to this rule is when the factual findings of the former are contrary to those of the trial court, or the lower administrative body, as the case may be. This Court is obliged to resolve an issue of fact herein due to the incongruent findings of the Labor Arbiter and the NLRC and those of the Court of Appeals. 29

The relations which may arise in a situation, where there is an employer, a contractor, and employees of the contractor, are identified and distinguished under Article 106 of the Labor Code:

Article 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 restriction, 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 employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

The afore-quoted provision recognizes two possible relations among the parties: (1) the permitted legitimate job contract, or (2) the prohibited labor-only contracting.

A legitimate job contract, wherein an employer enters into a contract with a job contractor for the performance of the former’s work, is permitted by law. Thus, the employer-employee relationship between the job contractor and his employees is maintained. In legitimate job contracting, the law creates an employer-employee relationship between the employer and the contractor’s employees only for a limited purpose, i.e., to ensure that the employees are paid their wages. The employer becomes jointly and severally liable with the job contractor only for the payment of the employees’ wages whenever the contractor fails to pay the same. Other than that, the employer is not responsible for any claim made by the contractor’s employees.30

On the other hand, labor-only contracting is an arrangement wherein the contractor merely acts as an agent in recruiting and supplying the principal employer with workers for the purpose of circumventing labor law provisions setting down the rights of employees. It is not condoned by law. A finding by the appropriate authorities that a contractor is a "labor-only" contractor establishes an employer-employee relationship between the principal employer and the contractor’s employees and the former becomes solidarily liable for all the rightful claims of the employees. 31

Section 5 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, provides the guidelines in determining whether labor-only contracting exists:

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 [is] 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

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ii) The contractor does not exercise the right to control 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 reversed 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. (Emphasis supplied.)

When there is labor-only contracting, Section 7 of the same implementing rules, describes the consequences thereof:

Section 7. Existence of an employer-employee relationship.—The contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following case, as declared by a competent authority:

a. where there is labor-only contracting; or

b. where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof.

According to the foregoing provision, labor-only contracting would give rise to: (1) the creation of an employer-employee relationship between the principal and the employees of the contractor or sub-contractor; and (2) the solidary liability of the principal and the contractor to the employees in the event of any violation of the Labor Code.

Petitioner argues that there could not have been labor-only contracting, since respondents did not perform activities that were indispensable to petitioner’s principal business. And, even assuming that they did, such fact alone does not establish an employer-employee relationship between petitioner and the respondents, since respondents were unable to show that petitioner exercised the power to select and hire them, pay their wages, dismiss them, and control their conduct.

The argument of petitioner is untenable.

The law clearly establishes an employer-employee relationship between the principal employer and the contractor’s employee upon a finding that the contractor is engaged in "labor-only" contracting. Article 106 of the Labor Code categorically states: "There is ‘labor-only’ contracting where the person supplying workers to an employee does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to the principal business of such employer." Thus, performing activities directly related to the principal business of the employer is only one of the two indicators that "labor-only" contracting exists; the other is lack of substantial capital or investment. The Court finds that both indicators exist in the case at bar.

Respondents worked for petitioner as salesmen, with the exception of respondent Gil Francisco whose job was designated as leadman. In the Delivery Agreement32 between petitioner and TRMD Incorporated, it is stated that petitioner is engaged in the manufacture, distribution and sale of softdrinks and other related products. The work of respondents, constituting distribution and sale of Coca-Cola products, is clearly indispensable to the principal business of petitioner. The repeated re-hiring of some of the respondents supports this finding.33 Petitioner also does not contradict respondents’ allegations that the former has Sales Departments and Sales Offices in its various offices, plants, and warehouses; and that petitioner hires Regional Sales Supervisors and District Sales Supervisors who supervise and control the salesmen and sales route helpers.34

As to the supposed substantial capital and investment required of an independent job contractor, petitioner calls the attention of the Court to the authorized capital stock of Interserve amounting to P2, 000,000.00.35 It cites as authority Filipinas Synthetic Fiber Corp. v. National Labor Relations Commission36 and Frondozo v. National Labor Relations

Commission,37 where the contractors’ authorized capital stock of P1,600,000.00 and P2,000,000.00, respectively, were considered substantial for the purpose of concluding that they were legitimate job contractors. Petitioner also refers to Neri v. National Labor Relations Commission38 where it was held that a contractor ceases to be a labor-only contractor by having substantial capital alone, without investment in tools and equipment.

This Court is unconvinced.

At the outset, the Court clarifies that although Interserve has an authorized capital stock amounting to P2, 000,000.00, only P625,000.00 thereof was paid up as of 31 December 2001. The Court does not set an absolute figure for what it considers substantial capital for an independent job contractor, but it measures the same against the type of work which the contractor is obligated to perform for the principal. However, this is rendered impossible in this case since the Contract between petitioner and Interserve does not even specify the work or the project that needs to be performed or completed by the latter’s employees, and uses the dubious phrase "tasks and activities that are considered contractible under existing laws and regulations." Even in its pleadings, petitioner carefully sidesteps identifying or describing the exact nature of the services that Interserve was obligated to render to petitioner. The importance of identifying with particularity the work or task which Interserve was supposed to accomplish for petitioner becomes even more evident, considering that the Articles of Incorporation of Interserve states that its primary purpose is to operate, conduct, and maintain the business of janitorial and allied services.39 But respondents were hired as salesmen and leadman for petitioner. The Court cannot, under such ambiguous circumstances, make a reasonable determination if Interserve had substantial capital or investment to undertake the job it was contracting with petitioner.

Petitioner cannot seek refuge in Neri v. National Labor Relations Commission. Unlike in Neri, petitioner was unable to prove in the instant case that Interserve had substantial capitalization to be an independent job contractor. In San Miguel Corporation v. MAERC Integrated Services, Inc.,40 therein petitioner San Miguel Corporation similarly invoked Neri, but was rebuffed by the Court based on the following ratiocination41 :

Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v. NLRC. In that case, it was held that the law did not require one to possess both substantial capital and investment in the form of tools, equipment, machinery, work premises, among others, to be considered a job contractor. The second condition to establish permissible job contracting was sufficiently met if one possessed either attribute.

Accordingly, petitioner alleged that the appellate court and the NLRC erred when they declared MAERC a labor-only contractor despite the finding that MAERC had investments amounting to P4,608,080.00 consisting of buildings, machinery and equipment.

However, in Vinoya v. NLRC, we clarified that it was not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises, etc., to be considered an independent contractor. In fact, jurisprudential holdings were to the effect that in determining the existence of an independent contractor relationship, several factors may be considered, such as, but not necessarily confined to, whether the contractor was carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.

In Neri, the Court considered not only the fact that respondent Building Care Corporation (BCC) had substantial capitalization but noted that BBC carried on an independent business and performed its contract according to its own manner and method, free from the control and supervision of its principal in all matters except as to the results thereof. The Court likewise mentioned that the employees of BCC were engaged to perform specific special services for their principal. The status of BCC had also been passed upon by the Court in a previous case where it was found to be a qualified job contractor because it was a "big firm which services among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc." Furthermore, there were only two (2) complainants in that case who were not only selected and hired by the contractor before being assigned to work in the Cagayan de Oro branch of FEBTC but the Court also found that the contractor maintained effective supervision and control over them.

Thus, in San Miguel Corporation, the investment of MAERC, the contractor therein, in the form of buildings, tools, and equipment of more than P4,000,000.00 did not impress the Court, which still declared MAERC to be a labor-only contractor. In another case, Dole Philippines, Inc. v. Esteva,42 the Court did not recognize the contractor therein as a legitimate job contractor, despite its paid-up capital of over P4,000,000.00, in the

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absence of substantial investment in tools and equipment used in the services it was rendering.

Insisting that Interserve had substantial investment, petitioner assails, for being purely speculative, the finding of the Court of Appeals that the service vehicles and equipment of Interserve, with the values of P510,000.00 and P200,000.00, respectively, could not have met the demands of the Coca-Cola deliveries in the Lagro area.

Yet again, petitioner fails to persuade.

The contractor, not the employee, has the burden of proof that it has the substantial capital, investment, and tool to engage in job contracting.43 Although not the contractor itself (since Interserve no longer appealed the judgment against it by the Labor Arbiter), said burden of proof herein falls upon petitioner who is invoking the supposed status of Interserve as an independent job contractor. Noticeably, petitioner failed to submit evidence to establish that the service vehicles and equipment of Interserve, valued at P510,000.00 and P200,000.00, respectively, were sufficient to carry out its service contract with petitioner. Certainly, petitioner could have simply provided the courts with records showing the deliveries that were undertaken by Interserve for the Lagro area, the type and number of equipment necessary for such task, and the valuation of such equipment. Absent evidence which a legally compliant company could have easily provided, the Court will not presume that Interserve had sufficient investment in service vehicles and equipment, especially since respondents’ allegation – that they were using equipment, such as forklifts and pallets belonging to petitioner, to carry out their jobs – was uncontroverted.

In sum, Interserve did not have substantial capital or investment in the form of tools, equipment, machineries, and work premises; and respondents, its supposed employees, performed work which was directly related to the principal business of petitioner. It is, thus, evident that Interserve falls under the definition of a "labor-only" contractor, under Article 106 of the Labor Code; as well as Section 5(i) of the Rules Implementing Articles 106-109 of the Labor Code, as amended.

The Court, however, does not stop at this finding. It is also apparent that Interserve is a labor-only contractor under Section 5(ii)44 of the Rules Implementing Articles 106-109 of the Labor Code, as amended, since it did not exercise the right to control the performance of the work of respondents.

The lack of control of Interserve over the respondents can be gleaned from the Contract of Services between Interserve (as the CONTRACTOR) and petitioner (as the CLIENT), pertinent portions of which are reproduced below:

WHEREAS, the CONTRACTOR is engaged in the business, among others, of performing and/or undertaking, managing for consideration, varied projects, jobs and other related management-oriented services;

WHEREAS, the CONTRACTOR warrants that it has the necessary capital, expertise, technical know-how and a team of professional management group and personnel to undertake and assume the responsibility to carry out the above mentioned project and services;

WHEREAS, the CLIENT is desirous of utilizing the services and facilities of the CONTRACTOR for emergency needs, rush jobs, peak product loads, temporary, seasonal and other special project requirements the extent that the available work of the CLIENT can properly be done by an independent CONTRACTOR permissible under existing laws and regulations;

WHEREAS, the CONTRACTOR has offered to perform specific jobs/works at the CLIENT as stated heretofore, under the terms and conditions herein stated, and the CLIENT has accepted the offer.

NOW THEREFORE, for and in consideration of the foregoing premises and of the mutual covenants and stipulations hereinafter set forth, the parties have hereto have stated and the CLIENT has accepted the offer:

1. The CONTRACTOR agrees and undertakes to perform and/or provide for the CLIENT, on a non-exclusive basis for tasks or activities that are considered contractible under existing laws and regulations, as may be needed by the CLIENT from time to time.

2. To carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel like Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD who are at least Technical/Vocational courses graduates provided with adequate uniforms and appropriate identification cards, who are warranted by the CONTRACTOR to be so trained as to efficiently, fully and speedily

accomplish the work and services undertaken herein by the CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such number as will be sufficient to cope with the requirements of the services and work herein undertaken and that such personnel shall be physically fit, of good moral character and has not been convicted of any crime. The CLIENT, however, may request for the replacement of the CONTRACTOR’S personnel if from its judgment, the jobs or the projects being done could not be completed within the time specified or that the quality of the desired result is not being achieved.

3. It is agreed and understood that the CONTRACTOR’S personnel will comply with CLIENT, CLIENT’S policies, rules and regulations and will be subjected on-the-spot search by CLIENT, CLIENT’S duly authorized guards or security men on duty every time the assigned personnel enter and leave the premises during the entire duration of this agreement.

4. The CONTRACTOR further warrants to make available at times relievers and/or replacements to ensure continuous and uninterrupted service as in the case of absences of any personnel above mentioned, and to exercise the necessary and due supervision over the work of its personnel.45

Paragraph 3 of the Contract specified that the personnel of contractor Interserve, which included the respondents, would comply with "CLIENT" as well as "CLIENT’s policies, rules and regulations." It even required Interserve personnel to subject themselves to on-the-spot searches by petitioner or its duly authorized guards or security men on duty every time the said personnel entered and left the premises of petitioner. Said paragraph explicitly established the control of petitioner over the conduct of respondents. Although under paragraph 4 of the same Contract, Interserve warranted that it would exercise the necessary and due supervision of the work of its personnel, there is a dearth of evidence to demonstrate the extent or degree of supervision exercised by Interserve over respondents or the manner in which it was actually exercised. There is even no showing that Interserve had representatives who supervised respondents’ work while they were in the premises of petitioner.

Also significant was the right of petitioner under paragraph 2 of the Contract to "request the replacement of the CONTRACTOR’S personnel." True, this right was conveniently qualified by the phrase "if from its judgment, the jobs or the projects being done could not be completed within the time specified or that the quality of the desired result is not being achieved," but such qualification was rendered meaningless by the fact that the Contract did not stipulate what work or job the personnel needed to complete, the time for its completion, or the results desired. The said provision left a gap which could enable petitioner to demand the removal or replacement of any employee in the guise of his or her inability to complete a project in time or to deliver the desired result. The power to recommend penalties or dismiss workers is the strongest indication of a company’s right of control as direct employer.46

Paragraph 4 of the same Contract, in which Interserve warranted to petitioner that the former would provide relievers and replacements in case of absences of its personnel, raises another red flag. An independent job contractor, who is answerable to the principal only for the results of a certain work, job, or service need not guarantee to said principal the daily attendance of the workers assigned to the latter. An independent job contractor would surely have the discretion over the pace at which the work is performed, the number of employees required to complete the same, and the work schedule which its employees need to follow.

As the Court previously observed, the Contract of Services between Interserve and petitioner did not identify the work needed to be performed and the final result required to be accomplished. Instead, the Contract specified the type of workers Interserve must provide petitioner ("Route Helpers, Salesmen, Drivers, Clericals, Encoders & PD") and their qualifications (technical/vocational course graduates, physically fit, of good moral character, and have not been convicted of any crime). The Contract also states that, "to carry out the undertakings specified in the immediately preceding paragraph, the CONTRACTOR shall employ the necessary personnel," thus, acknowledging that Interserve did not yet have in its employ the personnel needed by petitioner and would still pick out such personnel based on the criteria provided by petitioner. In other words, Interserve did not obligate itself to perform an identifiable job, work, or service for petitioner, but merely bound itself to provide the latter with specific types of employees. These contractual provisions strongly indicated that Interserve was merely a recruiting and manpower agency providing petitioner with workers performing tasks directly related to the latter’s principal business.

The certification issued by the DOLE stating that Interserve is an independent job contractor does not sway this Court to take it at face value, since the primary purpose stated in the Articles of Incorporation47 of Interserve is misleading. According to its Articles of Incorporation, the principal business of Interserve is to provide janitorial and allied services. The delivery and distribution of Coca-Cola products, the work for which respondents were employed and assigned to petitioner, were in no way allied to janitorial services. While the DOLE may have found that the capital and/or investments in tools and equipment of Interserve were sufficient for an independent contractor for janitorial services, this does not mean that such capital and/or investments were

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likewise sufficient to maintain an independent contracting business for the delivery and distribution of Coca-Cola products.

With the finding that Interserve was engaged in prohibited labor-only contracting, petitioner shall be deemed the true employer of respondents. As regular employees of petitioner, respondents cannot be dismissed except for just or authorized causes, none of which were alleged or proven to exist in this case, the only defense of petitioner against the charge of illegal dismissal being that respondents were not its employees. Records also failed to show that petitioner afforded respondents the twin requirements of procedural due process, i.e., notice and hearing, prior to their dismissal. Respondents were not served notices informing them of the particular acts for which their dismissal was sought. Nor were they required to give their side regarding the charges made against them. Certainly, the respondents’ dismissal was not carried out in accordance with law and, therefore, illegal.48

Given that respondents were illegally dismissed by petitioner, they are entitled to reinstatement, full backwages, inclusive of allowances, and to their other benefits or the monetary equivalents thereof computed from the time their compensations were withheld from them up to the time of their actual reinstatement, as mandated under Article 279 of the Labor Code,.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. The Court AFFIRMS WITH MODIFICATION the Decision dated 19 February 2007 of the Court of Appeals in CA-G.R. SP No. 85320. The Court DECLARES that respondents were illegally dismissed and, accordingly, ORDERS petitioner to reinstate them without loss of seniority rights, and to pay them full back wages computed from the time their compensation was withheld up to their actual reinstatement. Costs against the petitioner.

SO ORDERED.

G.R. No. 177785 September 3, 2008

RANDY ALMEDA, EDWIN M. AUDENCIAL, NOLIE D. RAMIREZ, ERNESTO M. CALICAGAN and REYNALDO M. CALICAGAN, petitioners, vs.ASAHI GLASS PHILIPPINES, INC., respondent.

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45 of the Revised Rules of Court, filed by petitioners Randy Almeda, Edwin Audencial, Nolie Ramirez, Ernesto Calicagan and Reynaldo Calicagan, seeking to reverse and set aside the Decision1 dated 10 November 2006 and the Resolution2 dated 27 April 2007 of the Court of Appeals in CA-G.R. SP No. 93291. The appellate court reversed and set aside the Decision dated 29 June 2005 and Resolution dated 24 November 2005 of the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 039768-04 finding respondent Asahi Glass Philippines, Inc. jointly and severally liable with San Sebastian Allied Services, Inc. (SSASI) for illegal dismissal, and ordering both respondent and SSASI to reinstate petitioners to their former positions and to pay their backwages from 2 December 2002 up to the date of their actual reinstatement. Instead, the Court of Appeals reinstated the Decision dated 18 February 2004 of the Labor Arbiter dismissing petitioners’ complaint for illegal dismissal against respondent and SSASI, but ordering the payment of separation benefits to petitioners.

The present Petition arose from a complaint for illegal dismissal with claims for moral and exemplary damages and attorney’s fees filed by petitioners against respondent and SSASI.

In their Complaint3 filed before the Labor Arbiter, petitioners alleged that respondent (a domestic corporation engaged in the business of glass manufacturing) and SSASI (a labor-only contractor) entered into a service contract on 5 March 2002 whereby the latter undertook to provide the former with the necessary manpower for its operations. Pursuant to such a contract, SSASI employed petitioners Randy Almeda, Edwin Audencial, Nolie Ramirez and Ernesto Calicagan as glass cutters, and petitioner Reynaldo Calicagan as Quality Controller,4 all assigned to work for respondent. Petitioners worked for respondent for periods ranging from three to 11 years.5 On 1 December 2002, respondent terminated its service contract with SSASI, which in turn, terminated the employment of petitioners on the same date. Believing that SSASI was a labor-only contractor, and having continuously worked as glass cutters and quality controllers for the respondent - functions which are directly related to its main line of business as glass manufacturer - for three to 11 years, petitioners asserted that they should be considered regular employees of the respondent; and that their dismissal from employment without the benefit of due process of law was unlawful. In support of their complaint, petitioners submitted a copy of their work schedule to show that they were under the direct control of the respondent which dictated the time and manner of performing their jobs.

Respondent, on the other hand, refuted petitioners’ allegations that they were its regular employees. Instead, respondent claimed that petitioners were employees of SSASI and were merely assigned by SSASI to work for respondent to perform intermittent services pursuant to an Accreditation Agreement, dated 5 March 2002, the validity of which was never assailed by the petitioners. Respondent contested petitioners’ contention that they were performing functions that were directly related to respondent’s main business since petitioners were simply tasked to do mirror cutting, an activity occasionally performed upon a customer’s order. Respondent likewise denied exercising control over petitioners and asserted that such was wielded by SSASI. Finally, respondent maintained that SSASI was engaged in legitimate job contracting and was licensed by the Department of Labor and Employment (DOLE) to engage in such activity as shown in its Certificate of Registration.6 Respondent presented before the Labor Arbiter copies of the Opinion dated 18 February 2003 of DOLE Secretary Patricia Sto. Tomas authorizing respondent to contract out certain activities not necessary or desirable to the business of the company; and the Opinion dated 10 July 2003 of DOLE Bureau of Labor Relations (DOLE-BLR) Director Hans Leo Cacdac allowing respondent to contract out even services that were not directly related to its main line of business.

SSASI, for its part, claimed that it was a duly registered independent contractor as evidenced by the Certificate of Registration issued by the DOLE on 3 January 2003. SSASI averred that it was the one who hired petitioners and assigned them to work for respondent on occasions that the latter’s work force could not meet the demands of its customers. Eventually, however, respondent ceased to give job orders to SSASI, constraining the latter to terminate petitioners’ employment.

On 18 February 2004, the Labor Arbiter promulgated his Decision7 finding that respondent submitted overwhelming documentary evidence to refute the bare allegations of the petitioners and accordingly dismissing the complaint for lack of merit. However, he also ordered the payment of separation benefits to petitioners. The Labor Arbiter thus decreed:

WHEREFORE, premises considered, judgment is hereby rendered declaring that the instant case should be, as it is hereby DISMISSED for lack of merit. However, the respondent San Sebastian Allied Services, Inc. is hereby ordered to pay the [herein petitioners] Edwin M. Audencial, Reynaldo Calicagan, Randy Almeda, Nolie D. Ramirez and Ernesto Calicagan their respective separation benefits in the following specified amounts:

(1) Edwin Audencial P 41,327.00

(2) Reynaldo M. Calicagan 15, 860.00

(3) Randy V. Almeda 45,084.00

(4) Nolie Ramirez 15,028.00

(5) Ernesto Calicagan 22,542.00

All other claims are dismissed.

On appeal, the NLRC reversed the afore-quoted Decision of the Labor Arbiter, giving more evidentiary weight to petitioners’ testimonies. It appeared to the NLRC that SSASI was engaged in labor-only contracting since it did not have substantial capital and investment in the form of tools, equipment and machineries. The petitioners were recruited and assigned by SSASI to respondent as glass cutters, positions which were directly related to respondent’s principal business of glass manufacturing. In light of the factual circumstances of the case, the NLRC declared that petitioners were employees of respondent and not of SSASI. Hence, the NLRC ruled in its Decision8 dated 29 June 2005:

WHEREFORE, the decision appealed from is hereby VACATED and SET ASIDE. [Herein respondent] and [SSASI] are hereby ordered to: (1) reinstate the [herein petitioners] to their former position as glass cutters; and (2) pay [petitioners’] full backwages from December 2, 2002 up to the date of their actual reinstatement. The liability of [respondent] and [SSASI] for [petitioners’] backwages is further declared to be joint and several.

DO 18-02 Cases 37

Only respondent moved for the reconsideration of the foregoing NLRC Decision. Respondent prayed that the NLRC vacate its previous finding that SSASI was a labor-only contractor and that it was guilty of the illegal dismissal of petitioners. In a Resolution9 dated 24 November 2005, the NLRC denied the Motion for Reconsideration of respondent for lack of compelling justification to modify, alter or reverse its earlier Decision.

This prompted respondent to elevate its case to the Court of Appeals by the filing of a Petition for Certiorari with Application for the Issuance of Temporary Restraining Order (TRO),10 alleging that the NLRC abused its discretion in ignoring the established facts and legal principles fully substantiated by the documentary evidence on record and legal opinions of labor officials, and in giving more credence to the empty allegations advanced by petitioners.

To prevent the execution of the Decision dated 25 June 2005 and Resolution dated 24 November 2005 of the NLRC, respondent included in its Petition a prayer for the issuance of a TRO, which it reiterated in a motion filed on 29 August 2006. Acting on respondent’s motion, the Court of Appeals issued a TRO on 11 September 2006 enjoining the NLRC from enforcing its 25 June 2005 Decision and 24 November 2005 Resolution.11

On 10 November 2006, the Court of Appeals rendered a Decision granting respondent’s Petition for Certiorari and reversingthe NLRC Decision dated 25 June 2005. The appellate court found merit in respondent’s argument that the NLRC gravely abused its discretion in not finding that there was a legitimate job contracting between respondent and SSASI. SSASI is a legitimate job contractor as proven by its Certificate of Registration issued by the DOLE. Respondent entered into a valid service contract with SSASI, by virtue of which petitioners were assigned by SSASI to work for respondent. The service contract itself, which was duly approved by the DOLE, defined the relationship between SSASI and petitioners as one of employer-employees. It was SSASI which exercised the power of control over petitioners. Petitioners were merely allowed to work at respondent’s premises for reasons of efficiency. Moreover, it was SSASI, not respondent, who terminated petitioners’ services. The fallo of the Decision of the Court of Appeals state:

WHEREFORE, premises considered, the petition is GRANTED and [NLRC’s] assailed 29 June 2005 Decision is, accordingly, REVERSED and SET ASIDE. In lieu thereof, the 18 February 2004 Decision rendered in the case by Labor Arbiter Francisco A. Robles is REINSTATED.12

The Court of Appeals denied petitioners’ Motion for Reconsideration in a Resolution dated 27 April 2007.

Hence, petitioners come before this Court via the instant Petition for Review on Certiorari assailing the 10 November 2006 Decision and 27 April 2007 Resolution of the Court of Appeals based on the following assignment of errors:

I.THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REVERSING THE FINDING OF THE NLRC THAT RESPONDENT COMPANY IS ENGAGED IN LABOR-ONLY CONTRACTING.

II.THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN REVERSING THE RULING OF THE NLRC THAT SAN SEBASTIAN ALLIED SERVICES, INC. IS MERELY RESPONDENT’S AGENT AND RESPONDENT IS PETITIONERS’ REAL EMPLOYER.

III.THE COURT OF APPEALS COMMITTED AN ERROR IN DISMISSING PETITIONERS’ COMPLAINT FOR ILLEGAL DISMISSAL.

It is apparent to this Court that the judicious resolution of the Petition at bar hinges on two elemental issues: (1) whether petitioners were employees of respondent; and (2) if they were, whether they were illegally dismissed.

Respondent adamantly insists that petitioners were not its employees but those of SSASI, a legitimate job contractor duly licensed by the DOLE to undertake job contracting activities. The job performed by petitioners were not directly related to respondent’s primary venture as flat glass manufacturer, for they were assigned to the mirroring line to perform glass cutting on occasions when the employees of respondent could not comply with the market’s intermittent increased demand. And even if petitioners were working at respondent’s premises, it was SSASI which effectively supervised the manner and method petitioners performed their jobs, except as to the result thereof.

The Court would only be able to deem petitioners as employees of respondent if it is established that SSASI was a labor-only contractor, and not a legitimate job contractor or subcontractor.

Permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out to a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.13 A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:

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

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

(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.14

On the other hand, labor-only contracting, a prohibited act, is an arrangement in which the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.15 In labor-only contracting, the following elements are present:

(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility;

(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.16

In labor-only contracting, the statutes create an employer-employee relationship for a comprehensive purpose: to prevent circumvention of labor laws. The contractor is considered as merely the agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees are directly employed by the principal employer.17 Therefore, if SSASI was a labor-only contractor, then respondent shall be considered as the employer of petitioners who must bear the liability for the dismissal of the latter, if any.

An important element of legitimate job contracting is that the contractor has substantial capital or investment, which respondent failed to prove. There is a dearth of evidence to prove that SSASI possessed substantial capital or investment when respondent began contractual relations with it more than a decade before 2003. Respondent’s bare allegations, without supporting proof that SSASI had substantial capital or investment, do not sway this Court. The Court did not find a single financial statement or record to attest to the economic status and financial capacity of SSASI to venture into and sustain its own business independent from petitioner.

Furthermore, the Court is unconvinced by respondent’s argument that petitioners were performing jobs that were not directly related to respondent’s main line of business. Respondent is engaged in glass manufacturing. One of the petitioners served as a quality controller, while the rest were glass cutters. The only excuse offered by respondent - that petitioners’ services were required only when there was an increase in the market’s demand with which respondent could not cope - only prove even more that the services rendered by petitioners were indeed part of the main business of respondent. It would mean that petitioners supplemented the regular workforce when the latter could not comply with the market’s demand; necessarily, therefore, petitioners performed the same functions as the regular workforce. Even respondent’s claim that petitioners’ services were required only intermittently, depending on the market, deserves scant credit. The indispensability of petitioners’ services was fortified by the length and continuity of their performance, lasting for periods ranging from three to 11 years.

More importantly, the Court finds that the crucial element of control over petitioners rested in respondent. The power of control refers to the authority of the employer to control the employee not only with regard to the result of work to be done, but also to the means and methods by which the work is to be accomplished. It should be borne in mind that the power of control refers merely to the existence of the power and not 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 former has a right to wield the power.18

DO 18-02 Cases 38

In the instant case, petitioners worked at the respondent’s premises, and nowhere else. Petitioners followed the work schedule prepared by respondent. They were required to observe all rules and regulations of the respondent pertaining to, among other things, the quality of job performance, regularity of job output, and the manner and method of accomplishing the jobs. Obscurity hounds respondent’s argument that even if petitioners were working under its roof, it was still SSASI which exercised control over the manner in which they accomplished their work. There was no showing that it was SSASI who established petitioners’ working procedure and methods, or who supervised petitioners in their work, or who evaluated the same. Other than being the one who hired petitioners, there was absolute lack of evidence that SSASI exercised control over them or their work.

The fact that it was SSASI which dismissed petitioners from employment is irrelevant. It is hardly proof of control, since it was demonstrated only at the end of petitioners’ employment. What is more, the dismissal of petitioners by SSASI was a mere result of the termination by respondent of its contractual relations with SSASI.

Despite respondent’s disavowal of the existence of an employer-employee relationship between it and petitioners and its unyielding insistence that petitioners were employees of SSASI, the totality of the facts and the surrounding circumstances of the case convey otherwise. SSASI is a labor-only contractor; hence, it is considered as the agent of respondent. Respondent is deemed by law as the employer of petitioners. Surely, respondent cannot expect this Court to sustain its stance and accord full evidentiary weight to the documentary evidence belatedly procured in its vain attempt to evade liability as petitioners’ employer.

The Certificate of Registration presented by respondent to buttress its position that SSASI is a duly registered job contractor is of little significance, considering that it were issued only on 3 January 2003. There is no further proof that prior to said date, SSASI had already registered with and had been recognized by the DOLE as a job contractor.

Verily, the Certificate of Registration of SSASI, instead of supporting respondent’s case, only served to raise more doubts. The timing of the registration of SSASI is highly suspicious. It is important to note that SSASI was already providing respondent with workers, including petitioners, long before SSASI was registered with the DOLE as a job contractor. Some of the petitioners were hired by SSASI and made to work for respondent for 11 years. Petitioners were also dismissed from service only a month prior to the issuance of the Certificate of Registration of SSASI. Neither respondent nor SSASI exerted any effort to explain the reason for the belated registration with the DOLE by SSASI as a purported job contractor. It may be safely discerned from the surrounding circumstances that the Certificate of Registration of SSASI was merely secured in order to blanket the previous relations between SSASI and respondent with legality.

Moreover, the Certificate of Registration issued by the DOLE recognized that SSASI was a legitimate job contractor only as of the date of its issuance, 3 January 2003. There is no basis whatsoever to give the said Certificate any retroactive effect. The Certificate can only be used as reference by persons who would consider the services offered by SSASI subsequent to its issuance. Respondent, who entered into contractual relations with SSASI way before the said Certificate, cannot claim that it relied thereon.

Hence, the status of SSASI as a job contractor previous to its registration with the DOLE on 3 January 2003 is still refutable. It can only be determined upon an evaluation of its activities as contractor prior to the issuance of its Certificate of Registration.

For the same reasons, this Court cannot give much weight to the Opinions dated 18 February 2003 and 10 July 2003 of DOLE Secretary Sto. Tomas and DOLE-BLR Director Cacdac, respectively, allowing respondent to contract out certain services. The said Opinions were noticeably issued only after the hiring and termination of petitioners. And, although the Opinions allow respondent to contract out certain services, they do not necessarily prove that the services respondent contracted to SSASI were actually among those it was allowed to contract out; or that SSASI was a legitimate job contractor, thus, relieving respondent of any liability for the dismissal of petitioners by SSASI.

Equally unavailing is respondent’s stance that its relationship with petitioners should be governed by the Accreditation Agreement stipulating that petitioners were to remain employees of SSASI and shall not become regular employees of the respondent. To permit respondent to disguise the true nature of its transactions with SSASI by the terms of its contract, for the purpose of evading its liabilities under the law, would seriously impair the administration of justice. A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as labor-only contractor or as job contractor, it being crucial that its character be measured in terms of and determined by the criteria set by statute.19

Having established that respondent was petitioners’ employer, the Court now proceeds to determining whether petitioners were dismissed in accordance with law.

Article 280 of the Labor Code, as amended, reads -

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 its 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 exists.

This Court expounded on the afore-quoted provision, thus -

The primary standard, therefore, of determining a regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. x x x The 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. Also, if the employee has been performing the job for at least one year, even if the performance is not continuous or merely intermittent, the law deems the 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 also considered regular, but only with respect to such activity and while such activity exists.20

In the instant Petition, the Court has already declared that petitioners’ employment as quality controllers and glass cutters are directly related to the usual business or trade of respondent as a glass manufacturer. Respondent would have wanted this Court to believe that petitioners’ employment was dependent on the increased market demand. However, bearing in mind that petitioners have worked for respondent for not less than three years and as much as 11 years, which respondent did not refute, then petitioners’ continued employment clearly demonstrates its continuing necessity and indispensability to the business of respondent, raising their employment to regular status. Thus, having gained regular status, petitioners were entitled to security of tenure and could only be dismissed on just or authorized causes and after they had been accorded due process.21

As petitioners’ employer, respondent has the burden of proving that the dismissal was for a cause allowed under the law, and that they were afforded procedural due process.22 However, respondent failed to discharge this burden with substantial evidence as it noticeably narrowed its defense to the denial of any employer-employee relationship between it and petitioners.

The sole reason given for the dismissal of petitioners by SSASI was the termination of its service contract with respondent. But since SSASI was a labor-only contractor, and petitioners were to be deemed the employees of respondent, then the said reason would not constitute a just or authorized cause23 for petitioners’ dismissal. It would then appear that petitioners were summarily dismissed based on the afore-cited reason, without compliance with the procedural due process for notice and hearing.

Herein petitioners, having been unjustly dismissed from work, are entitled to reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances, and to other benefits or their monetary equivalents computed from the time compensation was withheld up to the time of actual reinstatement.24 Their earnings elsewhere during the periods of their illegal dismissal shall not be deducted therefrom.25

WHEREFORE, premises considered, the instant Petition is GRANTED. The Decision dated 10 November 2006 and Resolution dated 27 April 2007 of the Court of Appeals in CA-G.R. SP No. 93291 are REVERSED and SET ASIDE. The Decision dated 29 June 2005 of the National Labor Relations Commission in NLRC-NCR CA No. 039768-04 is thereby REINSTATED. Let the records of this case be remanded to the Computation and Examination Unit of the NLRC for the proper computation of subject money claims as above-discussed. No costs.

SO ORDERED.

Ynares-Santiago, Chairperson, Austria-Martinez, Nachura, Reyes, JJ., concur.

G.R. No. 168537 December 11, 2008

DO 18-02 Cases 39

DAMIAN AKLAN, JUANITO AMIDO, REYNALDO BATICA, RAMIL BAUTISTA, WELARD BAUTISTA, MAMERTO BRIGOLI, ELMER CABOTEJA, JOEL CAMMAYO, WELFREDO CARIO, RODOLFO CINCO, ARWEN DABLO, RUBEN DE CASTRO, ROMEO DEL ROSARIO, RODERICK DELA CRUZ, ALEX DELA VEGA, JOAN ERICO DUMALAGAN, JULITO DURIAN, JOSELITO DUYANEN, REX FARNACIO, ROLANDO FELIZARDO, EFREN FERNANDEZ, BERNARDO GALLOGO, EDUARDO GARCIA, REX IGNACIO, DANIEL JAMISOLA, NOEL JANER, RAQUEL JANER, ROWAN JANER, CONSORCIO LIÑAN, BERNARD MACARAEG, DARIO MACARAEG, JESUS MACARAEG, EDGARDO MAHAGUAY, IRENEO ODIAMAR, ALEXIS OLIVAR, ARNEL OLIVAR, EDUARDO PEREMNE, ALAN QUILES, JOSEPH QUILES, RHONNEL RODIL, RONALDO SALVADOR, RAMIL SANTIAGO, FRANCIS SUPRINO, REXES SUPRINO, RODRIGO SUPRINO, RONALD SUPRINO, EDUARDO TIONGSON, petitioners, vs.SAN MIGUEL CORPORATION, BMA PHILASIA, INC., and ARLENE EUSEBIO, respondents.

REYES, R.T., J.:

WE tackle in this labor case the dichotomy between impermissible labor-only contracting and legitimate job contracting.

This is a review on certiorari of the Decision1 of the Court of Appeals (CA) upholding that of the National Labor Relations Commission (NLRC), finding the dismissal of petitioners justified.

The Facts

Respondent BMA Philasia, Inc. (BMA) is a domestic corporation engaged in the business of transporting and hauling of cargoes, goods, and commodities of all kinds. Respondent Arlene Eusebio is the president of BMA.

Petitioners, numbering forty-seven (47) in all, are the former employees of respondent BMA at respondent San Miguel Corporation’s (SMC) warehouse in Pasig City. They were hired under fixed-term contracts beginning October 1999.

On July 31, 2001, a number of petitioners went to the Department of Labor and Employment (DOLE) District Office to file a complaint against BMA and Eusebio for underpayment of wages and non-payment of premium pay for rest day, 13th month pay, and service incentive leave pay.2

On August 14, 2001, petitioner Elmer Caboteja was charged with insubordination and disrespect to superior, failure to properly perform his job assignment, and unauthorized change of schedule. He was directed to submit his written explanation within forty-eight (48) hours. On August 17, 2001, Caboteja was terminated for the offenses of disregard of company rules and regulations and rude attitude to supervisors. On August 27, 2001, he filed a complaint for illegal dismissal against BMA.3

On various dates thereafter, BMA agreed to a settlement with some of the complainants in the case4 for underpayment of wages.5 Eleven of the present petitioners executed quitclaims and releases in favor of BMA and Eusebio in the presence of DOLE district officers. BMA refused to settle the claim of other complainants.

On September 13, 2001, petitioners Joan Erico Dumalagan and Ronaldo Salvador were also terminated for failure to perform their job responsibilities. On September 17, 2001, Dumalagan and Salvador filed complaints for illegal dismissal against BMA.6

On October 18, 2001, petitioners held a picket at the warehouse premises to protest BMA’s refusal to pay the claim for underpayment of the rest of the workers. This picket disrupted the business operations of private respondents, prompting BMA to terminate their services. Subsequently, petitioners filed separate complaints against BMA, Eusebio, and SMC for illegal dismissal.7 All the complaints for illegal dismissal were consolidated.

Petitioners alleged that they were illegally dismissed after filing a complaint for underpayment of wages and non-payment of benefits before the DOLE; they were terminated after staging a peaceful picket to protest the non-payment of their claims. According to them, BMA is a labor-only contractor. SMC was not only the owner of the warehouse and equipment used by BMA, it was their true employer. The manner and means by which they performed their work were controlled by SMC through its Sales Logistic Coordinator who was overseeing their performance everyday.

Private respondents BMA and Eusebio countered that petitioners Caboteja, Dumalagan, and Salvador were validly and justly dismissed. They were among the eleven who already signed quitclaims and releases before the DOLE district office after receiving an amount in settlement of their claims. As for the rest of petitioners (36 complainants), there was no illegal dismissal to speak of. Said employees simultaneously did not go back to work for no apparent reason on October 18, 2001.

Private respondent SMC maintained that it had no employer-employee relationship with petitioners who were hired and supervised exclusively by BMA pursuant to a warehousing and delivery agreement in consideration of a fixed monthly fee. SMC argued that BMA is a legitimate and independent contractor, duly registered with the Securities and Exchange Commission (SEC) as a separate and distinct corporation with substantial capitalization, investment, equipment, and tools. It submitted documentary evidence proving that BMA engaged the services of petitioners, paid for their wages and benefits, and exercised exclusive control and supervision over them.

SMC showed that under their contract, BMA provided delivery trucks, drivers, and helpers in the storage and distribution of SMC products. On a day-to-day basis, after the routes were made by SMC salesmen, they would book the orders they obtained. In turn, BMA’s Schedular Planner, detailed at the Pasig Warehouse, downloaded these booked orders from the computer and processed the necessary documents to be forwarded to the Warehouse Checker, also an employee of BMA. SMC contended that petitioners were dismissed by BMA for staging a two-hour strike without complying with the mandatory requirements for a valid strike. As a result, BMA had to come up with ways and means in order to avoid the disruption of delivery operations.

Labor Arbiter and NLRC Dispositions

After due hearings, Labor Arbiter Veneranda C. Guerrero found respondent BMA liable for illegal dismissal and ordered the reinstatement of petitioners. She ruled that the evidence presented duly established that BMA was a legitimate independent contractor and the actual employer of petitioners. Its failure, however, to comply with the registration and reportorial requirements of the DOLE rendered SMC, its principal, directly liable to the claims of petitioners.8 Thus, BMA and SMC were found jointly and severally liable for the payment of petitioners’ backwages and money claims. The dispositive part of the Arbiter ruling runs in this wise:

WHEREFORE, all the foregoing considered, judgment is hereby rendered finding respondent BMA Philasia, Inc., liable for illegal dismissal. Accordingly, is it hereby ordered to reinstate all of the complainants to their previous positions, and to pay jointly and severally with respondent San Miguel the complainants’ backwages reckoned from the time of their illegal dismissal up to their actual/payroll reinstatement, the aggregate amount of which as of this date amounts to SEVEN MILLION FIVE HUNDRED EIGHTEEN THOUSAND TWO HUNDRED FIFTY-TWO AND 89/100 PESOS (P7,518,252.89). In addition respondents are solidarily held liable to pay the complainants’ Daniel Jamisola, Rodolfo Cinco, Eduardo Garcia, Dario Macaraeg, Romeo Del Rosario, Alan Quiles, Joseph Quiles, Ronald Suprino, Rolando Felizardo, Efren Fernandez, Damian Aklan, Welard Bautista, Rodrigo Suprino, Noel Janer, Jesus Macaraeg, Reynaldo Batica, Rhonnel Rodil, Eduardo Peremne, Mamerto Brigoli, Ireneo Odiamar, Rex Ignacio, Edgardo Mahaguay, Reyes Suprino, Rodrigo Dela Cruz, Ramil Bautista, Francis Suprino, Eduardo Tiongson, Joel Cammayo, Arwen Dablo, Alex Dela Vega, Bernard Gallogo, Rex Farnacio, Ruben De Castro, Rowan Janer, Raquel Janer, and Bernardo Macaraeg their salary differentials, service incentive leave pay and 13th month pay in the aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX and 80/100 PESOS (P1,256,366.80).

Respondents are further assessed the amount equivalent to ten percent (10%) of the total award, as and for attorney’s fees.

The computation of the complainants’ individually adjudged benefits shall form part of this Decision as Annex "A" hereof.

All other claims are DISMISSED for lack of merit.

SO ORDERED.9 (Emphasis supplied)

Respondents appealed the decision of the Labor Arbiter to the NLRC. On December 19, 2003, the NLRC reversed the Labor Arbiter disposition and ruled that there was no illegal dismissal. The fallo of the NLRC decision reads:

WHEREFORE, in view of all the foregoing, the appealed decision of the Labor Arbiter is hereby REVERSED and SET ASIDE and a new decision is hereby rendered finding that there was no illegal dismissal committed by respondents, hence, no liability for backwages. However, complainants are awarded their salary differentials, service incentive leave pay and 13th month pay except for the year 2000 in the aggregate amount of ONE MILLION TWO HUNDRED FIFTY-SIX THOUSAND THREE HUNDRED SIXTY-SIX AND 80/100 (P1,256,366.80) and 10% ATTORNEY’s FEES based on the salary differentials, SILP and 13th month pay.

SO ORDERED.10

DO 18-02 Cases 40

The NLRC found that petitioners Caboteja, Dumalagan, and Salvador were separated from their jobs for just and valid causes. They were given the opportunity to explain their sides. As for the quitclaims previously executed by the other petitioners, the NLRC ruled that these were sufficient basis to release respondent BMA from liability.

With respect to the first and second assigned errors, the records show that complainants Elmer Caboteja, Erico "Jojo" Dumalagan and Ronaldo Salvador were separated from their jobs for just and valid causes and after they were given the chance to explain their sides. Copies of memoranda were served upon them advising their violation of company rules and regulations and rude attitude and disrespect to superiors and disrespect to superiors in the case of Caboteja and failure to perform duties and responsibilities in the case of Dumalagan and Salvador. They were asked to explain and finding their explanations unacceptable, respondents dismissed them. Hence, they are not entitled to separation pay.

As regards the other complainants, there is no showing that they were illegally dismissed from their jobs by BMA. They have not given details on to whom they reported for work, who barred them from entering the respondents’ premises and from working, in so many words how they were told that they were already dismissed. The only evident fact is that they just stopped reporting for work beginning October 18, 2001 without informing BMA why there were doing so. Their claim that they were not allowed by the respondents to return to their work is hard to believe. Why should the respondents terminate simultaneously the services of the complainants and completely paralyze respondents’ business operation, particularly their service contract with SMC? Complainants have not shown any reason which would compel the respondents to resort to mass dismissal. On the other hand, complainants have strong reason to paralyze respondents’ operation in order to force compliance to their demands.

x x x x

In fact, the records of this case also disclose that during the mandatory conciliation proceedings, BMA urged these complainants to go back to work, but may refused to do so. Obviously, their refusal to go back to their work was a deliberate move to force respondents to give in to their demands. Considering this refusal, it is not hard to believe that complainants were not dismissed but rather they refused to work in order to paralyze respondents’ operations and force them to give in to complainants’ demands.11 (Emphasis supplied)

CA Disposition

Aggrieved, petitioners filed a Rule 65 petition with the CA. The following grounds were interposed: (1) that the NLRC gravely abused its discretion in holding that Caboteja, Dumalagan, and Salvador were validly dismissed; (2) that the other petitioners were not dismissed but were guilty of abandonment; and (3) that the quitclaims executed by eleven of the petitioners barred the complaint for illegal dismissal.12

On April, 15, 2005, the CA denied the petition, affirming in full the NLRC disposition, thus:

WHEREFORE, premises considered, the present petition is hereby DENIED DUE COURSE and accordingly DISMISSED, for lack of merit. The assailed Decision dated December 19, 2003 and Resolution dated July 20, 2004 of the National Labor Relations Commission in the consolidated cases, NLRC Case No. CN 08-04522-01-CA No. 036856-03 (NLRC NCR North Sector Case Nos. 08-04522-2001, 09-04941-2001, 00-11-05023-2001, 00-11-05969-2001, 11-01-00450-2002, 02-00934-2002, 12-06288-2001, and 12-06320-2001), are hereby AFFIRMED and UPHELD.

No pronouncement as to costs.

SO ORDERED.13

In ruling against petitioners, the CA found that the NLRC committed no reversible error or grave abuse of discretion in ruling that petitioners were not illegally dismissed but actually refused to report back to work after staging a surprise stoppage that paralyzed respondent BMA’s business operations at the Pasig warehouse on October 18, 2001.

Issues

Undaunted, petitioners resorted to this review on certiorari, anchored on the following grounds:

The CA committed a serious legal error in not ruling that respondent San Miguel Corporation (principal of respondent BMA Philasia), and respondent Arlene Eusebio, (president and owner of respondent BMA Philasia) are all solidarily liable for petitioners’ money claims.

The CA committed a serious legal error in ruling that the quitclaims executed by eleven (11) of the petitioners, in relation to their claims for underpayment of wages before the DOLE, also barred their subsequent complaint for illegal dismissal, despite the fact that the said complaint was not yet in existence at the time the quitclaims were executed.

The CA committed a serious legal error in refusing to hold that respondent San Miguel Corporation was petitioners’ real employer despite the fact that respondent BMA Philasia was not duly registered with the DOLE and caused the workers to perform tasks directly related to the business of respondent San Miguel Corporation and under the latter’s supervision.

The CA committed a legal error and acted with grave abuse of discretion in holding that petitioners Elmer Caboteja, Joan Erico Dumalagan, and Ronaldo Salvador were not illegally dismissed from their jobs, despite a previous ruling of the Labor Arbiter to the contrary.

The CA committed a serious legal error in not awarding damages, at the very least, to petitioners Joan Erico Dumalagan, and Ronaldo Salvador for violation of their right to due process.

The CA seriously committed an error of law in holding that the rest of the petitioners abandoned their jobs and were not dismissed therefrom, contrary to the findings of the Labor Arbiter who heard the case.14 (Underscoring supplied)

Our Ruling

Petitioners argue mainly that their employer is, in fact, respondent SMC, not respondent BMA. They contend that BMA is a labor-only contractor and SMC, as their true employer, should be held directly liable for their money claims.

A finding that a contractor is a "labor-only" contractor, as opposed to permissible job contracting, is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real employer.15

Both the Labor Arbiter and the NLRC found that the employment contracts of petitioners duly prove that an employer-employee relationship existed between petitioners and BMA. We hasten to add that the existence of an employer-employee relationship is ultimately a question of fact and the findings by the Labor Arbiter and the NLRC on that score shall be accorded not only respect but even finality when supported by ample evidence.16

In its ruling, the NLRC considered the following elements to determine the existence of an employer-employee relationship: (1) the selection and engagement of the workers; (2) power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control the worker’s conduct.17 All four elements were found by the NLRC to be vested in BMA. This NLRC finding was affirmed by the CA:

x x x It is the BMA which actually conducts the hauling, storage, handling, transporting, and delivery operations of SMC’s products pursuant to their warehousing and Delivery Agreement. BMA itself hires and supervises its own workers to carry out the aforesaid business activities. Apart from the fact that it was BMA which paid for the wages and benefits, as well as SSS contributions of petitioners, it was also the management of BMA which directly supervised and imposed disciplinary actions on the basis of established rules and regulations of the company. The documentary evidence consisting of numerous memos throughout the period of petitioners’ employment leaves no doubt in the mind of this Court that petitioners are only too aware of who is their true employer. Petitioners received daily instructions on their tasks form BMA management, particularly, private respondent Arlene C. Eusebio, and whenever they committed lapses or offenses in connection with their work, it was to said officer that they submitted compliance such as written explanations, and brought matters connected with their specific responsibilities.18

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The employer-employee relationship between BMA and petitioners is not tarnished by the absence of registration with DOLE as an independent job contractor on the part of BMA. The absence of registration only gives rise to the presumption that the contractor is engaged in labor-only contracting, a presumption that respondent BMA ably refuted.

Thus, We find no grave abuse of discretion in the CA observation that respondent BMA is the true employer of petitioners who should be held directly liable for their claims. Likewise, no grave abuse of discretion can be ascribed to the CA when it ruled that illegal dismissal was absent.

The records fully disclose that petitioners Caboteja, Dumalagan, and Salvador were separated from their jobs for just and valid causes. Caboteja was cited for violation of company rules and regulations and disrespectful conduct. Dumalagan and Salvador were investigated for failure to perform duties and responsibilities. After their explanations were found unacceptable, they were accordingly dismissed.

As for the other petitioners, they contend that they were illegally dismissed when respondent BMA barred them from entering the work premises and from performing their work. Both the NLRC and the CA found that petitioners failed to substantiate this contention. Rather, what was shown in the records was that they simply stopped reporting for work starting October 18, 2001 when they staged a picket. The CA observation along this line is worth restating:

x x x petitioners failed to substantiate their claim that they had been prevented from entering the work premises after staging a "picket" on October 18, 2001 to further press their demands for payment of their money claims. At this time, the labor standards case was already pending with the DOLE District Office and petitioners could have availed of said proceedings with the intervention of DOLE officials. Instead, however, they resorted to an illegal stoppage of work that paralyzed the business operations of BMA. As aptly noted by the NLRC, there is simply no probable or logical reason for private respondent BMA to simultaneously dismiss its workers that will disrupt business operations at the warehouse. Under the factual circumstances, it clearly appears that petitioners refused to report back to their work in order to force their employer BMA to give in to their immediate demand for the salary differentials and unpaid benefits subject of their complaint with the DOLE. Hence, BMA cannot be held liable for illegal dismissal.

While it is true that the defense of abandonment may not be given credence or is negated by the immediate filing of illegal dismissal cases by the affected employees, records clearly reveal that as of October 18, 2001, petitioners without justifiable cause failed and refused to report back to their work. Their claim of having been prevented from entering the work premises was not given due weight for no particulars was even alleged by them in their report back to their jobs, who prevented their entry to the company premises and details as to what steps they took to bring the matter to the attention of DOLE District Office wherein their complaint for labor standards violation was already pending.19 (Emphasis supplied)

Moreover, eleven of petitioners contend that their quitclaims should not be considered as a bar to their complaint for illegal dismissal because that complaint was not yet in existence at the time the quitclaims were executed. That the quitclaims were executed voluntarily is not denied by petitioners. They, however, contend that the quitclaims should be construed as limited to the money claims in connection with the first labor standards complaint20 they had filed before the DOLE district office.

Unless there is a showing that the employee signed involuntarily or under duress, quitclaims and releases are upheld by this Court as the law between the parties.21 If the agreement was voluntarily entered into by the employee, with full understanding of what he was doing, and represents a reasonable settlement of the claims of the employee, it is binding on the parties and may not be later disowned simply because of a change of mind.22 In the case under review, the quitclaims and releases signed by petitioners stated:

That for and in consideration of the sum of FIFTY-THREE THOUSAND PESOS (P53,000.00)23 in settlement of my/our claim/s as financial assistance and/or gratuitously given by my/our employer receipt of which is hereby acknowledge to my/our complete and full satisfaction, I/we hereby release and discharge the above respondent and/or its officers from any and all claims by way of wages, overtime pay, differential pay, or otherwise as may be due me/us incident to my/our past employment with said establishment. I/we hereby state further that I/we have no more claim, right or action of whatsoever nature whether past, present or contingent against the said respondent and/or its officers.24 (Emphasis supplied)

As correctly observed by the NLRC, the language employed by the above quitclaims and releases indicates in no uncertain terms that petitioners voluntarily and freely

acknowledged receipt of full satisfaction of all claims against respondents. Thus, the quitclaims effectively barred petitioners from questioning their dismissal.

Social justice must be founded on the recognition of the necessity of interdependence among diverse units of a society and of the protection that should be equally and evenly extended to all groups as a combined force in our social and economic life.25 While labor should be protected at all times, this protection must not be at the expense of capital.

WHEREFORE, the petition is DENIED and the assailed Decision of the Court of Appeals AFFIRMED.

SO ORDERED.

G.R. No. 159668 March 7, 2008

MANDAUE GALLEON TRADE, INC. and/or GAMALLOSONS TRADERS, INC., petitioners, vs.VICENTE ANDALES, RESTITUTA SOLITANA,* ELPIDIO SUELTO, ET AL.**, respondents1.

.AUSTRIA-MARTINEZ, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision2 dated May 21, 2003 and the Amended Decision3 dated August 19, 2003 of the Court of Appeals (CA) in CA-G.R. SP No. 70214.

The facts:

Petitioners Mandaue Galleon Trade, Inc. (MGTI) and Gamallosons Traders, Inc.4 (GTI) are business entities engaged in rattan furniture manufacturing for export, with principal place of business at Cabangcalan, Mandaue City.

Respondent Vicente Andales5 (Andales) filed a complaint with the Labor Arbiter (LA) against both petitioners for illegal dismissal and non-payment of 13th month pay and service incentive leave pay. His other co-workers numbering 260 filed a similar complaint against petitioner MGTI only.

The complainants alleged that MGTI hired them on various dates as weavers, grinders, sanders and finishers; sometime in August 1998, workers in the Finishing Department were told that they would be transferred to a contractor and they were given Visitor Identification Cards (IDs), while workers in the Weaving Department were told to look for work elsewhere as the company had no work for them; sometime in September 1998, workers in the Grinding Department were not allowed to enter the company premises, while workers in the Sanding Department were told that they could no longer work since there was no work available; workers who were issued IDs were allowed to go inside the premises; and they were dismissed without notice and just cause.

They further alleged that they are regular employees of MGTI because: (a) they performed their work inside the company premises in Cabangcalan, Mandaue City; (b) they were issued uniforms by MGTI and were told to strictly follow company rules and regulations; (c) they were under the supervision of MGTI's foremen, quality control personnel and checkers; (d) MGTI supplied the materials, designs, tools and equipment in the production of furniture; (e) MGTI conducts orientations on how the work was to be done and the safe and efficient use of tools and equipment; (f) MGTI issues memoranda regarding absences and waste of materials; and (g) MGTI exercises the power to discipline them.

On the other hand, MGTI denied the existence of employer-employee relationship with complainants, claiming that they are workers of independent contractors whose services were engaged temporarily and seasonally when the demands for its products are high and could not be met by its regular workforce; the independent contractors recruited and hired the complainants, prepared the payroll and paid their wages, supervised and directed their work, and had authority to dismiss them. It averred that due to the economic crisis and internal squabble in the company, the volume of orders from foreign buyers dived; as a survival measure, management decided to retrench its employees; and the substantial separation pay paid to retrenched employees caught the jealous eyes of complainants who caused the filing of the complaint for illegal dismissal.

On August 23, 1999, the LA rendered a Decision6 holding that 1837 complainants are regular piece-rate employees of MGTI since they were made to perform functions which are necessary to MGTI's rattan furniture manufacturing business; the independent contractors were not properly identified; the absence of proof that the independent contractors have work premises of their own, substantial capital or investment in the form of tools, equipment and machineries make them only labor contractors; and there was no dismissal but only a claim for separation pay. The LA ordered petitioners to take

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back complainants and directed it to pay their 13th month pay in the total sum of P545,386.43.

Both parties appealed. On April 30, 2001, the National Labor Relations Commission (NLRC) rendered a Decision8 affirming the LA's finding of employer-employee relationship. It held that labor-only contracting and not job-contracting was present since the alleged contractors did not have substantial capital in the form of equipment, machineries and work premises. The NLRC, however, did not agree with the LA's finding that there was no dismissal. It held that complainants were constructively dismissed when they were unilaterally transferred to a contractor to evade payment of separation pay as a result of the retrenchment. Thus, it directed MGTI to pay complainants separation pay of one month for every year of service based on the prevailing minimum wage at the time of their dismissal, in addition to payment of 13th month pay.

Both parties filed separate motions for reconsideration9 but the NLRC denied them in a Resolution10 dated February 12, 2002.

On April 19, 2002, petitioners filed a Petition for Certiorari11 with the CA. On May 21, 2003 the CA rendered a Decision12 dismissing the petition and affirming the findings of the NLRC. It held that MGTI is liable to the respondents because the alleged contractors are not independent contractors but labor-only contractors; that respondents were constructively dismissed when they were unilaterally transferred to another contractor; and that the allegation of retrenchment was not proven.

On June 12, 2003, petitioners filed a Motion for Reconsideration.13

On August 19, 2003, the CA rendered an Amended Decision14 partially granting the motion, in this wise:

After taking a second look at the petition and in consonance with Article 283 of the Labor Code, We are computing the separation pay of the 183 private respondents at one-half month salary per year of service up to the promulgation of this Amended Decision.

WHEREFORE, petitioners' motion for reconsideration is PARTIALLY GRANTED. This Court's decision dated May 21, 2003 is hereby amended. Petitioners are ordered to pay the 183 respondents their separation pay computed at one-half month salary per year of service up to the promulgation of this Amended Decision.

SO ORDERED.15

On September 16, 2003, petitioners filed with this Court a Motion for Extension of Time to file a petition for review, which was granted by the Court,16 and petitioners filed herein petition on October 23, 2003.

Meanwhile, on September 24, 2003, respondents filed a Motion for Reconsideration with the CA assailing the reduction of the separation pay in the Amended Decision.17 On December 9, 2003, the CA issued a Resolution18 merely noting the Motion for Reconsideration filed by respondents on the ground that the case had already been referred to this Court by way of the present petition.

Respondents then filed with this Court a Petition for Certiorari with Motion to Consolidate the Petition with the present petition, assailing the August 19, 2003 Amended Decision and December 9, 2003 CA Resolution. Respondents' petition, docketed as G.R. No. 162227, was dismissed in a Resolution19 dated April 14, 2004 for failure to attach a clearly legible duplicate original or certified true copy of the Amended Decision. On August 26, 2004, entry of judgment was made.20

In the present petition, petitioners raise the sole issue:

IWHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE ERROR IN CONSIDERING THE RESPONDENTS AS EMPLOYEES OF THE PETITIONERS ABSENT THE REQUISITES/ ELEMENTS IN THE JURISPRUDENCE AS DETERMINATIVE FACTOR IN THE EXISTENCE OF EMPLOYER-EMPLOYEE RELATIONSHIP.21

Petitioners submit that respondents are employees of independent contractors who have their own manpower, tools, equipment and capital; they did not have a hand in respondents' recruitment and hiring, payment of wages, control and supervision, and dismissal; and respondents did not have time cards or uniforms, nor were they subjected to petitioner's company policies.

On the other hand, respondents, in their Comment and Memorandum, assail the CA's Amended Decision which reduced the separation pay from one month to one-half month, claiming there was no justification to support such order. Moreover, they contend that they were denied their day in court when the CA did not resolve their Motion for Reconsideration of the Amended Decision. They aver that since they were illegally dismissed, they are entitled to backwages and not only separation pay.

The petition is bereft of merit.

Factual findings of quasi-judicial bodies like the NLRC, when adopted and confirmed by the CA and if supported by substantial evidence, are accorded respect and even finality by this Court.22 The existence of an employer-employee relationship is a factual matter that will not be delved into by this Court, since only questions of law may be raised in petitions for review.23 The Court has recognized several exceptions to this rule, such as: (1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings, the CA went beyond the issues of the case, or its findings are contrary to the admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the CA manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.24 None of these exceptions, however, has been convincingly shown by petitioners to apply in the present case.

Article 106 of the Labor Code explains the relations which may arise between an employer, a contractor and the contractor's employees thus:

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 persons are performing activities which 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.

The first two paragraphs of Article 106 set the general rule that a principal is permitted by law to engage the services of a contractor for the performance of a particular job, but the principal, nevertheless, becomes solidarily liable with the contractor for the wages of the contractor's employees. The third paragraph of Article 106, however, empowers the Secretary of Labor to make distinctions between permissible job contracting and "labor-only" contracting, which is a prohibited act further defined under the last paragraph. A finding that a contractor is a "labor-only" contractor is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the supposed contractor, and the "labor-only" contractor is considered as a mere agent of the principal, the real employer.25

Sections 5 and 7 of the Rules Implementing Articles 106 to 109 of the Labor Code, as amended26 (Implementing Rules), reinforce the rules in determining the existence of employer-employee relationship between employer, contractor or subcontractor, and the contractor's or subcontractor's employee, to wit:

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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 [is] present:

i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or

ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee.

The forgoing 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.

Section 7. Existence of an employer-employee relationship. – The contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following cases, as declared by a competent authority:

a. where there is a labor-only contracting; or

b. where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof.

Thus, based on Article 106 of the Labor Code and Sections 5 and 7 of the Implementing Rules, "labor-only" contracting exists when the following criteria are present: (1) where the contractor or subcontractor supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among other things; and the workers recruited and placed by the contractor or subcontractor are performing activities which are directly related to the principal business of such employer; or (2) where the contractor does not exercise the right to control the performance of the work of the contractual employee.

In the present case, petitioners' claim that their contractors are independent contractors, and, therefore, this case is one of permissible job contracting, is without basis.

First, respondents' work as weavers, grinders, sanders and finishers is directly related to MGTI's principal business of rattan furniture manufacturing. Where the employees are tasked to undertake activities usually desirable or necessary in the usual business of the employer, the contractor is considered as a "labor-only" contractor and such employees are considered as regular employees of the employer.27

Second, MGTI was unable to present any proof that its contractors had substantial capital. There was no evidence pertaining to the contractors' capitalization; nor to their investment in tools, equipment or implements actually used in the performance or completion of the job, work, or service that they were contracted to render. The law casts the burden on the contractor to prove that it has substantial capital, investment, tools, etc. Employees, on the other hand, need not prove that the contractor does not have substantial capital, investment, and tools to engage in job-contracting.28

Thus, the contractors are "labor-only" contractors since they do not have substantial capital or investment which relates to the service performed and respondents

performed activities which were directly related to MGTI's main business. MGTI, the principal employer, is solidarily liable with the labor-only contractors, for the rightful claims of the employees. Under this set-up, "labor-only" contractors are deemed agents of the principal, MGTI, and 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. In prohibiting "labor-only" contracting and creating an employer-employee relationship between the principal and the supposed contractor's employees, the law intends to prevent employers from circumventing labor laws intended to protect employees.

Hence, the Court sees no reason to disturb the findings of fact of the NLRC and the CA.

Respondents' contention that the CA erred in lowering the award of separation pay from one month to one-half month for every year of service cannot prosper in the present petition. Whether right or wrong, the decision of the CA on that matter had long become final and executory with the dismissal of respondents' Petition for Certiorari, docketed as G.R. No. 162227, assailing the reduction of the award of separation pay. Entry of judgment was made therein on August 26, 2004; hence, the reduction of the separation pay is now immutable, beyond the jurisdiction of this Court to amend, modify or reverse.29

Nothing is more settled in the law than that a decision that has acquired finality becomes immutable and unalterable and may no longer be modified in any respect even if the modification is meant to correct erroneous conclusions of fact or law and whether it will be made by the Court that rendered it or by the highest Court of the land.30 The doctrine is founded on considerations of public policy and sound practice that, at the risk of occasional errors, judgments must become final at some definite point in time.31

The only recognized exceptions to the general rule are the correction of clerical errors, the so-called nunc pro tunc entries which cause no prejudice to any party, void judgments, and whenever circumstances transpire after the finality of the decision rendering its execution unjust and inequitable.32 None of the exceptions are present in the instant case.

The CA Amended Decision cannot be considered by the Court as a void judgment, as it was rendered by a tribunal with jurisdiction over the subject matter of the petition.33 Neither can respondents complain that they were denied due process of law since they had the opportunity to be heard when they assailed the reduction of separation pay in their Petition for Certiorari, G.R. No. 162227, but bungled the same when they failed to comply with the basic procedural requirements in filing the petition. Respondents cannot be allowed to resurrect a cause lost thru negligence in properly pursuing their case.

WHEREFORE, the present petition is DENIED for lack of merit.

SO ORDERED.

Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, Reyes, JJ., concur.

SECOND DIVISION [G.R. No. 149793. April 15, 2005]

WACK WACK GOLF & COUNTRY CLUB, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION, MARTINA G. CAGASAN, CARMENCITA F. DOMINGUEZ, and BUSINESS STAFFING AND MANAGEMENT, INC., respondents.

CALLEJO, SR., J.:

This is a petition for review of the Resolution[1] of the Court of Appeals (CA) in CA-G.R. SP No. 63658, dismissing the petition for certiorari before it for being insufficient in form and the subsequent resolution denying the motion for reconsideration thereof.

The undisputed antecedent facts are as follows:

On November 29, 1996, a fire destroyed a large portion of the main clubhouse of the Wack Wack Golf and Country Club (Wack Wack), including its kitchen. In view of the reconstruction of the whole clubhouse complex, Wack Wack filed a notice with the Department of Labor and Employment (DOLE) on April 14, 1997 that it was going to suspend the operations of the Food and Beverage (F & B) Department one (1) month thereafter. Notices to 54 employees (out of a complement of 85 employees in the department) were also sent out, informing them that they need not report for work anymore after April 14, 1997 but that they would still be paid their salaries up to May 14, 1997. They were further told that they would be informed once full operations in Wack Wack resume.

The Wack Wack Golf Employees Union branded the suspension of operations of the F & B Department as arbitrary, discriminatory and constitutive of union-busting, so they filed a notice of strike with the DOLE’s National Conciliation and Mediation Board

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(NCMB). Several meetings between the officers of Wack Wack and the Union, headed by its President, Crisanto Baluyot, Sr., and assisted by its counsel, Atty. Pedro T. De Quiroz, were held until the parties entered into an amicable settlement. An Agreement [2]

was forged whereby a special separation benefit/retirement package for interested Wack Wack employees, especially those in the F & B Department was offered. The terms and conditions thereof reads as follows:

1. The UNION and the affected employees of F & B who are members of the UNION hereby agree to accept the special separation benefit package agreed upon between the CLUB management on the one hand, and the UNION officers and the UNION lawyer on the other, in the amount equivalent to one-and-one-half months salary for every year of service, regardless of the number of years of service rendered. That, in addition, said employees shall also receive the other benefits due them, namely, the cash equivalent of unused vacation and sick leave credits, proportionate 13th month pay; and other benefits, if any, computed without premium;

2. That the affected F & B employees who have already signified intention to be separated from the service under the special separation benefit package shall receive their separation pay as soon as possible;

3. That the same package shall, likewise, be made available to other employees who are members of the bargaining unit and who may or may not be affected by future similar suspensions of operations. The UNION re-affirms and recognizes that it is the sole prerogative of the management of the Club to suspend part or all of its operations as may be necessitated by the exigencies of the situation and the general welfare of its membership. The closure of the West Course, which is scheduled for conversion to an All-Weather Championship golf course, is cited as an example. It is, however, agreed that if a sufficient number of employees, other than F & B employees, would apply for availment of the package within the next two months, the Club may no longer go through the process of formally notifying the Department of Labor. The processing and handling of benefits for these other employees shall be done over a transition period within one year;

4. All qualified employees who may have been separated from the service under the above package shall be considered under a priority basis for employment by concessionaires and/or contractors, and even by the Club upon full resumption of operations, upon the recommendation of the UNION. The Club may even persuade an employee-applicant for availment under the package to remain on his/her job, or be assigned to another position.[3]

Respondent Carmencita F. Dominguez, who was then working in the Administrative Department of Wack Wack, was the first to avail of the special separation package.[4] Computed at 1½ months for every year of service pursuant to the Agreement, her separation pay amounted to P91,116.84, while economic benefits amounted to P6,327.53.[5] On September 18, 1997, Dominguez signed a Release and Quitclaim[6] in favor of Wack Wack.

Respondent Martina B. Cagasan was Wack Wack’s Personnel Officer who, likewise, volunteered to avail of the separation package.[7] On September 30, 1997, she received from Wack Wack the amount of P469,495.66 as separation pay and other economic benefits amounting to P17,010.50.[8] A Release and Quitclaim[9] was signed on September 30, 1997.

The last one to avail of the separation package was Crisanto Baluyot, Sr. who, in a Letter[10] dated January 16, 1998 addressed to Mr. Bienvenido Juan, Administrative Manager of Wack Wack, signified his willingness to avail of the said early retirement package. The total amount of P688,290.30[11] was received and the Release and Quitclaim[12] signed on May 14, 1998.

On October 15, 1997, Wack Wack entered into a Management Contract[13] with Business Staffing and Management, Inc. (BSMI), a corporation engaged in the business as Management Service Consultant undertaking and managing for a fee projects which are specialized and technical in character like marketing, promotions, merchandising, financial management, operation management and the like.[14] BSMI was to provide management services for Wack Wack in the following operational areas:

1. Golf operations management;2. Management and maintenance of building facilities;3 .Management of food and beverage operation;4. Management of materials and procurement functions;

5. To provide and undertake administrative and support services for the [said] projects.[15]

Pursuant to the Agreement, the retired employees of Wack Wack by reason of their experience were given priority by BSMI in hiring. On October 21, 1997, respondents Cagasan and Dominguez filed their respective applications [16] for employment with BSMI. They were eventually hired by BSMI to their former positions in Wack Wack as project employees and were issued probationary contracts.[17]

Aside from BSMI, Wack Wack also engaged several contractors which were assigned in various operating functions of the club, to wit:

1. Skills and Talent Employment Promotion (STEP) whose 90 workers are designated as locker attendants, golf bag attendants, nurses, messengers, technical support engineer, golf director, agriculturist, utilities and gardeners;

2. Marvel Manpower Agency - whose 19 employees are designated as sweepers, locker attendants, drive range attendant, telephone operator, workers and secretaries;

3 City Service Corporation – contractor for janitorial services for the whole club;

4. Microstar Business and Management Services, Inc. whose 15 employees are designated in the Finance and Accounting departments.[18]

Due to these various management service contracts, BSMI undertook an organizational analysis and manpower evaluation to determine its efficacy, and to streamline its operations. In the course of its assessment, BSMI saw that the positions of Cagasan and Dominguez were redundant. In the case of respondent Cagasan, her tasks as personnel officer were likewise being taken cared of by the different management service contractors; on the other hand, Dominguez’s work as telephone operator was taken over by the personnel of the accounting department. Thus, in separate Letters[19] dated February 27, 1998, the services of Dominguez and Cagasan were terminated. With respect to Baluyot, he applied for the position of Chief Porter on May 12, 1998. The position, however, was among those recommended to be abolished by the BSMI, so he was offered the position of Caddie Master Aide with a starting salary of P5,500.00 a month. Baluyot declined the offer. Pending Wack Wack’s approval of the proposed abolition of the position of Chief Porter, Baluyot was temporarily accepted to the position with a monthly salary of P12,000.00. In July 1998, Baluyot decided not to accept the position of Caddie Master Aide; thus, BSMI continued with its plan to abolish the said position of Chief Porter and Baluyot was dismissed from the service.

Thereafter, the three (3) employees filed their respective complaints with the National Labor Relations Commission (NLRC) for illegal dismissal and damages against Wack Wack and BSMI.

The complainants averred that they were dismissed without cause. They accepted the separation package upon the assurance that they would be given their former work and assignments once the Food and Beverage Department of Wack Wack resumes its operations. On the other hand, the respondents therein alleged that the dismissal of the complainants were made pursuant to a study and evaluation of the different jobs and positions and found them to be redundant.

In a Decision[20] dated January 25, 2000, the Labor Arbiter found that the dismissal of Dominguez and Cagasan was for a valid and authorized cause, and dismissed their complaints.

The position of personnel manager occupied by Martina Cagasan was redundated as it is allegedly not necessary, because her functions will be taken over [by] the field superintendent and the company’s personnel and operations manager. The work of Carmencita Dominguez on the other hand as telephone operator will be taken over by the accounting department personnel. Such move really are intended to streamline operations. While admittedly, they are still necessary in the operations of Wack Wack, their jobs can be assigned to some other personnel, who will be performing dual functions and does save Wack Wack money. This is feasible on account of the fact that they are functions pertaining to administrative work.[21]

As to Baluyot, however, the Labor Arbiter found that while the position of chief porter had been abolished, the caddie master aide had been created. Their functions were one and the same. The porters, upon instructions from the chief porter, are the ones who bring down the golf bags of the players from the vehicle. The caddie master receives them and counts the number of clubs inside the golf set. After the game, the same procedure is repeated before the golf sets are loaded once more into the vehicle.[22] The Labor Arbiter found that the dismissal of Baluyot as Chief Porter was unjustified and can not be considered redundant in the case at bar. It was a means resorted to in order to unduly sever Baluyot’s relationship with BSMI without justifiable cause. The Labor Arbiter therefore found Baluyot’s dismissal to be illegal. The dispositive portion of the decision reads as follows:

CONFORMABLY WITH THE FOREGOING, judgment is hereby rendered dismissing the complaints of Carmencita F. Dominguez and Martina Cagasan for lack of merit. Finding Crisanto Baluyot’s dismissal to be illegal. Consequently, he should immediately be reinstated to his former position as Chief Porter or Caddie Master, and paid his backwages which, as of December 31, 1999, has accumulated in the sum of P180,000.00 by BSMI.

All other claims are dismissed for lack of merit.[23]

Since Baluyot no longer appealed the decision, complainants Dominguez and Cagasan filed a Partial Appeal on the ground of prima facie abuse of discretion on the part of the Labor Arbiter and serious errors in his findings of facts and law. Their claims were anchored on the Agreement between the Union and management, that they were promised to be rehired upon the full resumption of operations of Wack Wack. They asserted that Wack Wack and BSMI should not avoid responsibility to their employment, by conniving with each other to render useless and meaningless the Agreement.

BSMI also appealed to the NLRC, alleging that the Labor Arbiter committed grave abuse of discretion in finding Baluyot’s dismissal to be illegal, when in fact his position as

DO 18-02 Cases 45

Chief Porter was abolished pursuant to a bona fide reorganization of Wack Wack. It was not motivated by factors other than the promotion of the interest and welfare of the company.

On September 27, 2000, the NLRC rendered its Decision[24] ordering Wack Wack to reinstate Carmencita F. Dominguez and Martina Cagasan to their positions in respondent Wack Wack Golf & Country Club with full backwages and other benefits from the date of their dismissal until actually reinstated. It anchored its ruling on the Agreement dated June 16, 1997 reached between the Union and Wack Wack, particularly Section 4[25] thereof. The NLRC directed Wack Wack to reinstate the respondents and pay their backwages since “Business Staffing and Management, Inc. (BSMI) is a contractor who [merely] supplies workers to respondent Wack Wack. It has nothing to do with the grievance of the complainants with their employer, respondent Wack Wack.”

Wack Wack and BSMI filed a motion for reconsideration which was denied in the Resolution[26] dated December 15, 2000.

Wack Wack, now the petitioner, consequently filed a petition for certiorari with the Court of Appeals, docketed as CA-G.R. SP No. 63658 alleging the following:

A. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE PROCESS IN HOLDING THAT RESPONDENTS CAGASAN AND DOMINGUEZ HAVE REGAINED THEIR JOBS OR EMPLOYMENT PURSUANT TO THE AGREEMENT BETWEEN PETITIONER AND WACK WACK GOLF EMPLOYEES UNION.

B. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE PROCESS IN RULING THAT RESPONDENT BSMI IS NOT AN INDEPENDENT CONTRACTOR BUT A MERE SUPPLIER OF WORKERS TO THE PETITIONER.

C. RESPONDENT NLRC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION AND DENIAL OF DUE PROCESS IN HOLDING PETITIONER LIABLE FOR THE REINSTATEMENT OF RESPONDENTS CAGASAN AND DOMINGUEZ AND FOR THE PAYMENT OF THEIR SUPPOSED BACKWAGES DESPITE THE ABSENCE OF EMPLOYER-EMPLOYEE RELATION BETWEEN THEM.[27]

Likewise, BSMI also assailed the resolutions of the NLRC and filed its own petition for certiorari with the CA, docketed as CA-G.R. SP No. 63553. [28] A perusal of the petition which is attached to the records reveal that BSMI ascribes grave abuse of discretion on the part of the NLRC in ruling that: (a) the private respondents have regained their employment pursuant to the Agreement between Wack Wack and the Wack Wack Golf Employees Union; (b) the dismissal of private respondents was made pursuant to the petitioner’s exercise of its management prerogatives; and (c) the petitioner (BSMI) is liable for the reinstatement of private respondents and the payment of their backwages.[29]

On April 3, 2001, the CA (Twelfth Division) dismissed the petition on the ground that the petitioner therein failed to attach an Affidavit of Service as required in Section 11, Rule 13 of the 1997 Rules of Civil Procedure. Moreover, the verification and certification against forum shopping was insufficient for having been executed by the general manager who claimed to be the duly-authorized representative of the petitioner, but did not show any proof of authority, i.e., a board resolution, to the effect.

A motion for reconsideration was, consequently, filed appending thereto the requisite documents of proof of authority. It asserted that in the interest of substantial justice, the CA should decide the case on its merits.

BSMI filed a Comment[30] to the Motion for Reconsideration of the petitioner, also urging the CA to set aside technicalities and to consider the legal issues involved: (a) whether or not there is a guaranty of employment in favor of the complainants under the Agreement between the petitioner and the Union; (b) whether or not the termination of the employment of the complainants, based on redundancy, is legal and valid; and (c) who are the parties liable for the reinstatement of the complainants and the payment of backwages. It further added that it shares the view of the petitioner, that the assailed resolutions of the NLRC are tainted with legal infirmities. For this reason, it was also constrained to file its own petition for certiorari with the CA, docketed as CA-G.R. SP No. 63553 pending with the Special Fourth Division, just to stress that there is no guaranty of perpetual employment in favor of the complainants.

On August 31, 2001, the CA denied petitioner’s motion for reconsideration.

The petitioner is now before the Court, assailing the twin resolutions of the CA. It points out that BSMI has filed its petition for certiorari before the CA one day late and yet, the Special Fourth Division admitted the petition in the interest of substantial justice, and directed the respondents to file a comment thereon; [31] whereas, in the instant case, the mere lack of proof of authority of Wack Wack’s General Manager to sign the certificate of non-forum shopping was considered fatal by the CA’s Twelfth Division. It further asserts that its petition for certiorari is meritorious, considering that the NLRC committed grave abuse of discretion in ordering Wack Wack to reinstate the respondents Cagasan and Dominguez, and to pay their backwages when indubitable evidence shows that the said respondents were no longer employees of Wack Wack when they filed their complaints with the Labor Arbiter.

There is merit in the petition.

In Novelty Philippines, Inc. v. Court of Appeals,[32] the Court recognized the authority of the general manager to sue on behalf of the corporation and to sign the requisite verification and certification of non-forum shopping. The general manager is also one person who is in the best position to know the state of affairs of the corporation. It was also error for the CA not to admit the requisite proof of authority when in the Novelty case, the Court ruled that the subsequent submission of the requisite documents constituted substantial compliance with procedural rules. There is ample jurisprudence holding that the subsequent and substantial compliance of an appellant may call for the relaxation of the rules of procedure in the interest of justice.[33] While it is true that rules of procedure are intended to promote rather than frustrate the ends of justice, and while the swift unclogging of court dockets is a laudable objective, it nevertheless must not be met at the expense of substantial justice. [34] It was, therefore, reversible error for the CA to have dismissed the petition for certiorari before it. The ordinary recourse for us to take is to remand the case to the CA for proper disposition on the merits; however, considering that the records are now before us, we deem it necessary to resolve the instant case in order to ensure harmony in the rulings and expediency.

Indeed, the merits of the case constitute special or compelling reasons for us to overlook the technical rules in this case. With the dismissal of its petition for certiorari before the CA, the petitioner by virtue of the NLRC decision is compelled to reinstate respondents Cagasan and Dominguez and pay their full backwages from the time of their dismissal until actual reinstatement when the attendant circumstances, however, show that the respondents had no cause of action against the petitioner for illegal dismissal and damages.

It must be recalled that said respondents availed of the special separation package offered by the petitioner. This special separation package was thought of and agreed by the two parties (Wack Wack and the Union) after a series of discussions and negotiations to avert any labor unrest due to the closure of Wack Wack.[35] Priority was given to the employees of the F & B Department, but was, likewise, offered to the other employees who may wish to avail of the separation package due to the reconstruction of Wack Wack. Respondents do not belong to the F & B Department and yet, on their own volition opted to avail of the special separation package. The applications which were similarly worded read as follows:

TO : WACK WACK GOLF & COUNTRY CLUBBOARD OF DIRECTORS AND MANAGEMENT

Based on the information that the Club and the employees’ Union have reached an agreement on a special separation benefit package equivalent to one-and-one-half months salary for every year of service, regardless of the number of years of service, for employees who have been affected and may be affected by ongoing as well as forthcoming Club renovation, construction and related activities and reportedly even for those who may not be affected but wish to avail of an early retirement under the above package arrangement, I hereby register my desire to be separated from the Club and receive the benefits under the above stated package.[36]

Thereafter, the respondents signed their respective release and quitclaims after receiving their money benefits.

It cannot be said that the respondents in the case at bar did not fully comprehend and realize the consequences of their acts. Herein respondents are not unlettered persons who need special protection. They held responsible positions in the petitioner-employer, so they presumably understood the contents of the documents they signed. There is no showing that the execution thereof was tainted with deceit or coercion. Further, the respondents were paid hefty amounts of separation pay indicating that their separation from the company was for a valuable consideration. Where the person making the waiver has done so voluntarily, with a full understanding thereof, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as being a valid and binding undertaking. [37] As in contracts, these quitclaims amount to a valid and binding compromise agreement between the parties which deserve to be respected.[38]

We reiterate what was stated in the case of Periquet v. NLRC [39] that:

Not all waivers and quitclaims are invalid as against public policy. If the agreement was voluntarily entered into and represents a reasonable settlement, it is binding on the parties and may not later be disowned simply because of a change of mind. It is only where there is clear proof that the waiver was wangled from an unsuspecting or gullible person, or the terms of settlement are unconscionable on its face, that the law will step in to annul the questionable transaction. But where it is shown that the person making the waiver did so voluntarily, with full understanding of what he was doing, and the consideration for the quitclaim is credible and reasonable, the transaction must be recognized as a valid and binding undertaking. …[40]

When the respondents voluntarily signed their quitclaims and accepted the separation package offered by the petitioner, they, thenceforth, already ceased to be employees of the petitioner. Nowhere does it appear in the Agreement that the petitioner assured the respondents of continuous employment in Wack Wack. Qualified employees were given priority in being hired by its concessionaires and/or contractors such as BSMI when it entered into a management contract with the petitioner.

This brings us to the threshold issue on whether or not BSMI is an independent contractor or a labor-only contractor. The NLRC posits that BSMI is merely a supplier of workers or a labor-only contractor; hence, the petitioner remains to be the principal

DO 18-02 Cases 46

employer of the respondents and liable for their reinstatement and payment of backwages.

The ruling of the NLRC is wrong. An independent contractor is one who undertakes “job contracting,” i.e., a person who: (a) carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (b) has substantial capital or investment in the form of tools, equipments, machineries, work premises and other materials which are necessary in the conduct of the business. Jurisprudential holdings are to the effect that in determining the existence of an independent contractor relationship, several factors may be considered, such as, but not necessarily confined to, whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the work to another; the employer’s power with respect to the hiring, firing, and payment of the contractor’s workers; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.[41]

There is indubitable evidence showing that BSMI is an independent contractor, engaged in the management of projects, business operations, functions, jobs and other kinds of business ventures, and has sufficient capital and resources to undertake its principal business. It had provided management services to various industrial and commercial business establishments. Its Articles of Incorporation proves its sufficient capitalization. In December 1993, Labor Secretary Bienvenido Laguesma, in the case of In re Petition for Certification Election Among the Regular Rank-and-File Employees Workers of Byron-Jackson (BJ) Services International Incorporated, Federation of Free Workers (FFW)-Byron Jackson Services Employees Chapter,[42] recognized BSMI as an independent contractor. As a legitimate job contractor, there can be no doubt as to the existence of an employer-employee relationship between the contractor and the workers.[43]

BSMI admitted that it employed the respondents, giving the said retired employees some degree of priority merely because of their work experience with the petitioner, and in order to have a smooth transition of operations.[44] In accordance with its own recruitment policies, the respondents were made to sign applications for employment, accepting the condition that they were hired by BSMI as probationary employees only. Not being contrary to law, morals, good custom, public policy and public order, these employment contracts, which the parties are bound are considered valid. Unfortunately, after a study and evaluation of its personnel organization, BSMI was impelled to terminate the services of the respondents on the ground of redundancy. This right to hire and fire is another element of the employer-employee relationship[45] which actually existed between the respondents and BSMI, and not with Wack Wack.

There being no employer-employee relationship between the petitioner and respondents Cagasan and Dominguez, the latter have no cause of action for illegal dismissal and damages against the petitioner. Consequently, the petitioner cannot be validly ordered to reinstate the respondents and pay them their claims for backwages.

WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals and the NLRC are SET ASIDE and REVERSED. The complaints of respondents Cagasan and Dominguez are DISMISSED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concur.

G.R. No. 112139 January 31, 2000

LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION, petitioner, vs.THE HONORABLE COURT OF APPEALS (Former Eighth Division) and COMMANDO SECURITY SERVICE AGENCY, INC., respondents.

GONZAGA-REYES, J.:

Before us is a Petition for Review on Certiorari of the decision1 of the Court of Appeals2 in CA-G.R. CV No. 33893 entitled COMMANDO SECURITY SERVICE AGENCY, INCORPORATED vs. LAPANDAY AGRICULTURAL DEVELOPMENT CORPORATION which affirmed the decision3 of the Regional Trial Court, 11th Judicial Region, Branch 9, Davao City in Civil Case No. 19203-88.

The pertinent facts as found by the Court of Appeals are as follows:

The evidence shows that in June 1986, plaintiff Commando Security Service Agency, Inc., and defendant Lapanday Agricultural Development Corporation entered into a Guard Service Contract. Plaintiff provided security guards in defendant's banana plantation. The contract called for the payment to a guard of P754.28 on a daily 8-hour basis and an

additional P565.72 for a four hour overtime while the shift-in-charge was to be paid P811.40 on a daily 8-hour basis and P808.60 for the 4-hour overtime.

Wage Orders increasing the minimum wage in 1983 were complied with by the defendant. On June 16, 1984, Wage Order No. 5 was promulgated directing an increase of P3.00 per day on the minimum wage of workers in the private sector and a P5.00 increase on the ECOLA. This was followed on November 1, 1984 by Wage Order No. 6 which further increased said minimum wage by P3.00 on the ECOLA. Both Wage Orders contain the following provision:

"In the case of contract for construction projects and for security, janitorial and similar services, the increase in the minimum wage and allowances rates of the workers shall be borne by the principal or client of the construction/service contractor and the contracts shall be deemed amended accordingly, subject to the provisions of Sec. 3 (b) of this order" (Sec. 6 and Sec. 9, Wage Orders No. 5 and 6, respectively).

Plaintiff demanded that its Guard Service Contract with defendant be upgraded in compliance with Wage Order Nos. 5 and 6. Defendant refused. Their Contract expired on June 6, 1986 without the rate adjustment called for Wage Order Nos. 5 and 6 being implemented. By the time of the filing of plaintiff's Complaint, the rate adjustment payable by defendant amounted to P462,346.25. Defendant opposed the Complaint by raising the following defenses: (1) the rate adjustment is the obligation of the plaintiff as employer of the security guards; (2) assuming its liability, the sum it should pay is less in amount; and (3) the Wage Orders violate the impairment clause of the Constitution.

The trial court decided in favor of the plaintiff. It held:

x x x x x x x x x

However, in order for the security agency to pay the security guards, the Wage Orders made specific provisions to amend existing contracts for security services by allowing the adjustment of the consideration paid by the principal to the security agency concerned. (Eagle Security Agency, Inc. vs. NLRC, Phil. Tuberculosis Society, Inc. vs. NLRC, et al., May 18, 1989).1âwphi1.nêt

The Wage Orders require the amendment of the contract as to the consideration to cover the service contractor's payment of the increases mandated. However, in the case at bar, the contract for security services had earlier been terminated without the corresponding amendment. Plaintiff now demands adjustment in the contract price as the same was deemed amended by Wage Order Nos. 5 and 6.

Before the plaintiff could pay the minimum wage as mandated by law, adjustments must be paid by the principal to the security agency concerned.

Given these circumstances, if PTS pays the security guards, it cannot claim reimbursements from Eagle. But if its Eagle that pays them, the latter can claim reimbursement from PTS in lieu of an adjustment, considering that the contract had expired and had not been renewed. (Eagle Security Agency vs. NLRC and Phil. Tuberculosis Society, Inc. vs. NLRC, et al., 18 May 1989).

"As to the issue that Wage Orders Nos. 5 and 6 constitute impairments of contracts in violation of constitutional guarantees, the High Court ruled" The Supreme Court has rejected the impairment of contract argument in sustaining the validity and constitutionality of labor and social legislation like the Blue Sunday Law, compulsory coverage of private sector employees in the Social Security System, and the abolition of share tenancy enacted pursuant to the police power of the state (Eagle Security Agency, Inc. vs. National Labor Relation Commission and Phil. Tuberculosis Society, Inc. vs. NLRC, et al., May 18, 1989).

Petitioner's motion for reconsideration was denied;4 hence this petition where petitioner cites the following grounds to support the instant petition for review:

1. THE WAGE INCREASES PROVIDED FOR IN THE WAGE ORDERS WERE DUE TO THE GUARDS AND NOT THE SECURITY AGENCY;

2. A SECURITY AGENCY WHO DID NOT PAY WAGE INCREASE TO ITS GUARDS IT HAD ALREADY TERMINATED AND WITHOUT THEIR AUTHORIZATION CANNOT INSTITUTE AN ACTION TO RECOVER SAID WAGE INCREASE FOR ITS BENEFIT;

3. IN THE ABSENCE OF BAD FAITH AND WITHOUT THE TRIAL COURT CORRECTLY ESTABLISHING THE BASIS FOR ATTORNEY'S FEES, THE SAME MAY NOT BE AWARDED.

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4. THE NATIONAL LABOR RELATIONS (SIC) IS THE PROPER FORUM THAT HAS THE JURISDICTION TO RESOLVE THE ISSUE OF WHETHER OR NOT THE PETITIONER IS LIABLE TO PAY THE PRIVATE RESPONDENT THE WAGE AND ALLOWANCE INCREASES MANDATED UNDER WAGE ORDER NOS. 5 AND 6.5

Reiterating its position below, petitioner asserts that private respondent has no factual and legal basis to collect the benefits under subject Wage Order Nos. 5 and 6 intended for the security guards without the authorization of the security guards concerned. Inasmuch as the services of the forty-two (42) security guards were already terminated at the time the complaint was filed on August 15, 1988, private respondent's complaint partakes of the nature of an action for recovery of what was supposedly due the guards under said Wage Orders, amounts that they claim were never paid by private respondent and therefore not collectible by the latter from the petitioner. Petitioner also assails the award of attorney's fees in the amount of P115,585.31 or 25% of the total adjustment claim of P462,341.25 for lack of basis and for being unconscionable.

Moreover, petitioner submits that it is the National Labor Relations Commission (NLRC) and not the civil courts that has jurisdiction to resolve the issue involved in this case for it refers to the enforcement of wage adjustment and other benefits due to private respondent's security guards mandated under Wage Order Nos. 5 and 6. Considering that the RTC has no jurisdiction, its decision is without force and effect.6

On the other hand, private respondent contends that the basis of its action against petitioner-appellant is the enforcement of the Guard Service Contract entered into by them, which is deemed amended by Section 6 of Wage Order No. 5 and Section 9 of Wage Order No. 6; that pursuant to their amended Guard Service Contract, the increases/adjustments in wages and ECOLA are due to private respondent and not to the security guards who are not parties to the said contract. It is therefore immaterial whether or not private respondent paid its security guards their wages as adjusted by said Wage Orders and that since the forty-two (42) security guards are not parties to the Guard Service Contract, there is no need for them to authorize the filing of, or be joined in, this suit.

As regards the award to private respondent of the amount of P115, 585.31 as attorney's fees, private respondent maintains that there is enough evidence and/or basis for the grant thereof, considering that the adamant attitude of the petitioner (in implementing the questioned Wage Orders) compelled the herein private respondent, to litigate in court. Furthermore, since the legal fee payable by private respondent to its counsel is essentially on contingent basis, the amount of P115, 583.31 granted by the trial court which is 25% of the total claim is not unconscionable.

As regards the jurisdiction of the RTC, private respondent alleges that the suit filed before the trial court is for the purpose of securing the upgrading of the Guard Service Contract entered into by herein petitioner and private respondent in June 1983. The enforcement of this written contract does not fall under the jurisdiction of the NLRC because the money claims involved therein did not arise from employer-employee relations between the parties and is intrinsically a civil dispute. Thus, jurisdiction lies with the regular courts. Private respondent further contends that petitioner is estopped or barred from raising the question of jurisdiction for the first time before the Supreme Court after having voluntarily submitted to the jurisdiction of the regular courts below and having lost its case therein.7

We resolve to grant the petition.

We resolve first the issue of jurisdiction. We agree with the respondent that the RTC has jurisdiction over the subject matter of the present case. It is well settled in law and jurisprudence that where no employer-employee relationship exists between the parties and no issue is involved which may be resolved by reference to the Labor Code, other labor statutes or any collective bargaining agreement, it is the Regional Trial Court that has jurisdiction.8 In its complaint, private respondent is not seeking any relief under the Labor Code but seeks payment of a sum of money and damages on account of petitioner's alleged breach of its obligation under their Guard Service Contract. The action is within the realm of civil law hence jurisdiction over the case belongs to the regular courts.9 While the resolution of the issue involves the application of labor laws, reference to the labor code was only for the determination of the solidary liability of the petitioner to the respondent where no employer-employee relation exists. Article 217 of the Labor Code as amended vests upon the labor arbiters exclusive original jurisdiction only over the following:

1. Unfair labor practices;

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 form of damages arising from employer-employee relations;

5. Cases arising from any violation of Article 264 of this Code, including questions involving 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 (P5,000.00) regardless of whether accompanied with a claim for reinstatement.

In all these cases, an employer-employee relationship is an indispensable jurisdictional requisite;10 and there is none in this case.

On the merits, the core issue involved in the present petition is whether or not petitioner is liable to the private respondent for the wage adjustments provided under Wage Order Nos. 5 and 6 and for attorney's fees.

Private respondent admits that there is no employer-employee relationship between it and the petitioner. The private respondent is an independent/job contractor11 who assigned security guards at the petitioner's premises for a stipulated amount per guard per month. The Contract of Security Services expressly stipulated that the security guards are employees of the Agency and not of the petitioner.12 Articles 106 and 107 of the Labor Code provides the rule governing the payment of wages of employees in the event that the contractor fails to pay such wages as follows:

Art. 106. Contractor or sub contractor. — 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.

x x x x x x x x x

Art. 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

It will be seen from the above provisions that the principal (petitioner) and the contractor (respondent) are jointly and severally liable to the employees for their wages. This Court held in Eagle Security, Inc. vs. NLRC 13 and Spartan Security and Detective Agency, Inc. vs. NLRC 14 that the joint and several liability of the contractor and the principal is mandated by the Labor Code to assure compliance with the provisions therein including the minimum wage. The contractor is made liable by virtue of his status as direct employer. The principal, on the other hand, is made the indirect employer of the contractor's employees to secure payment of their wages should the contractor be unable to pay them.15 Even in the absence of an employer-employee relationship, the law itself establishes one between the principal and the employees of the agency for a limited purpose i.e. in order to ensure that the employees are paid the wages due them. In the above-mentioned cases, the solidary liability of the principal and contractor was held to apply to the aforementioned Wage Order Nos. 5 and 6.16 In ruling that under the Wage Orders, existing security guard services contracts are amended to allow adjustment of the consideration in order to cover payment of mandated increases, and that the principal is ultimately liable for the said increases, this Court stated:

The Wage Orders are explicit that payment of the increases are "to be borne" by the principal or client. "To be borne", however, does not mean that the principal, PTSI in this case, would directly pay the security guards the wage and allowance increases because there is no privity of contract between them. The security guards' contractual relationship is with their immediate employer, EAGLE. As an employer, EAGLE is tasked, among others, with the payment of their wages [See Article VII Sec. 3 of the Contract for Security Services, supra and Bautista vs. Inciong, G.R. No. 52824, March 16, 1988, 158 SCRA 665].

On the other hand, there existed a contractual agreement between PTSI and EAGLE wherein the former availed of the security services provided by the latter. In return, the security agency collects from its client payment for its security services. This payment covers the wages for the security guards

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and also expenses for their supervision and training, the guards bonds, firearms with ammunitions, uniforms and other equipments, accessories, tools, materials and supplies necessary for the maintenance of a security force.

Premises considered, the security guards' immediate recourse for the payment of the increases is with their direct employer, EAGLE. However, in order for the security agency to comply with the new wage and allowance rates it has to pay the security guards, the Wage Orders made specific provision to amend existing contracts for security services by allowing the adjustment of the consideration paid by the principal to the security agency concerned. What the Wage Orders require, therefore, is the amendment of the contracts as to the consideration to cover the service contractors' payment of the increases mandated. In the end, therefore, ultimate liability for the payment of the increases rests with the principal.

In view of the foregoing, the security guards should claim the amount of the increases from EAGLE. Under the Labor Code, in case the agency fails to pay them the amounts claimed, PTSI should be held solidarily liable with EAGLE [Articles 106, 107 and 109]. Should EAGLE pay, it can claim an adjustment from PTSI for an increase in consideration to cover the increases payable to the security guards.17

It is clear also from the foregoing that it is only when contractor pays the increases mandated that it can claim an adjustment from the principal to cover the increases payable to the security guards. The conclusion that the right of the contractor (as principal debtor) to recover from the principal as solidary co-debtor) arises only if he has paid the amounts for which both of them are jointly and severally liable is in line with Article 1217 of the Civil Code which provides:

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made payment may claim from his co-debtors only the share which corresponds to each, with interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. . . .

Pursuant to the above provision, the right of reimbursement from a co-debtor is recognized in favor of the one who paid.

It will be seen that the liability of the petitioner to reimburse the respondent only arises if and when respondent actually pays its employees the increases granted by Wage Order Nos. 5 and 6. Payment, which means not only the delivery of money but also the performance, in any other manner, of the obligation,18 is the operative fact which will entitle either of the solidary debtors to seek reimbursement for the share which corresponds to each of the debtors.

The records show that judgment was rendered by Labor Arbiter Newton R. Sancho holding both petitioner and private respondent jointly and solidarily liable to the security guards in a Decision19 dated October 17, 1986 (NLRC Case No. 2849-MC-XI-86).20

However, it is not disputed that the private respondent has not actually paid the security guards the wage increases granted under the Wage Orders in question. Neither is it alleged that there is an extant claim for such wage adjustments from the security guards concerned, whose services have already been terminated by the contractor. Accordingly, private respondent has no cause of action against petitioner to recover the wage increases. Needless to stress, the increases in wages are intended for the benefit of the laborers and the contractor may not assert a claim against the principal for salary wage adjustments that it has not actually paid. Otherwise, as correctly put by the respondent, the contractor would be unduly enriching itself by recovering wage increases, for its own benefit.

Finally, considering that the private respondent has no cause of action against the petitioner, private respondent is not entitled to attorney's fees.1âwphi1.nêt

WHEREFORE, the petition is GRANTED. The decision of the Court of Appeals dated May 24, 1993 is REVERSED and SET ASIDE. The complaint of private respondent COMMANDO SECURITY SERVICE AGENCY, INC. is hereby DISMISSED.

SO ORDERED.

Melo, Vitug, Panganiban and Purisima, JJ., concur.

G.R. No. 86010 October 3, 1989

LEOPOLDO GUARIN and ONE HUNDRED TWENTY (120) OTHERS, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, LIPERCON SERVICES, INC., and/or NOVELTY PHILIPPINES, INC., respondents.

Banzuela, Flores, Miralles, Raneses, Sy, Taquio and Associates for petitioners. Corazon R. Paulino for respondent LSI. Ponce Enrile, Cayetano, Reyes & Manalastas for Novelty Philippines, Inc.

GRIÑO-AQUINO, J.:

The sole issue in this petition for certiorari is whether or not, as found by the National Labor Relations Commission (or NLRC), respondent Lipercon Services, Inc. is an independent contractor and that petitioners are its employees.

Novelty Philippines, Inc. is a domestic corporation that is engaged in the garment manufacturing business.

Lipercon Services, Inc. is also a domestic corporation which is engaged in business as a service contractor providing workers for other companies.

On July 6, 1983, Novelty and Lipercon entered into a "Contract of Services" in which Lipercon, as the "CONTRACTOR," and Novelty, as the "COMPANY," agreed as follows:

1. The CONTRACTOR shall provide the COMPANY with Contractual Laborers/Helpers/Janitors as requested by the COMPANY from time to time and such other activities that may be contracted out at the discretion of the COMPANY.

2. In consideration for the above undertakings of the CONTRACTOR, the COMPANY expressly agrees to pay the CONTRACTOR a fee based on the rates as shown on Annex 'A' of this agreement which is deemed as incorporated herein. A three (3%) percent Contractor's Tax shall be charged to the client which is made part of the billing rate.

3. The CONTRACTOR shall employ the necessary personnel to efficiently, fully and speedily accomplish the work and services undertaken herein by the CONTRACTOR. The CONTRACTOR represents that its personnel shall be in such number as will be sufficient to cope with the requirements of the services and work herein undertaken and that such personnel shall be physically fit, with good moral character and has not been convicted of any crime.

4. The CONTRACTOR shall comply with all labor laws such as Minimum Wage Law, Eight Hour Labor Law, Social Security System, Medicare, Maternity Contribution, ECC and other laws relating to employers and employees. It is hereby expressly understood and agreed that the COMPANY shall not be liable in any manner whatsoever for non-compliance with any requirements involving employer-employee relationship and other matters relative to labor laws, and CONTRACTOR hereby renders the COMPANY free and harmless from any responsibility whatsoever for non- compliance with any such requirements and for any violation of any laws, rules and regulations.

5. The CONTRACTOR shall be answerable for any claim for losses caused by its personnel assigned to the COMPANY and for damages to property of the COMPANY, its employees, officers or agents or to third parties, or for personal injury, including death which may arise from the work or services under this contract from negligence of employees of the CONTRACTOR; provided, however that necessary investigation be made and that the loss and/or damage sustained was a result of negligence of the contractor's personnel.

6. It is the essence of this contract which is hereby agreed and understood by both parties that there is no employer-employee relationship between the COMPANY and employee assigned by the CONTRACTOR under this agreement. Therefore, the CONTRACTOR obliges itself and its successors in interest, to pay whatever salaries and wages may be due under this contract, including any and all obligations, claims which may arise as a result of the employer-employee relationship existing between the CONTRACTOR and its employees assigned under this agreement and warrants to hold the COMPANY free and harmless of and from any responsibility, liability or claim regarding employment.

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7. The CONTRACTOR shall have exclusive discretion in the selection, engagement and discharge of its personnel, employees or agents or otherwise in the direction and control of the personnel, workers and employees of the CONTRACTOR shall be within its full control.

8. The COMPANY agrees to pay the amount due to the CONTRACTOR under this contract within seven (7) days after presentation of bills. If payment is not made within thirty (30) days after due date, a one (1%) percent interest per month shall be added to the unpaid balance.

9. This contract shall remain in full force from July 6, 1983 to July 5,1984 and is renewable at the option of the COMPANY. Either party may terminate this contract upon giving thirty (30) days notice to the other party. (pp. 17-18, Rollo.)

Petitioners were hired by Lipercon and assigned to Novelty as helpers, janitors, janitresses, firemen, and mechanics under the above agreement. Petitioners worked for Novelty for some three years. On December 31, 1986, Novelty terminated its agreement with Lipercon, resulting in the dismissal of the petitioners.

On January 9, 1987, petitioners filed a complaint for illegal dismissal against both Lipercon and Novelty (Case No. NLRC-NCR-1-107-87). Lipercon did not answer.

In a decision dated June 29, 1987, the Labor Arbiter ruled that the petitioners were regular employees of Novelty and declared their dismissal illegal. Both employers appealed.

Lipercon Services, Inc., on appeal, alleged that the decision was contrary to the facts of the case and not in conformity with the evidence on record and that the Executive Labor Arbiter gravely abused his discretion when he ruled that Lipercon Services, Inc. merely acted as an agent of Novelty Philippines, Inc. in the hiring and placement of the complainants.

On August 19, 1988, the NLRC rendered a decision holding that Lipercon was an independent contractor and that the petitioners were its employees. The dispositive portion of the NLRC's decision reads as follows:

WHEREFORE, premises considered, the appealed decision is hereby set aside and another judgment entered, ordering respondent Lipercon Services, Inc. to reinstate herein complainants to their former positions without loss of seniority rights and other related benefits granted by law with a limited backwages of one (1) year without qualification or deduction. In case reinstatement is no longer feasible, respondent Lipercon Services, Inc. is hereby ordered to grant complainants separation pay of one (1) month salary for every year of service, a fraction of six (6) months considered as one (1) whole year in addition to the one year backwages. (p. 26, Rollo.)

The petition is meritorious.

Articles 106 and 107 of the Labor Code of the Philippines provide:

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.

ART. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

Sections 8 and 9, Rule VIII, Book I of the Omnibus Rules implementing the Labor Code defines "job" contracting and "labor-only" contracting as follows:

Sec. 8. Job contracting. There is job contracting permissible under the Code if the following conditions are met:

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

(2) The contractor has substantial capital or investment in the form of tools, equipments, machineries, work premises, and other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting.— (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person:

(1) Does not have substantial capital or investment in the form of tools, equipments, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

(c) For cases not falling under this article, the Secretary of Labor shall determine through appropriate orders whether or not the contracting out of labor is permissible in the light of the circumstances of each case and after considering the operating needs of the employer and the rights of the workers involved. In such case, he may prescribe conditions and restrictions to insurer the protection and welfare of the workers.

It is clear from the foregoing definitions that under the "Contract of Services" between Lipercon and Novelty, Lipercon was a "labor-only" contractor, hence, only an agent of Novelty to procure workers for the latter, the real employer.

The NLRC's finding that Lipercon was not a mere labor-only contractor because it has substantial capital or investment in the form of tools, equipment, machineries, work premises, is based on insubstantial evidence, as the NLRC pointed out, that "it (Lipercon) claims to be possessed among others, of substantial capital and equipment essential to carry out its business as a general independent contractor" (p. 25, Rollo).

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

The jobs assigned to the petitioners as mechanics, janitors, gardeners, firemen and grasscutters were directly related to the business of Novelty as a garment manufacturer. In the case of Philippine Bank of Communications vs. NLRC, 146 SCRA 347, we ruled that the work of a messenger is directly related to a bank's operations. In its Comment, Novelty contends that the services which are directly related to manufacturing garments are sewing, textile cutting, designs, dying, quality control, personnel, administration, accounting, finance, customs, delivery and similar other activities; and

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that allegedly, "[i]t is only by stretching the imagination that one may conclude that the services of janitors, janitresses, firemen, grasscutters, mechanics and helpers are directly related to the business of manufacturing garments" (p. 78, Rollo). Not so, for the work of gardeners in maintaining clean and well-kept grounds around the factory, mechanics to keep the machines functioning properly, and firemen to look out for fires, are directly related to the daily operations of a garment factory. That fact is confirmed by Novelty's rehiring the workers or renewing the contract with Lipercon every year from 1983 to 1986, a period of three (3) years.

As Lipercon was a "labor-only" contractor, the workers it supplied Novelty became regular employees of the latter.

WHEREFORE, the decision of the NLRC is set aside and that of the Labor Arbiter is reinstated. Novelty Philippines, Inc. is ordered to reinstate the petitioners with backwages for one (1) year without qualification or deduction. In case reinstatement is no longer feasible, respondent Novelty Philippines, Inc. is hereby ordered to grant the complainants separation pay equivalent to one (1) month salary for every year of service, a fraction of six (6) months to be considered as one (1) whole year, in addition to their backwages. Costs against respondent Novelty Philippines, Inc.

SO ORDERED.

Narvasa, Cruz and Gancayco, JJ., concur. Medialdea, J., took no part.

G.R. Nos. 102633-35 January 19, 1993

RHONE-POULENC AGROCHEMICALS PHILIPPINES, INC., petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, URCISIO A. ORAIN, and PAULINO G. ROMAN, respondents.

Francis V. Sobrevinas and Divinagracia S. San Juan for petitioner.

GUTIERREZ, JR., J.:

Petitioner Rhone-Poulenc Agrochemicals Philippines, Inc. (Rhone-Poulenc for brevity) assails the finding by the National Labor Relations Commission (NLRC) that Contemporary Services, Inc. (CSI), a supplier of janitorial services, is a labor-only contractor.

The petitioner is a domestic corporation engaged in the manufacture of agro-chemicals. Its business operations involve the formulation, production, distribution and sale in the local market of its agro-chemical products.

On January 1, 1988, as a consequence of the sale by Union Carbide, Inc. of all its agricultural-chemical divisions worldwide in favor of Rhone-Poulenc Agrochemie, France, the petitioner's mother corporation, the petitioner acquired from Union Carbide Philippines Far East, Inc. (Union Carbide for short) the latter's agro-chemical formulation plant in Namayan, Mandaluyong, Metro Manila.

Rhone-Poulenc and Union Carbide agreed on a three-month transition period for the turnover of the Namayan plant to the former. Hence, from January 1 to March 31, 1988, both Union Carbide and Rhone-Poulenc shared and operated the same facilities.

In 1987, prior to the sale, Union Carbide had entered into a contract with CSI for the latter's supply of janitorial services. During the transition period, Union Carbide continued to avail itself of CSI's janitorial services. Thus, petitioner Rhone-Poulenc found itself sharing the Namayan plant with Union Carbide while the factory was being serviced and maintained by janitors supplied by CSI.

Midway through the transition period, Union Carbide instructed CSI to reduce the number of janitors working at the plant from eight (8) to seven (7). Private respondent Paulino Roman, one of the janitors, was recalled by CSI on February 15, l988 for reassignment. However, Roman refused to acknowledge receipt of the recall memorandum.

On March 9, 1988, Union Carbide formally notified CSI of the termination of their janitorial service agreement, effective April 1, 1988, citing as reason the global buy-out by Rhone-Poulenc, Agrochemie, France of Union Carbides Inc.'s agro-chemical business. CSI thereafter issued a memorandum dated March 20, 1988 to the seven remaining janitors assigned to the Namayan plant, including respondent Urcisio Orain, recalling and advising them to report to the CSI office for reassignment. Like Roman, the janitors refused to acknowledge receipt of the recall memorandum.

Meanwhile, in anticipation of the March 31, 1988 pull-out by Union Carbide, the petitioner started screening proposals by prospective service contractors. Rhone-Poulenc likewise invited CSI to submit to its Bidding Committee a cost quotation of its janitorial services. However, another contractor, the Marilag Business and Industrial Services, Inc. passed the bidding committee's standards and obtained the janitorial services contract.

On April 1, 1988, the eight janitors reported for work at the Namayan plant but were refused admission and were told that another group of janitors had replaced them. These janitors then filed separate complaints for illegal dismissal, payment of 13th month salary, service leave and overtime pay against Union Carbide, Rhone-Poulenc and CSI. These cases were consolidated by order of Labor Arbiter Manuel Asuncion dated May 23, 1988.

Trial on the merits ensued wherein the labor arbiter conducted full-blown hearings on factual issues. After the cases were submitted for decision, six of the original complainants tendered their resignations to CSI in consideration of the latter's settlement of all their claims. Hence, only the claims of respondents Roman and Orain remained unsettled.

On November 8, 1989, Labor Arbiter Asuncion ruled that CSI is a legitimate service contractor and that Roman and Orain were employees of CSI. The dispositive portion of the labor arbiter's decision is quoted below:

WHEREFORE, the respondent CSI is ordered to pay the complainants Orain and Roman their separation pays computed at one-half of their salaries for every year of service. The rest of the claims are dismissed for lack of merit.

The respondents UCFEI and RPAPI were (sic) absolved from any liability it being shown that they were not the employers of the complainants. (Rollo, p. 52).

Respondents Roman and Orain appealed the decision to the NLRC. In a resolution dated March 13, 1991, the NLRC reversed the labor arbiter's ruling, found that CSI was a mere agent of Union Carbide and Rhone-Poulenc and held that Rhone-Poulenc was guilty of illegal dismissal. Respondent NLRC cited the case of Guarin v. NLRC, 178 SCRA 267 (1987), which according to it "involves circumstances similar, if not identical, to the circumstances obtaining in the case at bar."

In that case, Novelty Philippines, Inc., a domestic corporation engaged in garment manufacturing, entered into a contract with Lipercon Services, Inc., a service contractor. The agreement provided, among others, that there was no employer-employee relationship between Novelty and the workers assigned by Lipercon to the former, and that Lipercon shall have exclusive discretion in the selection, engagement and discharge of its employees and shall have full control over said employees. The one hundred twenty (120) petitioners in Guarin were hired by Lipercon and assigned to Novelty as helpers, janitors, firemen and mechanics until the termination by Novelty of the service agreement resulting in their dismissal. They sued both Novelty and Lipercon for illegal dismissal.

The labor arbiter adjudged that the petitioners were regular employees of Novelty and declared their dismissal illegal. The NLRC reversed this decision and declared that Lipercon was an independent contractor and that the petitioners were its employees.

The Court, in a petition for certiorari, upheld the labor arbiter's decision and ruled:

The jobs assigned to the petitioners as mechanics, janitors, gardeners, firemen and grasscutters were directly related to the business of Novelty as a garment manufacturer. In the case of Philippine Bank of Communications v. NLRC, 146 SCRA 347, we ruled that the work of a messenger is directly related to a bank's operations. In its Comment, Novelty contends that the services which are directly related to manufacturing garments are sewing, textile cutting, designs, dyeing, quality control, personnel, administration, accounting, finance, customs, delivery and similar activities; and that allegedly, "[i]t is only by stretching the imagination that one may conclude that the services of janitors, janitresses, firemen, grasscutters, mechanics and helpers are directly related to the business of manufacturing garments" (p. 78, Rollo). Not so, for the work of gardeners in maintaining clean and well-kept grounds around the factory, mechanics to keep the machines functioning properly, and firemen to look out for fires, are directly related to the daily operations of a garment factory. That fact is confirmed by Novelty's rehiring the workers or renewing the contract with Lipercon every year from 1983 to 1986, a period of three (3) years. (Guarin v. National Labor Relations Commission, 178 SCRA 267, at p. 273).

Applying the Guarin ruling to the case at bar, the NLRC pronounced:

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It is in the light of the foregoing that we are constrained to rule, and so hold, that respondent CSI is a mere agent of respondent UCFEI and RPAPI who, in the context of the aforecited pronouncement of the Supreme Court, were the real employers of the complainants. Consequently, respondent RPAPI's (the successor-in-interest by sale of respondent UCFEI) refusal to take in the complainants (after admittedly absorbing or utilizing their services during the transition period from 04 January to 31 March 1988) on the ground that it already had engaged the services of another service contractor, constitutes an illegal dismissal plain and simple.

For while it is true that there is no law requiring that a purchaser should absorb the employees of the selling company (Central Azucarera del Davao v. CA, 137 SCRA 295); and unless expressly assumed, labor contracts are not enforceable against a transferee of an enterprise (Fernando v. Angat Labor Union, 5 SCRA 249; and Visayan Trans. Co. v. Java, 93 Phil. 962), it is equally true that employees absorbed by the successor-employers enjoy continuity of employment status (Cruz v. PAFLU, 42 SCRA 68; PAFLU v. CIR, 4 SCRA 457; Guerrero's Transport Services v. Blaylocks , 30 June 1976, 71 SCRA 621; and Sumandi v. Leogardo, et al., G.R. No. 67635, 17 Jan. 1985).

As we have stated earlier, respondent RPAPI admits in its opposition to the appeal (p. 4) that it made use of the services of the complainants during its transition period from 04 January to 31 March 1983. Said act of utilizing, temporarily though, the services of the complainants (which, in a way, attests to the necessity or desirability of the complainants' service to the operation of the respondent's business) constitutes an absorption that gave them the right to be retained. Its refusal to readmit the complainants constitutes an illegal dismissal.

Under these conditions, the mandate to reinstate the complainants should, therefore, be addressed to the respondent RPAPI and not to the respondent CSI, a "labor only" contractor, nor to the UCFEI which had ceased to be the employer of the complainants because of the sale of its business. (Rollo, pp. 39-40).

The NLRC then ordered the petitioner to reinstate respondents Roman and Orain and to pay one year backwages, or to grant them separation pay if reinstatement was not feasible. As to the respondents' claim for 13th month pay, incentive leave and overtime pay, these were dismissed by the NLRC for lack of sufficient factual basis.

Rhone-Poulenc filed a motion for reconsideration which was denied by the public respondent in its resolution of September 11, 199l. Hence, this petition for certiorari.

On December 2, 1991, the Court resolved to issue a temporary restraining order enjoining the NLRC from enforcing and/or carrying out its resolutions dated March 13, 1991 and September 11, 1991. (Rollo, pp. 54-56)

Petitioner Rhone-Poulenc maintains that it is CSI, and not Union Carbide and Rhone-Poulenc, as successor, which is the actual employer of the respondent janitors. Rhone-Poulenc insists that, contrary to the NLRC's findings, CSI is a legitimate independent contractor providing janitorial services to a wide range of clientele including Union Carbide. Moreover, the petitioner avers that it was grave abuse of discretion on the part of the public respondent to conclude that Rhone-Poutlenc absorbed Roman and Orain into its workforce.

The issues to be resolved in this petition are:(1) Whether or not the janitors were employees of Union Carbide;(2) Whether or not CSI is a labor-only contractor; and(3) Whether or not petitioner Rhone-Poulenc absorbed the janitors into its workforce.

In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of employees (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct — although the latter is the most important element. (See Ecal V. NLRC, 195 SCRA 224 [1991]; Singer Sewing Machine Company v. Drilon, 193 SCRA 270 [1991]; Brotherhood Labor Unity Movement in the Philippines v. Zamora, 147 SCRA 49 [1986]; Social Security System v. Court of Appeals, 39 SCRA 629 [1971]; Viaña v. Al-Lagadan and Piga, 99 Phil. 408 [1956]).

Where the employer-employee relationship has been ascertained, the employer becomes bound by the statutory requirements pertaining, though not limited, to terms and conditions of employment, labor relations andpost-employment. But the law has likewise provided for situations where, although the application of the aforementioned four-fold test will not establish an employer-employee relationship, a person or employer who contracts with another for the performance of the former's work or of any work, nevertheless becomes liable to the employees of the contractor. Articles 106, 107 and 109 of the Labor Code provide:

Art. 106. Contractor or subcontractor — Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

xxx xxx xxx

There is labor-only contracting where the person supplying workers to an employer does not have substantial capital or investment, in the form of tools, equipment, machineries, work premises, among others and the workers recruited and placed by such persons, are performing activities which are directly related to the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

Art. 107. Indirect employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

Art. 109. Solidary liability — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.

The import Of the foregoing provisions was enunciated in the case of Philippine Bank of Communications v. National Labor Relations Commission, 146 SCRA 347 (1986):

Under the general rule set out in the first and second paragraphs of Article 106, an employer who enter's into a contract with a contractor for the performance of work for the employer, does not thereby create an employer-employee relationship between himself and the employees of the contractor. Thus, the employees of the contractor remain the contractor's employees and his alone. Nonetheless, when a contractor fails to pay the wages of his employees in accordance with the Labor Code, the employer who contracted out the job to the contractor becomes jointly and severally liable with his contractor to the employees of the latter "to the extent of work performed under the contract" as if such employer were the employer of the contractor's employees. The law itself, in other words, establishes an employer-employee relationship between the employer and the job contractor's employees for a limited purpose, i.e., in order to ensure that the latter get paid the wages due to them.

A similar situation obtains where there is "labor only" contracting. The "labor-only" contractor — i.e. "the person or intermediary" — is considered "merely as an agent of the employer." The employer is made by the statute responsible to the employees of the "labor only" contractor as if such employees had been directly employed by the employer. Thus, where "labor only" contracting exists in a given case, the statute itself implies or establishes an employer-employee relationship between the employer (the owner of the project) and the employees of the "labor only" contractor, this time for a comprehensive purpose: "employer for purposes of this Code, to prevent any violation or circumvention of any provision of this Code." The law in effect holds both the employer and the "labor only" contractor responsible to the latter's employees for the more effective safeguarding of the employees' rights under the Labor Code. (at p. 356; emphasis supplied)

And in determining whether a contractor is engaged in labor-only contracting or in job contracting, reference may be made to Sections 8 and 9 of the Implementing Rules, which provide:

Sec. 8. Job contracting. — There is job contracting permissible under the Code if the following conditions are met:

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

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(2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business.

Sec. 9. Labor-only contracting. — (a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person;

(1) Does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials; and

(2) The workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which workers are habitually employed.

(b) Labor-only contracting as defined herein is hereby prohibited and the person acting as contractor shall be considered merely as an agent or intermediary of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him.

xxx xxx xxx

Applying the foregoing principles to the case at bar, the Court is constrained to rule for the petitioner.

There is no employer-employee relationship between Union Carbide and the respondent janitors. The respondents themselves admitted that they were selected and hired by CSI and were assigned to Union Carbide. CSI likewise acknowledged that the two janitors were its employees. The janitors drew their salaries from CSI and not from Union Carbide. CSI exercised control over these janitors through Richard Barroga, also a CSI employee, who gave orders and instructions to CSI janitors assigned to the Namayan plant. Moreover, CSI had the power to assign its janitors to various clients and to pull out, as it had done in a number of occasions, any of its janitors working at Union Carbide.

As to whether CSI is engaged in labor-only contracting or in job contracting, applying the test prescribed by the Labor Code and the implementing rules, we find sufficient basis from the records to conclude that CSI is engaged in job contracting. As correctly declared by the labor arbiter:

Moreover, CSI is a legitimate service contractor. It is registered as one and doing business as such with a number of known companies in the country. It has a contract with UCFEI to assign janitorial and ground services to the latter for a fee. The complainants' work were basically janitorial and gardening chores. The tools of their trade were supplied by CSI. Of course, we are aware of the complainants' claim that they were made to do chores which are production jobs. Yet, there is no showing of regularity or permanence of such assignment. Those occasional errands cannot be considered as genuine control of UCFEI over the complainants. (Rollo, pp. 51-52)

Moreover, in Kimberly Independent Labor Union v. Drilon, 185 SCRA 190 [1990], the Court took judicial notice of the general practice adopted in several government and private institutions and industries of hiring a janitorial service on an independent contractor basis.

It must be stressed that the janitorial service agreement between Union Carbide and CSI binds only the two, and not petitioner Rhone-Poulenc. As new owner, Rhone-Poulenc had every right to choose its own service contractor.

Respondent NLRC relied heavily on the ruling in Guarin, supra, in deducing that CSI was a labor-only contractor. The facts in Guarin, however, are different from those obtaining in the present case. In Guarin, the contractor failed to prove that it had substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials. In the case at bar, it has been established that CSI, the contractor, owns and maintains its own office; that it owns office equipment such as, but not limited to, typewriters, calculators, xerox machines, mimeographing machines, airconditioning units and transportation vehicles; and that it furnishes its janitors the cleaning equipment such as carpet vacuums and polishing machines. Moreover, the petitioners in Guarin, who were assigned as helpers, janitors, firemen and mechanics, numbered one hundred twenty (120) in all which, by itself, amounts to a considerable workforce and gives rise to the suspicion that the service agreement between Novelty and Lipercon was designed to evade the obligations inherent in an employer-employee relationship. In contrasts there were only eight (8) janitors supplied by CSI to Union Carbide.

These two substantial differences, taken together, are sufficient to remove the present case from the ambit of the Guarin ruling.

Even on the supposition that the janitors were, indeed, employees of Union Carbide or that CSI is a labor-only contractor, thus making Union Carbide a direct employer of these janitors, petitioner Rhone-Poulenc, as purchaser of Union Carbide's business is not compelled to absorb these janitors into its workforce. An innocent transferee of a business establishment has no liability to the employees of the transferor to continue employing them. (Central Azucarera del Davao v. Court of Appeals, 137 SCRA 295 [1985]).

The NLRC, however, concluded that since Rhone-Poulenc made use of the services of the janitors during the three-month transition period, then said act of utilizing their services constitutes absorption of the janitors into the petitioner's workforce which gives them the right to be retained. This ratiocination is not correct. The public respondent failed to consider the fact that during the three-month transition period prior to Union Carbide's turnover of the facilities, the service contract between Union Carbide and CSI was still in force. Whatever benefit the petitioner derived from the continuous availment by Union Carbide of the services of CSI's janitors was merely incidental. The NLRC also overlooked the fact that it was still Union Carbide who paid CSI for the services of these janitors. Also, even prior to the expiration of the transition period, the petitioner, in anticipation of the pullout of Union Carbide and its hired service agencies, started screening its own service contractors. Under these circumstances, the petitioner may not be deemed to have absorbed the respondent janitors as its own employees.

WHEREFORE, the resolutions of the respondent National Labor Relations Commission dated March 13, 1991 and September 11, 1991 are SET ASIDE. The decision of the labor arbiter dated November 8, 1989 is hereby REINSTATED.

The temporary restraining order issued by this Court on December 2, 1991 is made PERMANENT.

SO ORDERED.

Bidin, Davide, Jr., Romero and Melo, JJ., concur.

G.R. No. 101539 September 4, 1992

CECILE DE OCAMPO, WILFREDO SAN PEDRO, REYNALDO DOVICAR, BIEN MEDINA, CESAR ABRIOL, ARTEMIO CASTRO, LARRY ALCANTARA, MICHAEL NOCUM, JESUS DEO JR., PUBLEO DARAG, EDUARDO BINO, EDUARDO VELES, ERVIN DAVID, PROTACIO PEREZ, NOEL VICTOR, ELENO DACATIMBAN, ANTONIO BERNARDO, CARLITO VICTORIA, TIMOTEO MIJARES, ALEX RAMOS, REYNALDO CRUZ, MODESTO MAMESIA, DOMINGO SILARDE, RENATO PUENTAS, RENE VILLANUEVA, MARCELO DELA CRUZ and HERNANDO LEGASPI, petitioners vs.NATIONAL LABOR RELATIONS COMMISSION and BALIWAG MAHOGANY CORPORATION, respondents.

MEDIALDEA, J.:

This Petition for certiorari seeks to annul and set aside the resolution issued by the respondent National Labor Relations Commission on July 8, 1991, in Certified Case No. 0548 entitled "In Re: Labor Dispute at Baliwag Mahogany Corporation," affirming with modification its previous decision dated October 23, 1990, declaring the union officers and/or members who participated in the illegal strike staged on February 6, 1990 to have lost their status of employment; and directing private respondent Baliwag Mahogany Corporation to pay separation pay to certain employees and to reinstate without backwages all union Members not found to have committed prohibited acts.

The antecedent facts are as follows:

Petitioners Cecile de Ocampo, Wilfredo San Pedro, Reynaldo Dovicar, Bien Medina, Cesar Abriol, Artemio Castro, Larry Alcantara, Michael Nocum, Jesus Deo, Jr., Publeo Darag, Eduardo Bino, Eduardo Veles, Ervin David, Prostacio Perez, Noel Victor, Eleno Dacatimban, Antonio Bernardo, Carlito Victoria, Timoteo Mijares, Alex Ramos, Reynaldo Cruz, Modesto Mamesia, Domingo Silarde, Renato Puertas, Rene Villanueva, Marcelo dela Cruz and Hernando Legaspi are employees of private respondent Baliwag Mahogany Corporation. They are either officers or members of the Baliwag Mahogany Corporation Union-CFW, the existing collective bargaining agent of the rank and file employees in the company. Private respondent Baliwag Mahogany Corporation is an enterprise engaged in the production of wooden doors and furniture and has a total workforce of about 900 employees.

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In 1988, private respondent Baliwag Mahogany Corporation (company) and Baliwag Mahogany Corporation Union-CFW (union) entered into a collective bargaining agreement containing, among other things, provisions on conversion into cash of unused vacation and sick leaves; grievance machinery procedure; and the right of the company to schedule work on Sundays and holidays.

In November, 1989, the union made several requests from the company, one of which was the cash conversion of unused vacation and sick leave for 1987-1988 and 1988-1989.

Acting on the matter, the company ruled to allow payment of unused vacation and sick leaves for the period of 1987-1988 but disallowed cash conversion of the 1988-1989 unused leaves.

On January 3, 1990, the company issued suspension orders affecting twenty (20) employees for failure to render overtime work on December 30, 1989. The suspension was for a period of three (3) days effective January 3, 1996 to January 5, 1990.

On the same day, the union filed a notice of strike on the grounds of unfair labor practice particularly the violation of the CBA provisions on non-payment of unused leaves and illegal dismissal of seven (7) employees in November, 1989.

On January 13, 1990, the company issued a notice of termination to three (3) employees or union members, namely, Cecile de Ocampo, Rene Villanueva and Marcelo dela Cruz, of the machinery department, allegedly to effect cost reduction and redundancy.

The members of the union conducted a picket at the main gate of the company on January 18, 1990.

On the same day, the company filed a petition to declare the strike illegal with prayer for injunction against the union, Cecile de Ocampo, Wilfredo San Pedro and Rene Aguilar.

An election of officers was conducted by the union on January 19, 1990. Consequently, Cecile de Ocampo was elected as president.

During the conciliation meeting held at National Conciliation and Mediation Board (NCMB) on January 22, 1990 relative to the notice of strike filed by the union on January 3, 1990, the issue pertaining to the legality of the termination of three (3) union members was raised by the union. However, both parties agreed to discuss it separately.

Subsequently, in a letter dated January 28, 1990, the union requested for the presence of a NCMB representative during a strike vote held by the union. The strike vote resulted to 388 votes out of 415 total votes in favor of the strike.

Consequently, the union staged a strike on February 6, 1990.

On February 7, 1990, the company filed a petition to assume jurisdiction with the Department of Labor and Employment.

On February 16, 1990, the company filed an amended petition, praying among other things, that the strike staged by the union on February 6, 1990 be declared illegal, there being no genuine strikeable issue and the violation of the no-strike clause of the existing CBA between the parties.

The Secretary of Labor in an order dated February 15, 1990, certified the entire labor dispute to the respondent Commission for compulsory arbitration and directed all striking workers including the dismissed employees to return to work and the management to accept them back.

The company filed an urgent motion for assignment of a sheriff to enforce the order of the Secretary.

In an order dated February 22, 1990, the Secretary of Labor directed Sheriff Alfredo Antonio, Jr., to implement the order.

On February 23, 1990, the sheriff, with the assistance of the PC/INP of San Rafael, removed the barricades and opened the main gate of the company.

Criminal complaints for illegal assembly, grave threats, and grave coercion were filed against Cecile de Ocampo, Timoteo Mijares, Modesto Mamesia and Domingo Silarde by the local police authorities on February 24, 1990.

On February 25, 1990, the company caused the publication of his return to work order in two (2) newspapers, namely NGAYON and ABANTE.

In its letter dated February 27, 1990, the union, through its President Cecile de Ocampo, requested the Regional Director of DOLE, Region III to intervene in the existing dispute with management.

Meanwhile, the company extended the February 26, 1990 deadline for the workers to return to work until March 15, 1990.

The respondent Commission rendered a decision on October 23, 1990, declaring the strikes staged on January 18, 1990 and February 6, 1990 illegal, the dispositive portion of which provides as follows, to wit:

WHEREFORE, judgment is hereby rendered as follows:

1. The strike staged on January 18, 1990 is hereby declared illegal and all employees who participated therein are reprimanded therefor or an further warned that future similar acts shall be dealt more severely;

2. The strike staged on February 6, 1990 is hereby declared illegal and the Union officers/members are deemed suspended from March 15, 1990 the last deadline of the company for them to report to the date of promulgation of this Decision. In short, the Union officers/members are ordered reinstated to their positions but without backwages;.

3. Baliwag Mahogany Corporation is hereby directed to immediately reinstate Cecile de Ocampo, Rene Villanueva and Marcelo dela Cruz to their former positions without loss of seniority rights to pay them full backwages for the period from January 17, 1990 to March 15, 1990 only;

4. The Baliwag Mahogany Corporation is hereby directed to immediately reinstate Alex Ramos, Ronaldo Cruz, Fernando Hernandez, Renato Puertas, Hernando Legaspi to their former positions and to pay them backwages from date of dismissal to March 15, 1990 only;

5. The Baliwag Mahogany Corporation is hereby exonerated of the charge of unfair labor practice;

6. The Baliwag Mahogany Corporation is directed to pay its employment the cash equivalent of unused sick leaves for year 1989;

7. The Baliwag Mahogany Corporation is directed to remit to the Union the dues for the month of January 1990.

SO ORDERED. (Rollo, pp. 68-69)

Such decision prompted the company to file a motion for reconsideration substantially on the ground that public respondent seriously erred in not dismissing the employees particularly the union officers, who participated in the illegal strike.

In its supplemental motion for reconsideration, the company contended that as a result of the strike, it failed to meet the purchase orders for the quarter valued at fifteen million pesos.

Petitioners filed an opposition to the company's motion for reconsideration and subsequently a supplemental comment/opposition to motion for reconsideration.

On December 13, 1990, the respondent Commission directed the Labor Arbiter to receive evidence on the issues raised in the motion for reconsideration and additional evidence on the issues already passed upon and to submit a report thereon.

On July 8, 1991, the respondent Commission rendered a resolution affirming with modification the decision dated October 23, 1990, the dispositive portion of which provides as follows:

WHEREFORE, premises considered, the Decision of October 23, 1990 is hereby MODIFIED, to wit:

1. The strike staged on February 6, 1990 is hereby declared illegal and the Union officers/members who participated in said strike committed prohibited acts are deemed to have lost their status of employment, to wit:

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1. Cecile de Ocampo2. Wilfredo San Pedro3. Reynaldo Aguilar4. Bren Medina (Bien Medina)5. Cesar Abriol6. Artemio Castro7. Larry Alcantara8. Melie Nocum (Michael Nocum)9. Jesus Deo, Jr.10. Publeo Darag11. Eduardo Bino12. Eduardo Vices (Eduardo Veles)13. Abroin David (Ervin David)14. Protacio Perez (Prostacio Perez)15. Celso Sarmiento16. Neol Vicbon (Noel Victor)17. Alano Dacatimban (Eleno Dacatimban)18. Antonio Bernardo19. Carlito Victoria20. Timoteo Mijares21. Alex Ramos22. Reynaldo Cruz23. Modesto Manesia24. Domingo Silarde25. Renato Puertas26. Hernando Legaspi

2. The Baliwag Mahogany Corporation is directed to pay Cecile de Ocampo, Rene Villanueva and Marcelo Cruz separation pay computed at one month per year of service in addition to one month pay as indemnification pay for lack of notice (Art. 283, Labor Code).

3. The Baliwag Mahogany Corporation is directed to pay Alex Ramos, Reynaldo Cruz, Renato Puertas, Hernando Legaspi separation pay computed at one (1) month per year of service in addition to backwages limited to six (6) months.

4. The Baliwag Mahogany Corporation is directed to reinstate but without backwages all Union members not found herein to have committed prohibited acts nor found to have accepted settlement from it nor have voluntarily left the Company for reasons of their own.

5. All other findings in the questioned Decision are affirmed.

SO ORDERED. (Rollo, pp. 45-47)

Hence, this present petition raising three (3) issues, to wit:

1. Whether or not there is legal basis for declaring the loss of employment status by petitioners on account of the strike in respondent Company.

2. Whether or not the dismissals of petitioners Cecile de Ocampo, Rene Villanueva, and Marcelo dela Cruz from their positions by the company on the ground of redundancy was done in good faith.

3. Whether or not respondent NLRC acted correctly in allowing respondent company to submit additional evidence in support of its Motion for Reconsideration and in giving credence to the said evidence despite the fact that the same were not newly-discovered evidence as defined under the Rules of Court. (Rollo, p. 11)

After a careful review of the records of this case, the Court finds the petition devoid of merit.

Petitioners insist that there is no specific finding by the respondent commision regarding the particular participation of the individual petitioners in the supposed acts of violence or commission of prohibited acts during the strike such as denial of free ingress to the premises of the company and egress therefrom as well as illegal acts of coercion during the February, 1990 strike.

The Solicitor General disagrees and claims that it is undisputed that the union resorted to illegal acts during the strike arguing that private respondent's personnel manager specifically identified the union officers and members who committed the prohibited acts and actively participated therein.

Moreover, the Solicitor General maintains that the illegality of the strike likewise stems from the failure of the petitioners to honor the certification order and heed the return-to-work order issued by the Secretary of Labor.

Answering this contention, the petitioners argued that their failure to immediately return to work was not impelled by any malicious or malevolent motive but rather, by their apprehension regarding their physical safety due to the presence of military men in the factory who might cause them harm.

The law on the matter is Article 264 (a) of the Labor Code, to wit:

Article 264. (a) Prohibited activities. (a) ––

No strike or lockout shall be declared after assumption of jurisdiction by the President or the Minister or after certification or submission of the dispute to compulsory or voluntary arbitration or during the pendency of cases involving the same grounds for the strike or lockout.

Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages. Any union officer who knowingly participates in an illegal strike and any worker or union officer who knowingly participates in the commission of illegal acts during a strike may be declared to have lost his employment status: Provided, That mere participation of a worker in a lawful strike shall not constitute sufficient ground for termination of his employment, even if a replacement had been hired by the employer during such lawful strike.

The clear mandate of the aforequoted article was stressed in the case of Union of Filipro Employees v. Nestle Philippines, Inc. (G.R. Nos. 88710-13, December 19, 1990, 192 SCRA 396, 411) where it was held that a strike that is undertaken despite the issuance by the Secretary of Labor of an assumption or certification order becomes a prohibited activity and thus illegal, pursuant to the second paragraph of Art. 264 of the Labor Code as Amended and the Union officers and members, as a result, are deemed to have lost their employment status for having knowingly participated in an illegal act.

Unrebutted evidence shows that the individual petitioners defied the return-to-work order of the Secretary of Labor issued on February 15, 1990. As a matter of fact, it was only on February 23, 1990 when the barricades were removed and the main gate of the company was opened. Hence, the termination of the services of the individual petitioners is justified on this ground alone.

Anent the contention that the respondent Commission gravely abused its discretion when it allowed the presentation of additional evidence to prove the loss suffered by the company despite the fact that they were mere afterthoughts and just concocted by the company, time and again, We emphasize that "technical rules of evidence are not binding in labor cases. Labor officials should use every and 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" (Philippine Telegraph and Telephone Corporation v. National Labor Relations Commission, G.R. No. 80600, March 21, 1990, 183 SCRA 451, 457).

Turning to the legality of the termination of three (3) of the individual petitioners, petitioners contend that the company acted in bad faith when it terminated the services of the three mechanics because the positions held by them were not at all abolished but merely given to Gemac Machineries.

On the contrary, the company stresses that when it contracted the services of Gemac Machineries for the maintenance and repair of its industrial machinery, it only adopted a cost saving and cost-consciousness program in order to improve production efficiency.

We sustain respondent Commission's finding that petitioners' dismissal was justified by redundancy due to superfluity and hence legal.

We believe that redundancy, for purposes of our Labor Code, exists where the services of an employee are in excess of what is reasonably demanded by the actual requirement 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 over hiring of workers, decreased volume of business, or dropping of a particular product line or service activity previously manufactured or undertaken by the enterprise. The employer had no legal obligation to keep in its payroll more employees, than are necessary for the operation of its business. (Wiltshire File Co., Inc. v. National Labor Relations Commission, G.R. No. 82249, February 7, 1991; 193 SCRA 665,672).

The reduction of the number of workers in a company made necessary by the introduction of the services of Gemac Machineries in the maintenance and repair of its

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industrial machinery is justified. There can be no question as to the right of the company to contract the services of Gemac Machineries to replace the services rendered by the terminated mechanics with a view to effecting more economic and efficient methods of production.

In the same case, We ruled that "(t)he characterization of (petitioners') services as no longer necessary or sustainable, and therefore properly terminable, was an exercise of business judgment on the part of (private respondent) company. The wisdom or soundness of such characterization or decision was not subject to discretionary review on the part of the Labor Arbiter nor of the NLRC so long, of course, as violation of law or merely arbitrary and malicious action is not shown" (ibid, p. 673).

In contracting the services of Gemac Machineries, as part of the company's cost-saving program, the services rendered by the mechanics became redundant and superfluous, and therefore properly terminable. The company merely exercised its business judgment or management prerogative. And in the absence of any proof that the management abused its discretion or acted in a malicious or arbitrary manner, the court will not interfere with the exercise of such prerogative.

Well-settled is the rule that the factual findings of administrative bodies are entitled to great weight, and these findings are accorded not only respect but even finality when supported by substantial evidence (Family Planning Organization of the Philippines, Inc. v. National Labor Relations Commission, G.R. No. 75987, March 23, 1992, p. 7 citing Asian Construction and Development Corporation v. National Labor Relations Commission, G.R. No. 85866, July 24, 1998, 187 SCRA 784, 787). Hence, the truth or the falsehood of alleged facts is not for this Court now to re-examine.

In the light of the foregoing considerations, it is clear that the assailed resolution of the respondent Commission is not tainted with arbitrariness nor grave abuse of discretion.

ACCORDINGLY, the petition is DISMISSED for lack of merit and the resolution of the respondent Commission dated July 8, 1991 is hereby AFFIRMED.

SO ORDERED.

Cruz, Griño-Aquino and Bellosillo, JJ., concur.

G.R. No. 124055 June 8, 2000

ROLANDO E. ESCARIO, NESTOR ANDRES, CESAR AMPER, LORETO BALDEMOR, EDUARDO BOLONIA, ROMEO E. BOLONIA, ANICETO CADESIM, JOEL CATAPANG, NESTOR DELA CRUZ, EDUARDO DUNGO ESCARIO REY, ELIZALDE ESTASIO, CAROLINO M. PABIAN, RENATO JANER, EMER B. LIQUIGAN, ALEJANDRO MABAWAD, FERNANDO M. MAGTIBAY, DOMINADOR B. MILLILLIN, NOEL B. MANILA, VIRGILIO A. MANIO, ROMEO M. MENDOZA, TIMOTEO NOTARION, FREDERICK RAMOS, JOSEPH REYES, JESSIE SEVILLA, NOEL STO. DOMINGO, DODJIE TAJONERA, JOSELITO TIONLOC, ARNEL UMALI, MAURLIE C. VIBAR, ROLANDO ZALDUA, RODOLFO TUAZON, TEODORO LUGADA, MAURING MANUEL, MARCIANO VERCARA, JR., ARMANDO IBASCO, CAYETANO IBASCO, LEONILO MEDINA, JOSELITO ODO, MELCHOR BUELA, GOMER GOMEZ, HENRY PONCE, RAMON ORTIZ, JR., ANTONIO MIJARES, JR., MARIO DIZER, REYNANTE PEJO, ARNALDO RAFAEL, NELSON BERUELA, AUGUSTO RAMOS, RODOLFO VALENTIN, ANTONIO CACAM, VERNON VELASQUEZ, NORMAN VALLO, ALEJANDRO ORTIZ, ROSANO VALLO, ANDREW ESPINOSA, EDGAR CABARDO, FIDELES REYES, EDGARDO FRANCISCO, FERNANDO VILLARUEL, LEOPOLDO OLEGARIO, OSCAR SORIANO, GARY RELOS, DANTE IRANZO, RONALDO BACOLOR, RONALD ESGUERA VICTOR ALVAREZ, JOSE MARCELO, DANTE ESTRELLADO, MELQUIADES ANGELES, GREGORIO TALABONG, ALBERT BALAO, ALBERT CANLAS, CAMILO VELASCO, PONTINO CHRISTOPHER, WELFREDO RAMOS, REYNALDO RODRIGUEZ, RAZ GARIZALDE, MIGUEL TUAZON, ROBERTO SANTOS, AND RICARDO MORTEL, petitioners,vs.NATIONAL LABOR RELATIONS COMMISSION, CALIFORNIA MANUFACTURING CO, INC. AND DONNA LOUISE ADVERTISING AND MARKETING ASSOCIATES INCORPORATED, respondents.

KAPUNAN, J.

Before this Court is a petition for certiorari under Rule 65, which seeks to annul and set aside the decision, promulgated on 10 May 1995, of the National Labor Relations Commission (NLRC). The assailed decision reversed the decision of the Labor Arbiter, and ruled that the petitioners are employees of Donna Louise Advertising and Marketing Associates, Inc. and ordered the reinstatement of petitioners and the payment of backwages.

Private respondent California Marketing Co. Inc. (CMC) is a domestic corporation principally engaged in the manufacturing of food products and distribution of such

products to wholesalers and retailers. Private respondent Donna Louise Advertising and Marketing Associates, Inc. (D.L. Admark) is a duly registered promotional firm.

Petitioners worked as merchandisers for the products of CMC. Their services were terminated on 16 March 1992.

The parties presented conflicting versions of the facts.

Petitioners allege that they were employed by CMC as merchandisers. Among the tasks assigned to them were the withdrawing of stocks from the warehouse, the fixing of prices, price-tagging, displaying of merchandise, and the inventory of stocks. These were done under the control, management and supervision of CMC. The materials and equipment necessary in the performance of their job, such as price markers, gun taggers, toys, pentel pen, streamers and posters were provided by CMC. Their salaries were being paid by CMC. According to petitioners, the hiring, control and supervision of the workers and the payment of salaries, were all coursed by CMC through its agent D.L. Admark in order for CMC to avoid its liability under the law.

On 7 February 1992, petitioners filed a case against CMC before the Labor Arbiter for the regularization of their employment status. During the pendency of the case before the Labor Arbiter, D.L. Admark sent to petitioners notice of termination of their employment effective 16 March 1992. Hence, their complaint was amended so as to include illegal dismissal as cause of action. Thereafter, twenty-seven more persons joined as complainants. CMC filed a motion to implead as party-defendant D.L. Admark and at the same time the latter filed a motion to intervene. Both motions were granted.

CMC, on the other hand, denied the existence of an employer-employee relationship between petitioner and itself. Rather, CMC contended that it is D.L. Admark who is the employer of the petitioners. While CMC is engaged in the manufacturing of food products and distribution of such to wholesalers and retailers, it is not allowed by law to engage in retail or direct sales to end consumers. It, however, hired independent job contractors such as D.L. Admark, to provide the necessary promotional activities for its product lines.1âwphi1.nêt

For its part, D.L. Admark asserted that it is the employer of the petitioners. Its primary purpose is to carry on the business of advertising, promotion and publicity, the sales and merchandising of goods and services and conduct survey and opinion polls. As an independent contractor it serves several clients among which include Purefoods, Corona Supply, Firstbrand, Splash Cosmetics and herein private respondent California Marketing.

On 29 July 1994, the Labor Arbiter rendered a decision finding that petitioners are the employees of CMC as they were engaged in activities that are necessary and desirable in the usual business or trade of CMC. 1 In justifying its ruling, the Labor Arbiter cited the case of Tabas v. CMC which, likewise, involved private respondent CMC. In the Tabas case, this Court ruled that therein petitioner merchandisers were employees of CMC, to wit:

There is no doubt that in the case at bar, Livi performs "manpower services," meaning to say, it contracts out labor in favor of clients. We hold that it is one notwithstanding its vehement claims to the contrary and not-withstanding its vehement claims to the contrary, and notwithstanding the provision of the contract that it is "an independent contractor." The nature of one's business is not determined by self-serving appellations one attaches thereto but by the tests provided by statute and prevailing case law. The bare fact that Livi maintains a separate line of business does not extinguish the equal fact that it has provided California with workers to pursue the latter's own business. In this connection, we do not agree that the petitioner has been made to perform activities "which are not directly related to the general business of manufacturing," California's purported "principal operation activity. The petitioners had been charged with merchandising [sic] promotion or sale of the products of [California] in the different sales outlets in Metro Manila including task and occational [sic] price tagging" an activity that is doubtless, an integral part of the manufacturing business. It is not, then, as if Livi had served as its (California's) promotions or sales arm or agent, or otherwise rendered a piece of work it (California) could not itself have done; Livi as a placement agency, had simply supplied it with manpower necessary to carry out its (California's) merchandising activities, using its (California's) premises and equipment. 2

On appeal, the NLRC set aside the decision of the Labor Arbiter. It ruled that no employer-employee relationship existed between the petitioners and CMC. It, likewise, held that D.L. Admark is a legitimate independent contractor, hence, the employer of the petitioners. Finding no valid grounds existed for the dismissal of the petitioners by D.L. Admark, it ordered their reinstatement. The dispositive portion of the decision reads:

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WHEREFORE, premises considered, the appealed judgment is modified. Intervenor DL ADMARK is ordered to reinstate the eighty one (81) complainants mentioned in the appealed decision to their former positions with backwages from March 16, 1992 until they are actually reinstated. The award of attorney's fees equivalent to ten (10%) of the award is deleted for lack of basis. 3

Petitioners filed a motion for reconsideration but the same was denied by the NLRC for lack of merit. 4

Hence, this petition.

In the main, the issue brought to fore is whether petitioners are employees of CMC or D.L. Admark. In resolving this, it is necessary to determine whether D.L. Admark is a labor-only contractor or an independent contractor.

Petitioners are of the position that D.L. Admark is a labor-only contractor and cites this Court's ruling in the case of Tabas, which they claim is applicable to the case at bar for the following reasons:

1. The petitioners are merchandisers and the petitioners in the Tabas case are also merchandisers who have the same nature of work.

2. The respondent in this case is California Manufacturing Co. Inc. while respondent in the Tabas case is the same California Manufacturing Co. Inc.

3. The agency in the Tabas case is Livi Manpower Services. In this case, there are at least, three (3) agencies namely: the same Livi Manpower Services; the Rank Manpower Services and D.L. Admark whose participation is to give and pay the salaries of the petitioners and that the money came from the respondent CMC as in the Tabas case.

4. The supervision, management and/or control rest upon respondent California Manufacturing Co. Inc. as found by the Honorable Labor Arbiter which is also, true in the Tabas Case. 5

We cannot sustain the petition.

Petitioners' reliance on the Tabas case is misplaced. In said case, we ruled that therein contractor Livi Manpower Services was a mere placement agency and had simply supplied herein petitioner with the manpower necessary to carry out the company's merchandising activity. We, however, further stated that:

It would have been different, we believe, had Livi been discretely a promotions firm, and that California had hired it to perform the latter's merchandising activities. For then, Livi would have been truly the employer of its employees and California, its client. . . . . 6

In other words, CMC can validly farm out its merchandising activities to a legitimate independent contractor.

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 principal. In labor-only contracting, the following elements are present:

(a) 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

(b) The workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. 7

In contrast, there is permissible job contracting when a principal agrees to put out or farm out with a contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job or work or service is to be performed or completed within or outside the premises of the principal. In this arrangement, the following conditions must concur:

(a) The contractor carries on a distinct and independent business and undertakes the contract work on his account under his own responsibility according to his own manner and method, free from the control and

direction of his employer or principal in all matters connected with the performance of his work except as to the results thereof; and

(b) The contractor has substantial capita or investment in the form of tools, equipment, machineries (sic), work premises, and other materials which are necessary in the conduct of his business. 8

In the recent case of Alexander Vinoya vs. NLRC et al., 9 this Court ruled that in order to be considered an independent contractor it is not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises. In addition, the following factors need be considered: (a) whether the contractor is carrying on an independent business; (b) the nature and extent of the work; (c) the skill required; (d) the term and duration of the relationship; (e) the right to assign the performance of specified pieces of work; (f) the control and supervision of the workers; (g) the power of the employer with respect to the hiring firing and payment of workers of the contractor; (h) the control of the premises; (i) the duty to supply premises, tools, appliances, materials, and labor, and (j) the mode, manner and terms of payment. 10

Based on the foregoing criterion, we find that D.L. Admark is a legitimate independent contractor.

Among the circumstances that tend to establish the status of D.L. Admark as a legitimate job contractor are:

1) The SEC registration certificate of D.L. Admark states that it is a firm engaged in promotional, advertising, marketing and merchandising activities.

2) The service contract between CMC and D.L. Admark clearly provides that the agreement is for the supply of sales promoting merchandising services rather than one of manpower placement. 11

3) D.L. Admark was actually engaged in several activities, such as advertising, publication, promotions, marketing and merchandising. It had several merchandising contracts with companies like Purefoods, Corona Supply, Nabisco Biscuits, and Licron. It was likewise engaged in the publication business as evidenced by it magazine the "Phenomenon." 12

4) It had its own capital assets to carry out its promotion business. It then had current assets amounting to P6 million and is therefore a highly capitalized venture. 13 It had an authorized capital stock of P500,000.00. It owned several motor vehicles and other tools, materials and equipment to service its clients. It paid rentals of P30,020 for the office space it occupied.

Moreover, by applying the four-fold test used in determining employer-employee relationship, the status of D.L. Admark as the true employer of petitioners is further established. The elements of this test are (1) the selection and engagement of employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. 14

As regards the first element, petitioners themselves admitted that they were selected and hired by D.L. Admark. 15

As to the second element, the NLRC noted that D.L. Admark was able to present in evidence the payroll of petitioners, sample SSS contribution forms filed and submitted by D.L. Admark to the SSS, and the application for employment by R. de los Reyes, all tending to show that D.L. Admark was paying for the petitioners' salaries. In contrast, petitioners did not submit an iota of evidence that it was CMC who paid for their salaries. The fact that the agreement between CMC and D.L. Admark contains the billing rate and cost breakdown of payment for core merchandisers and coordinators does not in any way establish that it was CMC who was paying for their salaries. As correctly pointed out by both CMC 16 and the Office of the Solicitor General, 17 such cost breakdown is a standard content of service contracts designed to insure that under the contract, employees of the job contractor will receive benefits mandated by law.

Neither did the petitioners prove the existence of the third element. Again petitioners admitted that it was D.L. Admark who terminated theiremployment. 18

To prove the fourth and most important element of control, petitioners presented the memoranda of CMC's sales and promotions manager. The Labor Arbiter found that these memos "indubitably show that the complainants were under the supervision and control of the CMC people." 19 However, as correctly pointed out by the NLRC, a careful scrutiny of the documents adverted to, will reveal that nothing therein would remotely suggest that CMC was supervising and controlling the work of the petitioners:

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. . . The memorandums (Exhibit "B") were addressed to the store or grocery owners telling them about the forthcoming sales promotions of CMC products. While in one of the memorandums a statement is made that "our merchandisers and demonstrators will be assigned to pack the premium with your stocks in the shelves . . ., yet it does not necessarily mean to refer to the complainants, as they claim, since CMC has also regular merchandisers and demonstrators. It would be different if in the memorandums were sent or given to the complainants and their duties or roles in the said sales campaign are therein defined. It is also noted that in one of the memorandums it was addressed to: "All regular merchandisers/demonstrators." . . . we are not convinced that the documents sufficiently prove employer-employee relationship between complainants and respondents CMC. 20

The Office of the Solicitor General, likewise, notes that the documents fail to show anything that would remotely suggest control and supervision exercised by CMC over petitioners on the matter on how they should perform their work. The memoranda were addressed either to the store owners or "regular" merchandisers and demonstrators of CMC. Thus, petitioners, who filed a complaint for regularization against respondent CMC, thereby, conceding that they are not regular employees of the latter, cannot validly claim to be the ones referred to in said memos. 21

Having proven the existence of an employer-employee relationship between D.L. Admark and petitioners, it is no longer relevant to determine whether the activities performed by the latter are necessary or desirable to the usual business or trade of CMC.

On the issue of illegal dismissal, we agree with the findings of the NLRC that D.L. Admark "admits having dismissed the petitioners for allegedly disowning and rejecting them as them as their employer." Undoubtedly, the reason given is not just cause to terminate petitioners. 22 D.L. Admark's belated claim that the petitioners were not terminated but simply did not report towork 23 is not supported by the evidence on record. Moreover, there is no showing that due process was afforded the petitioners.

IN VIEW OF THE FOREGOING, finding no grave abuse of discretion on the part of the National Labor Relations Commission, the assailed decision is AFFIRMED in toto.

SO ORDERED.

Puno, Pardo and Ynares-Santiago, JJ., concur.Davide, Jr., C.J., on official leave abroad.

G.R. Nos. 97008-09 July 23, 1993

VIRGINIA G. NERI and JOSE CABELIN, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION FAR EAST BANK & TRUST COMPANY (FEBTC) and BUILDING CARE CORPORATION, respondents.

R.L. Salcedo & Improso Law Office for petitioners.Bengzon, Zarnaga, Narciso, Cudala, Pecson, Bengzon & Jimenez for Bldg. Care Corp.Bautista, Picaso, Buyco, Tan & Fider for respondent FEBTC.

BELLOSILLO, J.:

Respondents are sued by two employees of Building Care Corporation, which provides janitorial and other specific services to various firms, to compel Far Bast Bank and Trust Company to recognize them as its regular employees and be paid the same wages which its employees receive.

Building Care Corporation (BCC, for brevity), in the proceedings below, established that it had substantial capitalization of P1 Million or a stockholders equity of P1.5 Million. Thus the Labor Arbiter ruled that BCC was only job contracting and that consequently its employees were not employees of Far East Bank and Trust Company (FEBTC, for brevity). on appeal, this factual finding was affirmed by respondent National Labor Relations Commission (NLRC, for brevity). Nevertheless, petitioners insist before us that BCC is engaged in "labor-only" contracting hence, they conclude, they are employees of respondent FEBTC.

Petitioners Virginia G. Neri and Jose Cabelin applied for positions with, and were hired by, respondent BCC, a corporation engaged in providing technical, maintenance, engineering, housekeeping, security and other specific services to its clientele. They

were assigned to work in the Cagayan de Oro City Branch of respondent FEBTC on 1 May 1979 and 1 August 1980, respectively, Neri an radio/telex operator and Cabelin as janitor, before being promoted to messenger on 1 April 1989.

On 28 June 1989, petitioners instituted complaints against FEBTC and BCC before Regional Arbitration Branch No. 10 of the Department of Labor and Employment to compel the bank to accept them as regular employees and for it to pay the differential between the wages being paid them by BCC and those received by FEBTC employees with similar length of service.

On 16 November 1989, the Labor Arbiter dismissed the complaint for lack of merit. 1 Respondent BCC was considered an independent contractor because it proved it had substantial capital. Thus, petitioners were held to be regular employees of BCC, not FEBTC. The dismissal was appealed to NLRC which on 28 September 1990 affirmed the decision on appeal. 2 On 22 October 1990, NLRC denied reconsideration of its affirmance, 3 prompting petitioners to seek redress from this Court.

Petitioners vehemently contend that BCC in engaged in "labor-only" contracting because it failed to adduce evidence purporting to show that it invested in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of its business. Moreover, petitioners argue that they perform duties which are directly related to the principal business or operation of FEBTC. If the definition of "labor-only" contracting 4 is to be read in conjunction with job contracting, 5 then the only logical conclusion is that BCC is a "labor only" contractor. Consequently, they must be deemed employees of respondent bank by operation of law since BCC is merely an agent of FEBTC following the doctrine laid down in Philippine Bank of Communications v. National Labor Relations Commission 6 where we ruled that 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; hence, FEBTC should be considered the employer of petitioners who are deemed its employees through its agent, "labor-only" contractor BCC.

We cannot sustain the petition.

Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. 7 BCC is therefore a highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.

It is well-settled that there is "labor-only" contracting where: (a) 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, (b) the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer. 8

Article 106 of the Labor Code defines "labor-only" contracting thus —

Art. 106. Contractor or subcontractor. — . . . . 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 by such persons are performing activities which are directly related to the principal business of such employer . . . . (emphasis supplied).

Based on the foregoing, BCC cannot be considered a "labor-only" contractor because it has substantial capital. While there may be no evidence that it has investment in the form of tools, equipment, machineries, work premises, among others, it is enough that it has substantial capital, as was established before the Labor Arbiter as well as the NLRC. In other words, the law does not require both substantial capital and investment in the form of tools, equipment, machineries, etc. This is clear from the use of the conjunction "or". If the intention was to require the contractor to prove that he has both capital and the requisite investment, then the conjunction "and" should have been used. But, having established that it has substantial capital, it was no longer necessary for BCC to further adduce evidence to prove that it does not fall within the purview of "labor-only" contracting. There is even no need for it to refute petitioners' contention that the activities they perform are directly related to the principal business of respondent bank.

Be that as it may, the Court has already taken judicial notice of the general practice adopted in several government and private institutions and industries of hiring independent contractors to perform special services. 9 These services range from janitorial, 10 security 11 and even technical or other specific services such as those performed by petitioners Neri and Cabelin. While these services may be considered directly related to the principal business of the employer, 12 nevertheless, they are not necessary in the conduct of the principal business of the employer.

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In fact, the status of BCC as an independent contractor was previously confirmed by this Court in Associated Labor Unions-TUCP v. National Labor Relations Commission, 13 where we held thus —

The public respondent ruled that the complainants are not employees of the bank but of the company contracted to serve the bank. Building Care Corporation is a big firm which services, among others, a university, an international bank, a big local bank, a hospital center, government agencies, etc. It is a qualified independent contractor. The public respondent correctly ruled against petitioner's contentions . . . . (Emphasis supplied).

Even assuming ex argumenti that petitioners were performing activities directly related to the principal business of the bank, under the "right of control" test they must still be considered employees of BCC. In the case of petitioner Neri, it is admitted that FEBTC issued a job description which detailed her functions as a radio/telex operator. However, a cursory reading of the job description shows that what was sought to be controlled by FEBTC was actually the end-result of the task, e.g., that the daily incoming and outgoing telegraphic transfer of funds received and relayed by her, respectively, tallies with that of the register. The guidelines were laid down merely to ensure that the desired end-result was achieved. It did not, however, tell Neri how the radio/telex machine should be operated. In the Shipside case, 14 we ruled —

. . . . If in the course of private respondents' work (referring to the workers), SHIPSIDE occasionally issued instructions to them, that alone does not in the least detract from the fact that only STEVEDORES is the employer of the private respondents, for in legal contemplation, such instructions carry no more weight than mere requests, the privity of contract being between SHIPSIDE and STEVEDORES . . . .

Besides, petitioners do not deny that they were selected and hired by BCC before being assigned to work in the Cagayan de Oro Branch of FFBTC. BCC likewise acknowledges that petitioners are its employees. The record is replete with evidence disclosing that BCC maintained supervision and control over petitioners through its Housekeeping and Special Services Division: petitioners reported for work wearing the prescribed uniform of BCC; leaves of absence were filed directly with BCC; and, salaries were drawn only from BCC. 15

As a matter of fact, Neri even secured a certification from BCC on 16 May 1986 that she was employed by the latter. On the other hand, on 24 May 1988, Cabelin filed a complaint for underpayment of wages, non-integration of salary adjustments mandated by Wage Orders Nos. 5 & 6 and R.A. 6640 as well as for illegal deduction 16 against BCC alone which was provisionally dismissed on 19 August 1988 upon Cabelin's manifestation that his money claim was negligible. 17

More importantly, under the terms and conditions of the contract, it was BCC alone which had the power to reassign petitioners. Their deployment to FEBTC was not subject to the bank's acceptance. Cabelin was promoted to messenger because the FEBTC branch manager promised BCC that two (2) additional janitors would be hired from the company if the promotion was to be effected. 18 Furthermore, BCC was to be paid in lump sum unlike in the situation in Philippine Bank of Communications 19 where the contractor, CESI, was to be paid at a daily rate on a per person basis. And, the contract therein stipulated that the CESI was merely to provide manpower that would render temporary services. In the case at bar, Neri and Cabelin were to perform specific special services. Consequently, petitioners cannot be held to be employees of FEBTC as BCC "carries an independent business" and undertaken the performance of its contract with various clients according to its "own manner and method, free from the control and supervision" of its principals in all matters "except as to the results thereof." 20

Indeed, the facts in Philippine Bank of Communications do not square with those of the instant case. Therein, the Court ruled that CESI was a "labor-only" contractor because upholding the contract between the contractor and the bank would in effect permit employers to avoid the necessity of hiring regular or permanent employees and would enable them to keep their employees indefinitely on a temporary or casual basis, thus denying them security of tenure in their jobs. This of course violates the Labor Code. BCC has not committed any violation. Also, the former case was for illegal dismissal; this case, on the other hand, is for conversion of employment status so that petitioners can receive the same salary being given to regular employees of FEBTC. But, as herein determined, petitioners are not regular employees of FEBTC but of BCC. At any rate, the finding that BCC in a qualified independent contractor precludes us from applying the Philippine Bank of Communications doctrine to the instant petition.

The determination of employer-employee relationship involves factual findings. 21 Absent any grave abuse of discretion, and we find none in the case before us, we are bound by the findings of the Labor Arbiter as affirmed by respondent NLRC.

IN VIEW OF THE FOREGOING, the Petition for Certiorari is DISMISSED.

SO ORDERED.

Cruz, Griño-Aquino, Davide, Jr. and Quiason, JJ., concur.

SECOND DIVISION

MANILA ELECTRIC COMPANY, G.R. No. 145271 Petitioner, - versus - Present:ROGELIO BENAMIRA, ERNIE DE SAGUN[1], DIOSDADO PUNO, Chairman,YOGARE, FRANCISCO MORO[2], AUSTRIA-MARTINEZ,OSCAR LAGONOY[3], ROLANDO CALLEJO, SR., BENI, ALEX BENI, RAUL[4] DE TINGA, andGUIA, ARMED SECURITY & CHICO-NAZARIO, JJ.DETECTIVE AGENCY, INC.,(ASDAI) and ADVANCE FORCESSECURITY & INVESTIGATIONSERVICES, INC., (AFSISI),

Promulgated:

Respondents. July 14, 2005x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

AUSTRIA-MARTINEZ, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the Decision,[5] dated September 27, 2000, of the Court of Appeals (CA) in CA-G.R. SP No. 50520 which declared petitioner Manila Electric Company (MERALCO) as the direct employer of individual respondents Rogelio Benamira, Ernie De Sagun, Diosdado Yogare, Francisco Moro, Oscar Lagonoy, Rolando Beni, Alex Beni and Raul De Guia (individual respondents for brevity).

The factual background of the case is as follows:

The individual respondents are licensed security guards formerly employed by People’s Security, Inc. (PSI) and deployed as such at MERALCO’s head office in Ortigas Avenue, Pasig, Metro Manila.

On November 30, 1990, the security service agreement between PSI and MERALCO was terminated.

Immediately thereafter, fifty-six of PSI’s security guards, including herein eight individual respondents, filed a complaint for unpaid monetary benefits against PSI and MERALCO, docketed as NLRC-NCR Case No. 05-02746-90.

Meanwhile, the security service agreement between respondent Armed Security & Detective Agency, Inc., (ASDAI) and MERALCO took effect on December 1, 1990. In the agreement, ASDAI was designated as the AGENCY while MERALCO was designated as the COMPANY. The pertinent terms and conditions of the agreement are as follows:

1. The AGENCY shall initially provide the COMPANY with TWO HUNDRED TWENTY (220) licensed, uniformed, bonded and armed security guards to be assigned at the COMPANY’s “MERALCO CENTER,” complete with nightsticks, flashlights, raincoats, and other paraphernalias to work on eight (8) hours duty. The COMPANY shall determine the number of security guards in accordance with its needs and the areas of responsibility assigned to each, and shall have the option to increase or decrease the number of guards at any time provided the AGENCY is notified within twenty four (24) hours of the contemplated reduction or increase of the guards in which case the cost or consideration shall be adjusted accordingly. 2. The COMPANY shall furnish the AGENCY copies of written specific instruction to be followed or implemented by the latter’s personnel in the discharge of their duties and responsibilities and the AGENCY shall be responsible for the faithful compliance therewith by its personnel together with such general and specific orders which shall be issued from time to time. 3. For and in consideration of the services to be rendered by the AGENCY to the COMPANY, the COMPANY during the term of this contract shall pay the AGENCY the amount of THREE THOUSAND EIGHT HUNDRED PESOS (P3,800.00) a month per guard, FOUR THOUSAND PESOS (P4,000.00) for the Shift Leader and FOUR THOUSAND TWO HUNDRED PESOS (P4,200.00) for the Detachment Commander for eight (8) hours work/day, Saturdays, Sundays and Holidays included, payable semi-monthly.

xxx

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5. The AGENCY shall assume the responsibility for the proper and efficient performance of duties by the security guards employed by it and it shall be solely responsible for any act of said security guards during their watch hours, the COMPANY being specifically released from any and all liability to third parties arising from the acts or omission of the security guards of the AGENCY. 6. The AGENCY also agrees to hold the COMPANY entirely free from any liability, cause or causes of action or claims which may be filed by said security guards by reason of their employment with the AGENCY pursuant to this Agreement or under the provisions of the Labor Code, the Social Security Act, and other laws, decrees or social legislations now enacted or which hereafter may be enacted. 7. Discipline and Administration of the security guards shall conform with the rules and regulations of the AGENCY, and the COMPANY reserves the right to require without explanation the replacement of any guard whose behavior, conduct or appearance is not satisfactory to the COMPANY and that the AGENCY cannot pull-out any security guard from the COMPANY without the consent of the latter. 8. The AGENCY shall conduct inspections through its duly authorized inspector at least two (2) times a week of guards assigned to all COMPANY installations secured by the AGENCY located in the Metropolitan Manila area and at least once a week of the COMPANY’s installations located outside of the Metropolitan Manila area and to further submit its inspection reports to the COMPANY. Likewise, the COMPANY shall have the right at all times to inspect the guards of the AGENCY assigned to the COMPANY. 9. The said security guards shall be hired by the AGENCY and this contract shall not be deemed in any way to constitute a contract of employment between the COMPANY and any of the security guards hired by the AGENCY but merely as a contract specifying the conditions and manner under which the AGENCY shall render services to the COMPANY. 10. Nothing herein contained shall be understood to make the security guards under this Agreement, employees of the COMPANY, it being clearly understood that such security guards shall be considered as they are, employees of the AGENCY alone, so that the AGENCY shall be responsible for compliance with all pertinent labor laws and regulations included but not limited to the Labor Code, Social Security Act, and all other applicable laws and regulations including that providing for a withholding tax on income.

xxx 13. This contract shall take effect on the 1 st day of December, 1990 and shall continue from year to year unless sooner terminated by the COMPANY for cause or otherwise terminated by either party without cause upon thirty (30) days written notice by one party to the other.[6]

Subsequently, the individual respondents were absorbed by ASDAI and retained at MERALCO’s head office.

On June 29, 1992, Labor Arbiter Manuel P. Asuncion rendered a decision in NLRC-NCR Case No. 05-02746-90 in favor of the former PSI security guards, including the individual respondents.

Less than a month later, or on July 21, 1992, the individual respondents filed another complaint for unpaid monetary benefits, this time against ASDAI and MERALCO, docketed as NLRC-NCR Case No. 00-07-03953-92.

On July 25, 1992, the security service agreement between respondent Advance Forces Security & Investigation Services, Inc. (AFSISI) and MERALCO took effect, terminating the previous security service agreement with ASDAI.[7] Except as to the number of security guards,[8] the amount to be paid the agency,[9] and the effectivity of the agreement,[10] the terms and conditions were substantially identical with the security service agreement with ASDAI.

On July 29, 1992, the individual respondents amended their complaint to implead AFSISI as party respondent. On August 11, 1992 they again amended their complaint to allege that AFSISI terminated their services on August 6, 1992 without notice and just cause and therefore guilty of illegal dismissal.

The individual respondents alleged that: MERALCO and ASDAI never paid their overtime pay, service incentive leave pay, premium pay for Sundays and Holidays, P50.00 monthly uniform allowance and underpaid their 13 th month pay; on July 24, 1992, when the security service agreement of ASDAI was terminated and AFSISI took over the security functions of the former on July 25, 1992, respondent security guard Benamira was no longer given any work assignment when AFSISI learned that the former has a pending case against PSI, in effect, dismissing him from the service without

just cause; and, the rest of the individual respondents were absorbed by AFSISI but were not given any assignments, thereby dismissing them from the service without just cause.

ASDAI denied in general terms any liability for the claims of the individual respondents, claiming that there is nothing due them in connection with their services.

On the other hand, MERALCO denied liability on the ground of lack of employer-employee relationship with individual respondents. It averred that the individual respondents are the employees of the security agencies it contracted for security services; and that it has no existing liability for the individual respondents’ claims since said security agencies have been fully paid for their services per their respective security service agreement.

For its part, AFSISI asserted that: it is not liable for illegal dismissal since it did not absorb or hire the individual respondents, the latter were merely hold-over guards from ASDAI; it is not obliged to employ or absorb the security guards of the agency it replaced since there is no provision in its security service agreement with MERALCO or in law requiring it to absorb and hire the guards of ASDAI as it has its own guards duly trained to service its various clients.

On January 3, 1994, after the submission of their respective evidence and position papers, Labor Arbiter Pablo C. Espiritu, Jr. rendered a Decision holding ASDAI and MERALCO jointly and solidarily liable to the monetary claims of individual respondents and dismissing the complaint against AFSISI. The dispositive portion of the decision reads as follows:

WHEREFORE, conformably with the above premises, judgment is hereby rendered: 1. Declaring ASDAI as the employer of the complainants and as such complainants should be reinstated as regular security guards of ASDAI without loss of seniority rights, privileges and benefits and for ASDAI to immediately post the complainants as security guards with their clients. The complaint against AFSISI is Dismissed for lack of merit. 2. Ordering both respondents, ASDAI and MERALCO to jointly and solidarily pay complainants monetary claims (underpayment of actual regular hours and overtime hours rendered, and premium pay for holiday and rest day) in the following amounts: NAME

OVERTIME DIFFERENTIALS AND PREMIUM PAY FOR HOLIDAY & REST DAY

1. Rogelio Benamira P14,615.752. Ernie De Sagun 21,164.313. Diosdado Yogare 7,108.774. Francisco Maro 26,567.115. Oscar Lagonay 18,863.366. Rolando Beni 21,834.127. Alex Beni 21,648.808. Ruel De Guia 14,200.33

3. Ordering Respondents ASDAI and MERALCO to jointly and solidarily pay complainants 10% attorney’s fees in the amount of P14,600.25 based on the total monetary award due to the complainants in the amount of P146,002.55. All other claims of the complainants are hereby DISMISSED for lack of merit. The counter-claim of respondent AFSISI for damages is hereby dismissed for want of substantial evidence to justify the grant of damages. SO ORDERED.[11]

All the parties, except AFSISI, appealed to the National Labor Relations

Commission (NLRC). Individual respondents’ partial appeal assailed solely the Labor Arbiter’s

declaration that ASDAI is their employer. They insisted that AFSISI is the party liable for their illegal dismissal and should be the party directed to reinstate them.

For its part, MERALCO attributed grave abuse of discretion on the part of the Labor Arbiter in failing to consider the absence of employer-employee relationship between MERALCO and individual respondents.

On the other hand, ASDAI took exception from the Labor Arbiter’s finding that it is the employer of the individual respondents and therefore liable for the latter’s unpaid monetary benefits.

DO 18-02 Cases 60

On April 10, 1995, the NLRC affirmed in toto the decision of the Labor Arbiter.[12] On April 19, 1995, the individual respondents filed a motion for partial reconsideration but it was denied by the NLRC in a Resolution dated May 23, 1995.[13]

On August 11, 1995, the individual respondents filed a petition for certiorari before us, docketed as G.R. No. 121232. [14] They insisted that they were absorbed by AFSISI and the latter effected their termination without notice and just cause.

After the submission of the responsive pleadings and memoranda, we referred the petition, in accordance with St. Martin Funeral Homes vs. NLRC,[15] to the CA which, on September 27, 2000, modified the decision of the NLRC by declaring MERALCO as the direct employer of the individual respondents.

The CA held that: MERALCO changed the security agency manning its premises three times while engaging the services of the same people, the individual respondents; MERALCO employed a scheme of hiring guards through an agency and periodically entering into service contract with one agency after another in order to evade the security of tenure of individual respondents; individual respondents are regular employees of MERALCO since their services as security guards are usually necessary or desirable in the usual business or trade of MERALCO and they have been in the service of MERALCO for no less than six years; an employer-employee relationship exists between MERALCO and the individual respondents because: (a) MERALCO had the final say in the selection and hiring of the guards, as when its advice was proved to have carried weight in AFSISI’s decision not to absorb the individual respondents into its workforce; (b) MERALCO paid the wages of individual respondents through ASDAI and AFSISI; (c) MERALCO’s discretion on matters of dismissal of guards was given great weight and even finality since the record shows that the individual respondents were replaced upon the advice of MERALCO; and, (d) MERALCO has the right, at any time, to inspect the guards, to require without explanation the replacement of any guard whose behavior, conduct or appearance is not satisfactory and ASDAI and AFSISI cannot pull out any security guard from MERALCO without the latter’s consent; and, a labor-only contract existed between ASDAI and AFSISI and MERALCO, such that MERALCO is guilty of illegal dismissal without just cause and liable for reinstatement of individual respondents to its workforce.

The dispositive portion of the CA’s Decision reads as follows: WHEREFORE, in view of the foregoing premises, the Resolution subject of this petition is hereby AFFIRMED with MODIFICATION in the sense that MERALCO is declared the employer of the petitioners. Accordingly, private respondent MERALCO is hereby ordered as follows: 1. To reinstate petitioners into MERALCO’s work force as regular security guards without loss of seniority rights and other privileges; and 2. To pay the petitioners’ full backwages, inclusive of allowances, and other benefits or their monetary equivalent computed from the time their compensation was withheld from them up to the time of their actual reinstatement, for which the Labor Arbiter Pablo C. Espiritu, Jr. is hereby directed to undertake the necessary computation and enforcement thereof. With respect to the rest of the dispositive portion of the assailed Resolution which affirmed the decision of the Labor Arbiter Pablo C. Espiritu, Jr., particularly the joint and solidary liabilities of both ASDAI and MERALCO to the petitioners, the same are hereby AFFIRMED. SO ORDERED.[16]

Hence, the present petition for review on certiorari, filed by MERALCO,

anchored on the following grounds:

A. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR AND GRAVE ABUSE OF DISCRETION IN HOLDING THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER MERALCO AND INDIVIDUAL RESPONDENTS. B. THE COURT OF APPEALS GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT INDIVIDUAL RESPONDENTS ARE REGULAR EMPLOYEES OF PETITIONER MERALCO. C. THE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN ALLOWING INDIVIDUAL RESPONDENTS TO RAISE FOR THE FIRST TIME ON APPEAL, THE ISSUE THAT PETITIONER WAS THEIR DIRECT EMPLOYER. D. THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN FINDING THAT PETITIONER MERALCO IS GUILTY OF ILLEGAL DISMISSAL. E. THE COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT INDIVIDUAL RESPONDENTS ARE ENTITLED TO REINSTATEMENT INTO PETITIONER’S WORKFORCE.

F. THE COURT OF APPEALS SERIOUSLY ERRED IN NOT FINDING THAT PETITIONER MERALCO IS ENTITLED TO REIMBURSEMENT FROM RESPONDENT ASDAI FOR THE MONETARY CLAIMS PETITIONER PAID TO INDIVIDUAL RESPONDENTS PURSUANT TO THE SECURITY SERVICE AGREEMENT.[17]

Anent the first ground, MERALCO submits that the elements of “four-fold”

test to determine the existence of an employer-employee relation, namely: (1) the power to hire, (2) the payment of wages, (3) the power to dismiss, and (4) the power to control, are not present in the instant case.

Regarding the power to hire, MERALCO contends that the records are

bereft of any evidence that shows that it participated in or influenced the decision of PSI and ASDAI to hire or absorb the individual respondents.

As to the payment of wages, MERALCO maintains that the individual

respondents received their wages from their agency. With regard to the power to dismiss, MERALCO argues that the security

service agreement clearly provided that the discipline and administration of the security guards shall conform to the rules and regulations of the agency.

Concerning the power of control, MERALCO asserts that there is no

evidence that individual respondents were subjected to its control as to the manner or method by which they conduct or perform their work of guarding of MERALCO’s premises.

Furthermore, MERALCO insists that ASDAI and AFSISI are not labor-only

contractors since they have their own equipment, machineries and work premises which are necessary in the conduct of their business and the duties performed by the security guards are not necessary in the conduct of MERALCO’s principal business.

With respect to the second ground, MERALCO argues that the individual

respondents cannot be considered as regular employees as the duties performed by them as security guards are not necessary in the conduct of MERALCO’s principal business which is the distribution of electricity.

As regards the third ground, MERALCO argues that it was denied due

process when the individual respondents raised for the first time in the CA the issue that MERALCO is their direct employer since the individual respondents have always considered themselves as employees of AFSISI and nowhere in the Labor Arbiter or the NLRC did they raise the argument that MERALCO is their direct employer.

Regarding the fourth ground, MERALCO asserts that it is not guilty of illegal

dismissal because it had no direct hand or participation in the termination of the employment of individual respondents, who even insisted in their petition for certiorari in the CA that it was AFSISI which terminated their employment.

As to the fifth ground, MERALCO maintains that the individual respondents

are not entitled to reinstatement into its workforce because no employer-employee relationship exists between it and the individual respondents.

With regard to the sixth ground, MERALCO asserts that since it is not the

direct employer of the individual respondents, it has a right of reimbursement from ASDAI for the full amount it may pay to the individual respondents under Articles 106 and 107 of the Labor Code.

In contrast, the individual respondents maintain that the CA aptly found

that all the elements in employer-employee relationship exist between them and MERALCO and there is no cogent reason to deviate from such factual findings.

For its part, ASDAI contends that the instant petition raises factual matters

beyond the jurisdiction of this Court to resolve since only questions of law may be raised in a petition for review on certiorari. It submits that while the rule admits of exceptions, MERALCO failed to establish that the present case falls under any of the exceptions.

On the other hand, AFSISI avers that there is no employer-employee

relationship between MERALCO and the security guards of any of the security agencies under contract with MERALCO.

It is a settled rule that in the exercise of the Supreme Court’s power of

review, the Court is not a trier of facts and does not normally undertake the re-examination of the evidence presented by the contending parties during the trial of the case considering that the findings of facts of the CA are conclusive and binding on the Court. However, jurisprudence has recognized several exceptions in which factual issues may be resolved by this Court, to wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when in making its findings the Court of Appeals went beyond the issues of the case, or its findings are contrary to the

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admissions of both the appellant and the appellee; (7) when the findings are contrary to the trial court; (8) when the findings are conclusions without citation of specific evidence on which they are based; (9) when the facts set forth in the petition as well as in the petitioner’s main and reply briefs are not disputed by the respondent; (10) when the findings of fact are premised on the supposed absence of evidence and contradicted by the evidence on record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties, which, if properly considered, would justify a different conclusion.[18]

In the present case, the existence of an employer-employee relationship is

a question of fact which is well within the province of the CA. Nonetheless, given the reality that the CA’s findings are at odds to those of the NLRC, the Court is constrained to look deeper into the attendant circumstances obtaining in the present case, as appearing on record.

At the outset, we note that the individual respondents never alleged in their complaint in the Labor Arbiter, in their appeal in the NLRC and even in their petition for certiorari in the CA that MERALCO was their employer. They have always advanced the theory that AFSISI is their employer. A perusal of the records shows it was only in their Memorandum in the CA that this thesis was presented and discussed for the first time. We cannot ignore the fact that this position of individual respondents runs contrary to their earlier submission in their pleadings filed in the Labor Arbiter, NLRC and even in the petition for certiorari in the CA that AFSISI is their employer and liable for their termination. As the object of the pleadings is to draw the lines of battle, so to speak, between the litigants and to indicate fairly the nature of the claims or defenses of both parties, a party cannot subsequently take a position contrary to, or inconsistent, with his pleadings.[19]

Moreover, it is a fundamental rule of procedure that higher courts are

precluded from entertaining matters neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first time only in a motion for reconsideration or on appeal.[20] The individual respondents are bound by their submissions that AFSISI is their employer and they should not be permitted to change their theory. Such a change of theory cannot be tolerated on appeal, not due to the strict application of procedural rules but as a matter of fairness. A change of theory on appeal is objectionable because it is contrary to the rules of fair play, justice and due process.[21]

Thus, the CA should not have considered the new theory offered by the

individual respondents in their memorandum. The present petition for review on certiorari is far from novel and, in fact,

not without precedence. We have ruled in Social Security System vs. Court of Appeals [22]

that:

...The guards or watchmen render their services to private respondent by allowing themselves to be assigned by said respondent, which furnishes them arms and ammunition, to guard and protect the properties and interests of private respondent's clients, thus enabling that respondent to fulfill its contractual obligations. Who the clients will be, and under what terms and conditions the services will be rendered, are matters determined not by the guards or watchmen, but by private respondent. On the other hand, the client companies have no hand in selecting who among the guards or watchmen shall be assigned to them. It is private respondent that issues assignment orders and instructions and exercises control and supervision over the guards or watchmen, so much so that if, for one reason or another, the client is dissatisfied with the services of a particular guard, the client cannot himself terminate the services of such guard, but has to notify private respondent, which either substitutes him with another or metes out to him disciplinary measures. That in the course of a watchman's assignment the client conceivably issues instructions to him, does not in the least detract from the fact that private respondent is the employer of said watchman, for in legal contemplation such instructions carry no more weight than mere requests, the privity of contract being between the client and private respondent, not between the client and the guard or watchman. Corollarily, such giving out of instructions inevitably spring from the client's right predicated on the contract for services entered into by it with private respondent. In the matter of compensation, there can be no question at all that the guards or watchmen receive compensation from private respondent and not from the companies or establishments whose premises they are guarding. The fee contracted for to be paid by the client is admittedly not equal to the salary of a guard or watchman; such fee is arrived at independently of the salary to which the guard or watchman is entitled under his arrangements with private respondent.[23]

and reiterated in American President Lines vs. Clave,[24] thus:

In the light of the foregoing standards, We fail to see how the complaining watchmen of the Marine Security Agency can be considered as employees

of the petitioner. It is the agency that recruits, hires, and assigns the work of its watchmen. Hence, a watchman can not perform any security service for the petitioner's vessels unless the agency first accepts him as its watchman. With respect to his wages, the amount to be paid to a security guard is beyond the power of the petitioner to determine. Certainly, the lump sum amount paid by the petitioner to the agency in consideration of the latter's service is much more than the wages of any one watchman. In point of fact, it is the agency that quantifies and pays the wages to which a watchman is entitled. Neither does the petitioner have any power to dismiss the security guards. In fact, We fail to see any evidence in the record that it wielded such a power. It is true that it may request the agency to change a particular guard. But this, precisely, is proof that the power lies in the hands of the agency.Since the petitioner has to deal with the agency, and not the individual watchmen, on matters pertaining to the contracted task, it stands to reason that the petitioner does not exercise any power over the watchmen's conduct. Always, the agency stands between the petitioner and the watchmen; and it is the agency that is answerable to the petitioner for the conduct of its guards.[25]

In this case, the terms and conditions embodied in the security service

agreement between MERALCO and ASDAI expressly recognized ASDAI as the employer of individual respondents.

Under the security service agreement, it was ASDAI which (a) selected,

engaged or hired and discharged the security guards; (b) assigned them to MERALCO according to the number agreed upon; (c) provided the uniform, firearms and ammunition, nightsticks, flashlights, raincoats and other paraphernalia of the security guards; (d) paid them salaries or wages; and, (e) disciplined and supervised them or principally controlled their conduct. The agreement even explicitly provided that “[n]othing herein contained shall be understood to make the security guards under this Agreement, employees of the COMPANY, it being clearly understood that such security guards shall be considered as they are, employees of the AGENCY alone.” Clearly, the individual respondents are the employees of ASDAI.

As to the provision in the agreement that MERALCO reserved the right to seek replacement of any guard whose behavior, conduct or appearance is not satisfactory, such merely confirms that the power to discipline lies with the agency. It is a standard stipulation in security service agreements that the client may request the replacement of the guards to it. Service-oriented enterprises, such as the business of providing security services, generally adhere to the business adage that “the customer or client is always right” and, thus, must satisfy the interests, conform to the needs, and cater to the reasonable impositions of its clients.

Neither is the stipulation that the agency cannot pull out any security guard from MERALCO without its consent an indication of control. It is simply a security clause designed to prevent the agency from unilaterally removing its security guards from their assigned posts at MERALCO’s premises to the latter’s detriment.

The clause that MERALCO has the right at all times to inspect the guards of the agency detailed in its premises is likewise not indicative of control as it is not a unilateral right. The agreement provides that the agency is principally mandated to conduct inspections, without prejudice to MERALCO’s right to conduct its own inspections.

Needless to stress, for the power of control to be present, the person for whom the services are rendered must reserve the right to direct not only the end to be achieved but also the means for reaching such end. [26] Not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former. [27] Rules which serve as general guidelines towards the achievement of the mutually desired result are not indicative of the power of control.[28]

Verily, the security service agreements in the present case provided that all

specific instructions by MERALCO relating to the discharge by the security guards of their duties shall be directed to the agency and not directly to the individual respondents. The individual respondents failed to show that the rules of MERALCO controlled their performance.

Moreover, ASDAI and AFSISI are not “labor-only” contractors. There is “labor only” contract when the person acting as contractor is considered merely as an agent or intermediary of the principal who is responsible to the workers in the same manner and to the same extent as if they had been directly employed by him. On the other hand, “job (independent) contracting” is present if the following conditions are met: (a) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and (b) the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business.[29] Given the above distinction and the provisions of the security service

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agreements entered into by petitioner with ASDAI and AFSISI, we are convinced that ASDAI and AFSISI were engaged in job contracting.

The individual respondents can not be considered as regular employees of

the MERALCO for, although security services are necessary and desirable to the business of MERALCO, it is not directly related to its principal business and may even be considered unnecessary in the conduct of MERALCO’s principal business, which is the distribution of electricity.

Furthermore, the fact that the individual respondents filed their claim for unpaid monetary benefits against ASDAI is a clear indication that the individual respondents acknowledge that ASDAI is their employer.

We cannot give credence to individual respondents’ insistence that they were absorbed by AFSISI when MERALCO’s security service agreement with ASDAI was terminated. The individual respondents failed to present any evidence to confirm that AFSISI absorbed them into its workforce. Thus, respondent Benamira was not retained in his post at MERALCO since July 25, 1992 due to the termination of the security service agreement of MERALCO with ASDAI. As for the rest of the individual respondents, they retained their post only as “hold-over” guards until the security guards of AFSISI took over their post on August 6, 1992.[30]

In the present case, respondent Benamira has been “off-detail” for

seventeen days while the rest of the individual respondents have only been “off- detail” for five days when they amended their complaint on August 11, 1992 to include the charge of illegal dismissal. The inclusion of the charge of illegal dismissal then was premature. Nonetheless, bearing in mind that ASDAI simply stopped giving the individual respondents any assignment and their inactivity clearly persisted beyond the six-month period allowed by Article 286[31] of the Labor Code, the individual respondents were, in effect, constructively dismissed by ASDAI from employment, hence, they should be reinstated.

The fact that there is no actual and direct employer-employee relationship between MERALCO and the individual respondents does not exonerate MERALCO from liability as to the monetary claims of the individual respondents. When MERALCO contracted for security services with ASDAI as the security agency that hired individual respondents to work as guards for it, MERALCO became an indirect employer of individual respondents pursuant to Article 107 of the Labor Code, which reads:

ART. 107. Indirect employer - The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project.

When ASDAI as contractor failed to pay the individual respondents, MERALCO as principal becomes jointly and severally liable for the individual respondents’ wages, under Articles 106 and 109 of the Labor Code, which provide:

ART. 106. Contractor or subcontractor. - Whenever an employer enters into a contract with another person for the performance of the former[‘s] work, the employees of the contractor and of the latter[‘s] subcontractor, if any, shall be paid in accordance with the provisions of this Code. In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him. xxx ART. 109. Solidary liability - The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with his contractor or subcontractor for any violation of any provision of this Code. For purpose of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers. ASDAI is held liable by virtue of its status as direct employer, while

MERALCO is deemed the indirect employer of the individual respondents for the purpose of paying their wages in the event of failure of ASDAI to pay them. This statutory scheme gives the workers the ample protection consonant with labor and social justice provisions of the 1987 Constitution.[32]

However, as held in Mariveles Shipyard Corp. vs. Court of Appeals,[33] the

solidary liability of MERALCO with that of ASDAI does not preclude the application of Article 1217 of the Civil Code on the right of reimbursement from his co-debtor by the one who paid,[34] which provides:

ART. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of each. ASDAI may not seek exculpation by claiming that MERALCO’s payments to it

were inadequate for the individual respondents’ lawful compensation. As an employer, ASDAI is charged with knowledge of labor laws and the adequacy of the compensation that it demands for contractual services is its principal concern and not any other’s.[35]

WHEREFORE, the present petition is GRANTED. The assailed Decision,

dated September 27, 2000, of the CA is REVERSED and SET ASIDE. The Decision of the Labor Arbiter dated January 3, 1994 and the Resolution of the NLRC dated April 10, 1995 are AFFIRMED with the MODIFICATION that the joint and solidary liability of ASDAI and MERALCO to pay individual respondents’ monetary claims for underpayment of actual regular hours and overtime hours rendered, and premium pay for holiday and rest day, as well as attorney’s fees, shall be without prejudice to MERALCO’s right of reimbursement from ASDAI.

SO ORDERED.

G.R. No. 171814 May 8, 2009

SOUTH DAVAO DEVELOPMENT COMPANY, INC. (NOW SODACO AGRICULTURAL CORPORATION) AND/OR MALONE PACQUIAO AND VICTOR A. CONSUNJI, Petitioners, vs.SERGIO L. GAMO, ERNESTO BELLEZA, FELIX TERONA, CARLOS ROJAS, MAXIMO MALINAO, VIRGILIO COSEP, ELEONOR COSEP, MAXIMO TOLDA, NELSON BAGAAN, and TRADE UNION OF THE PHILIPPINES and ALLIED SERVICES (TUPAS), Respondents.

TINGA, J.:

Before us is a Rule 45 petition1 which seeks the reversal of the Court of Appeals’ decision2 and resolution3 in CA-G.R. SP No. 68511. The Court of Appeal’s decision reinstated the NLRC’s Resolution4 dated 23 March 2001 which reversed the labor arbiter’s decision.5

Petitioner South Davao Development Company (petitioner or petitioner corporation) is the operator of a coconut and mango farm in San Isidro, Davao Oriental and Inawayan/Baracatan, Davao del Sur. On August 1963 petitioner hired respondent Sergio L. Gamo (Gamo) as a foreman. Sometime in 1987, petitioner appointed Gamo as a copra maker contractor. Respondents Ernesto Belleza, Carlos Rojas, Maximo Malinao were all employees in petitioner’s coconut farm, while respondents Felix Terona, Virgilio Cosep, Maximo Tolda, and Nelson Bagaan were assigned to petitioner’s mango farm. All of the abovenamed respondents (copra workers) were later transferred by petitioner to Gamo as the latter’s copraceros. From 1987 to 1999, Gamo and petitioner entered into a profit-sharing agreement wherein 70% of the net proceeds of the sale of copra went to petitioner and 30% to Gamo. The copra workers were paid by Gamo from his 30% share.

Petitioner wanted to standardize payments to its "contractors" in its coconut farms. On 2 October 1999, petitioner proposed a new payment scheme to Gamo. The new scheme provided a specific price for each copra making activity. Gamo submitted his counter proposal.6 Petitioner did not accept Gamo’s counter proposal since it was higher by at least fifty percent (50%) from its original offer. Without agreeing to the new payment scheme, Gamo and his copra workers started to do harvesting work. Petitioner told them to stop. Eventually, petitioner and Gamo agreed that the latter may continue with the harvest provided that it would be his last "contract" with petitioner. Gamo suggested to petitioner to look for a new "contractor" since he was not amenable to the new payment scheme.7

Gamo and petitioner failed to agree on a payment scheme, thus, petitioner did not renew the "contract" of Gamo. Gamo and the copra workers alleged that they were illegally dismissed.

On the other hand, respondent Eleonor Cosep (Eleonor) was employed as a mango classifier in the packing house of petitioner’s mango farm in San Isidro, Davao Oriental. Sometime in October 1999, she did not report for work as she had wanted to raise and sell pigs instead. Petitioner, through Malone Pacquiao, tried to convince Eleonor to report for work but to no avail.

On 22 March 2000, respondents filed a complaint8 for illegal dismissal against petitioner. They alleged that sometime in December 1999, petitioner verbally terminated them en masse.

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The labor arbiter dismissed9 the complaint. He ruled that there was no employee-employer relationship between petitioner and respondents. As to Eleonor, he ruled that she had voluntarily stopped working.

Respondents appealed to the National Labor Relations Commission (NLRC). The NLRC’s Resolution10 reversed the arbiter’s decision and ruled that respondents were petitioner’s employees. Petitioner moved11 for reconsideration. The NLRC granted12 the motion for reconsideration and ruled that the nature of the job of the respondents could not result in an employer-employee relationship. Respondents moved for reconsideration which was denied.13

Respondents filed a petition for certiorari14 under Rule 65 with the Court of Appeals. The Court of Appeals ruled that there existed an employer-employee relationship. It declared that respondents were regular seasonal employees who can be dismissed by the petitioner at the end of the season provided due process is observed.15 With regard to Eleonor, the Court of Appeals ruled that she did not abandon her work.

Hence this petition.

Petitioner raises the following issues: (1) whether the Court of Appeals failed to take judicial notice of the accepted practice of independent contractors in the coconut industry; (2) whether there is a valid job contracting between petitioner and Gamo; and (3) whether Eleonor had effectively abandoned her work.

The labor arbiter took judicial notice of the alleged prevailing business practices in the coconut industry that copra making activities are done quarterly; that the workers can contract with other farms; and that the workers are independent from the land owner on all work aspects. Petitioner wants this Court to take judicial notice of the current business practice in the coconut industry which allegedly treats copraceros as independent contractors. In Expertravel & Tours, Inc. v. Court of Appeals, 16 we held, thus:

Generally speaking, matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the limits of the jurisdiction of the court. The principal guide in determining what facts may be assumed to be judicially known is that of notoriety.17 Hence, it can be said that judicial notice is limited to facts evidenced by public records and facts of general notoriety. Moreover, a judicially noticed fact must be one not subject to a reasonable dispute in that it is either: (1) generally known within the territorial jurisdiction of the trial court; or (2) capable of accurate and ready determination by resorting to sources whose accuracy cannot reasonably be questionable.18

Things of "common knowledge," of which courts take judicial matters coming to the knowledge of men generally in the course of the ordinary experiences of life, or they may be matters which are generally accepted by mankind as true and are capable of ready and unquestioned demonstration. Thus, facts which are universally known, and which may be found in encyclopedias, dictionaries or other publications, are judicially noticed, provided, they are of such universal notoriety and so generally understood that they may be regarded as forming part of the common knowledge of every person. As the common knowledge of man ranges far and wide, a wide variety of particular facts have been judicially noticed as being matters of common knowledge. But a court cannot take judicial notice of any fact which, in part, is dependent on the existence or non-existence of a fact of which the court has no constructive knowledge.19

An invocation that the Court take judicial notice of certain facts should satisfy the requisites set forth by case law. A mere prayer for its application shall not suffice. Thus, in this case the Court cannot take judicial notice of the alleged business practices in the copra industry since none of the material requisites of matters of judicial notice is present in the instant petition. The record is bereft of any indication that the matter is of common knowledge to the public and that it has the characteristic of notoriety, except petitioners’ self-serving claim.

A related issue is whether Gamo is an independent contractor. In Escario v. NLRC,20 we ruled that there is permissible job contracting when a principal agrees to put out or farm out with a contractor or a subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job or work service is to be performed within or outside the premises of the principal.21 To establish the existence of an independent contractor, we apply the following conditions: first, the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except to the result thereof; and second, the contractor has substantial capital or investments in the form of tools, equipment, machineries, work premises and other materials which are necessary in the conduct of his business.22

The Implementing Rules and Regulation of the Labor Code defines investment—as 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.23 The investment must be sufficient to carry out the job at hand.

In the case at bar, Gamo and the copra workers did not exercise independent judgment in the performance of their tasks. The tools used by Gamo and his copra workers like the karit, bolo, pangbunot, panglugit and pangtapok are not sufficient to enable them to complete the job.24 Reliance on these primitive tools is not enough. In fact, the accomplishment of their task required more expensive machineries and equipment, like the trucks to haul the harvests and the drying facility, which petitioner corporation owns.

In order to determine the existence of an employer-employee relationship, the Court has frequently applied the four-fold test: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so called "control test," which is considered the most important element.25 From the time they were hired by petitioner corporation up to the time that they were reassigned to work under Gamo’s supervision, their status as petitioner corporation’s employees did not cease. Likewise, payment of their wages was merely coursed through Gamo. As to the most determinative test―the power of control, it is sufficient that the power to control the manner of doing the work exists, it does not require the actual exercise of such power.26 In this case, it was in the exercise of its power of control when petitioner corporation transferred the copra workers from their previous assignments to work as copraceros. It was also in the exercise of the same power that petitioner corporation put Gamo in charge of the copra workers although under a different payment scheme. Thus, it is clear that an employer-employee relationship has existed between petitioner corporation and respondents since the beginning and such relationship did not cease despite their reassignments and the change of payment scheme.

As to the last issue, petitioner seeks our indulgence to declare that Eleonor has abandoned her work. Petitioner admitted that Eleonor was its regular employee.27 However, it claimed that she abandoned her work, preferring to sell and raise pigs instead.

It is well settled that abandonment as a just and valid ground for dismissal requires the deliberate and unjustified refusal of the employee to return for work. Two elements must be present, namely: (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship. The second element is more determinative of the intent and must be evinced by overt acts. Mere absence, not being sufficient, the burden of proof rests upon the

employer to show that the employee clearly and deliberately intended to discontinue her employment without any intention of returning.28 In Samarca v. Arc-Men Industries, Inc, we held that abandonment is a matter of intention and cannot lightly be presumed from certain equivocal acts.1awphi1

To constitute abandonment, there must be clear proof of deliberate and unjustified intent to sever the employer-employee relationship. Clearly, the operative act is still the employee’s ultimate act of putting an end to his employment.29 However, an employee who takes steps to protest her layoff cannot be said to have abandoned her work because a charge of abandonment is totally inconsistent with the immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement.30 When Eleonor filed the illegal dismissal complaint, it totally negated petitioner’s theory of abandonment.

Also, to effectively dismiss an employee for abandonment, the employer must comply with the due process requirement of sending notices to the employee. In Brahm Industries, Inc. v. NLRC,31 we ruled that this requirement is not a mere formality that may be dispensed with at will. Its disregard is a matter of serious concern since it constitutes a safeguard of the highest order in response to man’s innate sense of justice.32 Petitioner was not able to send the necessary notice requirement to Eleonor. Petitioner’s belated claim that it was not able to send the notice of infraction prior to the filing of the illegal dismissal case cannot simply unacceptable.33 Based on the foregoing, Eleonor did not abandon her work.

WHEREFORE, the petition is DENIED. The Decision of the Court of Appeals is AFFIRMED. Cost against petitioner.

SO ORDERED.

G.R. No. 161366 June 16, 2009

DO 18-02 Cases 64

SYCIP, GORRES, VELAYO & COMPANY, Petitioner, vs.CAROL DE RAEDT, Respondent.

CARPIO, J.:

The Case

Before the Court is a petition for review1 challenging the 7 October 2003 Decision2 and 17 December 2003 Resolution3 of the Court of Appeals in CA-G.R. SP No. 59916. The Court of Appeals reversed the 16 February 2000 Decision4 of the National Labor Relations Commission and partially reinstated the 14 July 1999 Decision5 of Labor Arbiter Monroe C. Tabingan holding that respondent Carol De Raedt (De Raedt) was illegally dismissed by petitioner Sycip, Gorres, Velayo & Company (SGV).

The Facts

Sometime in June 1989, the Philippine Government and the Commission for European Communities (Commission) entered into a Financing Memorandum whereby the Commission undertook to provide financial and technical assistance for the implementation of rural micro projects in five provinces of the Cordillera area in Northern Luzon. Consequently, the Central Cordillera Agricultural Programme (CECAP) project was launched to be implemented by the Department of Agriculture (DA).

On 22 May 1989, the DA contracted Travers Morgan International Ltd. (TMI) to provide the required technical assistance services for CECAP.

On 1 July 1989, TMI and SGV entered into a Sub-Consultancy Agreement for the latter to undertake part of the technical assistance services requirements of the CECAP. SGV would provide for the Technical Assistance Services. Hence, SGV proposed qualified consultants as defined by the Terms of Reference.

The acceptance and appointment of the proposed consultants to the project were subject to the unanimous approval of the TMI, the DA and the Commission. For the position of Sociologist, SGV proposed Felino Lorente (Lorente). However, Thomas Gimenez (Gimenez) of the DA disputed the qualifications of Lorente and recommended instead De Raedt.

Martin Tull (Tull) of TMI replied to Gimenez that TMI would consider De Raedt for the sociologist position. Thus, Gimenez volunteered to call De Raedt to advise her of a possible assignment to the CECAP.

Eventually, the DA advised SGV that De Raedt’s nomination, among others, had been approved by the Commission and the DA and that she was expected to start her assignment on 3 July 1989.

On 6 July 1989, De Raedt wrote SGV expressing her conformity to the consultancy contract, thus she was advised to sign the same. De Raedt signed the contract on 14 July 1989 but her start-up date with the CECAP was moved to 15 August 1989 with the approval of the DA because she was in Thailand to finish an assignment.

While the CECAP was in progress, TMI received verbal and written complaints from the project staff regarding De Raedt’s performance and working relations with them.

An investigation was then conducted by the TMI on the above complaints. Thereafter, the TMI confirmed that De Raedt’s retention would be counter-productive to the progress of the project because a number of project staff found it difficult to work with her. Thus, the TMI directed SGV to withdraw De Raedt from the CECAP.

In compliance with TMI’s instructions, SGV facilitated De Raedt’s withdrawal from the CECAP.

De Raedt filed a case against SGV for illegal dismissal and damages before the Arbitration Branch of the NLRC.

The Labor Arbiter rendered a decision in favor of De Raedt.

SGV appealed the decision of the Labor Arbiter to the NLRC, which rendered judgment in favor of SGV.

De Raedt filed a petition for certiorari with the Court of Appeals, which reversed the NLRC in a Decision promulgated on 7 October 2003.

SGV filed a motion for reconsideration, which was denied by the Court of Appeals in its Resolution dated 17 December 2003.

Hence, this petition.

The Ruling of the Labor Arbiter

The Labor Arbiter found De Raedt as an employee of SGV. How she conducted herself and how she carried out the project were dependent on and prescribed by SGV and TMI, respectively. The Labor Arbiter further ruled that SGV is considered as the employer of De Raedt since it acted indirectly in the interest of TMI, the entity directly in-charge of the CECAP project for which De Raedt was hired. Moreover, the Labor Arbiter found SGV as the entity which is the source of De Raedt’s income and other benefits.1avvphi1

The Labor Arbiter found no sufficient valid ground to terminate De Raedt’s services although procedural due process was observed. The dispositive portion of the 14 July 1999 Decision of the Labor Arbiter reads:

WHEREFORE, judgment is hereby rendered declaring complainant to have been illegally dismissed by respondent. Consequently, respondent Sycip, Gorres & Velayo and Co. is hereby ordered to pay complainant the following:

a) Unpaid salaries corresponding to the unexpired portion of the contract in the amount of Eight Hundred Two Thousand (P802,000.00) Pesos;

b) Moral damages in the amount of Two Hundred Fifty Thousand (P250,000.00) Pesos;

c) Exemplary damages in the amount of One Hundred Thousand (P100,000.00) Pesos;

d) 10% of the total award as attorney’s fees amounting to One Hundred Fifteen Thousand Two Hundred Pesos (P115,200.00).

The computations of which are hereto attached as Annex "A" and made an integral part hereof.

SO ORDERED.6

The Ruling of the NLRC

The NLRC reversed the ruling of the Labor Arbiter and found that there was no employer-employee relationship between SGV and De Raedt.

The NLRC agreed with the Labor Arbiter’s finding that SGV had no discretion in the selection of De Raedt for the position of Sociologist in the CECAP. The selection was made by the TMI, upon recommendation of Gimenez of the DA, to be approved by the DA and the Commission. The engagement of De Raedt was coursed through SGV.

The payment of De Raedt’s service fee was done through SGV but the funds came from the TMI as shown by SGV’s billings to TMI for De Raedt’s professional fee.

As regards the power of dismissal, SGV merely implemented TMI’s instructions to withdraw De Raedt from the CECAP.

The NLRC found that SGV did not exercise control over De Raedt’s work. The Sub-Consultancy Agreement between TMI and SGV clearly required De Raedt to work closely with and under the direction and supervision of both the Team leader and the Project Coordinator.

Hence, SGV’s participation is to merely monitor her attendance, through time records, for the payment of her retainer fee and to validate the time she expended in the project with her written reports.

The following circumstances also indicated that no employment relationship existed between the parties: (1) De Raedt was engaged on a contract basis; (2) the letter-agreement between the parties clearly states that there is no employer-employee relationship between the parties and that De Raedt was at all times to be considered an independent contractor; and (3) De Raedt was allowed to engage in other employment during all the time she was connected with the project.

DO 18-02 Cases 65

The dispositive portion of the 16 February 2000 Decision of the NLRC reads:

WHEREFORE, premises considered, the assailed decision of the Labor Arbiter is REVERSED and SET ASIDE and the complaint is DISMISSED for lack of jurisdiction.

SO ORDERED.7

The Ruling of the Court of Appeals

The Court of Appeals reversed the ruling of the NLRC and reinstated the decision of the Labor Arbiter insofar as the latter found De Raedt as an employee of SGV.

The Court of Appeals found that based on the letter-agreement between the parties, SGV engaged De Raedt for the project on a contract basis for 40 months over a period of five years during which she was to work full time. She could not engage in any other employment. In fact, she had to resign from her teaching job at the University of the Philippines. She could not leave her place of assignment without SGV’s consent. She must maintain an accurate record of the time she spent on the job, and prepare reports which may be required by her team leader and SGV. Whether actual supervision of her work had turned out to be minimal or not, SGV reserved the right to exercise it at any time. Further, SGV asserted its right to terminate her services.8

The Court of Appeals found that De Raedt was removed from the project because of personality differences, which is not one of the grounds for a valid dismissal of an employee.9

The dispositive portion of the 7 October 2003 Decision of the Court of Appeals reads:

IN VIEW OF THE FOREGOING, the assailed decision of the NLRC dated February 16, 2000 is REVERSED, and a new one ENTERED partially REINSTATING the Decision of Labor Arbiter Monroe Tabing[a]n on July 14, 1999, by affirming paragraph (a) thereof, deleting paragraph (b) and (c), and reducing the award of attorney’s fees in paragraph (d) to 5% of the principal award.

SO ORDERED.10

The Issue

The issue in this case is whether De Raedt was an employee of SGV. If so, whether De Raedt was illegally dismissed by SGV.

The Ruling of the Court

The petition is meritorious.

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, such as in the present case. Consequently, this Court shall scrutinize the records to ascertain the facts for itself.11

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.12

A. Selection and Engagement of the Employee

De Raedt was contracted by SGV as part of the latter’s obligation under the Sub-Consultancy Agreement with TMI, which was in turn contracted by the DA to provide the services required for the foreign-assisted CECAP project. De Raedt was neither engaged by SGV as an ordinary employee, nor was she picked by SGV from a pool of consultants already working for SGV. Hence, SGV engaged De Raedt’s services precisely because SGV had an existing Sub-Consultancy Agreement with TMI to provide such services.1avvphi1

The Labor Arbiter and the NLRC both agree that SGV had no discretion in the selection of De Raedt for the position of Sociologist in the CECAP. The selection was made by the TMI, upon recommendation of Gimenez of the DA, to be approved by the DA and the Commission. The engagement of De Raedt was merely coursed through SGV.

Moreover, SGV’s first choice for the Sociologist position was Lorente. However, Gimenez recommended De Raedt to SGV. De Raedt’s testimony proves that her appointment was ultimately the DA’s decision, and not SGV’s, thus:

Q Madam Witness, how did you come to know the vacancy here in CECAP project for a position of project Sociologist?

A I was contacted when I was in Honolulu. I was contacted by the firm Sarmiento and Company who asked me if I would list myself for the position of project sociologist for the CECAP project in 1987 when it was discussed by the NGO’s in the Cordillera and finally I was contacted by the SGV. They asked me if I am interested in the position project sociologist. I was also contacted by Mr. Gimenez to ask me if SGV had contacted me regarding the position.

Q So among the informants who gave you an idea that the position of project sociologist is the project director himself, is it not?

A He informed me that I have been considered by the Department of Agriculture for the position of project sociologist.

Q Before you were considered for the position of (sic) the Department of Agriculture, did you give them an application?

A No, sir.

Q Do you know who gave your name to them?

A Not sure, may be the Department of Agriculture or Sarmiento, because I was asked by the consultancy firm Sarmiento if I would be willing to list with their business consultants for the CECAP project and this was before the bidding and Sarmiento did not make the bidding for the project.

Q Sarmiento is different from SGV is that correct?

A Yes, sir.13 (Emphasis supplied)

B. Payment of Wages

The letter-agreement between the parties specifies the consideration for De Raedt’s services as a retainer fee payable for every day of completed service in the project. In addition to this, monthly subsistence and housing allowances and medical insurance were to be given to De Raedt. The retainer fees and privileges given to De Raedt are not commonly given to ordinary employees, who receive basic monthly salaries and other benefits under labor laws.

The Court notes that the retainer fees paid by SGV to De Raedt ultimately came from its "client," TMI. De Raedt was aware that the source of the funds was the grant from the Commission. By the terms of the Sub-Consultancy Agreement, TMI paid SGV remuneration of the fixed unit rate component of the part services.

However, whatever amount SGV received from TMI did not necessarily entitle De Raedt to the entire amount. In the parties’ letter-agreement, SGV made it clear that payments made by TMI "should not be construed as being due [De Raedt] since these items are intended for the administration, overhead expenses, and other related expenses of [SGV] in the development, management, and supervision of [De Raedt’s] assignment."

C. Power of Dismissal

Under the letter-agreement between the parties, SGV may terminate De Raedt’s services "at anytime that the contract between the Department of Agriculture – Government of the Philippines and Travers Morgan International, Consulting Engineers, Planners and Management Consultants is terminated for any cause whatsoever."

De Raedt failed to show that SGV could terminate her services on grounds other than the end of the contract between the DA as implementing agency of the CECAP and TMI or the termination by TMI of the contract with SGV, such as retrenchment to prevent losses as provided under labor laws.14

Further, under the parties’ agreement, should De Raedt decide to leave the project for any reason whatsoever other than a reasonable cause beyond her control which prevents her from performing the required services, De Raedt shall be liable for liquidated damages for breach of contract, in an amount equivalent to the retainer fee

DO 18-02 Cases 66

for a period of one month. This pre-termination with penalty clause in the parties’ agreement clearly negates the existence of an employment relationship between the parties. If De Raedt were indeed SGV’s employee, she should have been able to resign for whatever professional or personal reason at anytime, even prior to the end of the contract between the DA and TMI or between TMI and SGV, without incurring any liability for such resignation.

Besides, it was TMI, through Tull, which instructed SGV to disengage De Raedt from the project. Terminating De Raedt’s services was beyond SGV’s control, as SGV had no choice but to comply with the directive of its client (TMI). Clearly, De Raedt’s retention as a Sociologist in the CECAP project was dependent on TMI’s and DA’s decisions. In his letter dated 14 June 1991 addressed to SGV, Tull wrote the following:

Notwithstanding a number of staff on the project, all employed by the Department of Agriculture, have confirmed that they have found it difficult to work with Mrs de Raedt over the past few months which supports the earlier advice from the Department of Agriculture.

In the circumstances I consider we have no alternative but to replace Mrs de Raedt. Would you please make arrangement for her to be withdrawn from the project by the end of June 1991. Payment of staff fees and housing allowances under the project in respect of Mrs de Raedt will be paid up to 30th June 1991.15 (Emphasis supplied)

D. Power of Control

The letter-agreement between the parties required De Raedt to maintain an accurate time record, notify SGV of delays in De Raedt’s schedule, secure a prior clearance to leave place of assignment, and prepare reports. These requirements hardly show that SGV exercises control over the means and methods in the performance of De Raedt’s duties as a Sociologist of the CECAP. SGV was not concerned with De Raedt’s ways of accomplishing her work as a Sociologist. Rather, SGV naturally expected to be updated regularly of De Raedt’s "work progress," if any, on the project for which she was specifically engaged16 to ensure SGV’s compliance with the terms and conditions of the Sub-Consultancy Agreement with TMI. The services to be performed by her specified what she needed to achieve but not on how she was to go about it.17

In sum, there existed no employer-employee relationship between the parties. De Raedt is an independent contractor, who was engaged by SGV to render services to SGV’s client TMI, and ultimately to DA on the CECAP project, regarding matters in the field of her special knowledge and training for a specific period of time. Unlike an ordinary employee, De Raedt received retainer fees and benefits such as housing and subsistence allowances and medical insurance. De Raedt’s services could be terminated on the ground of end of contract between the DA and TMI, and not on grounds under labor laws. Though the end of the contract between the DA and TMI was not the ground for the withdrawal of De Raedt from the CECAP, De Raedt was disengaged from the project upon the instruction of SGV’s client, TMI. Most important of all, SGV did not exercise control over the means and methods by which De Raedt performed her duties as Sociologist. SGV did impose rules on De Raedt, but these were necessary to ensure SGV’s faithful compliance with the terms and conditions of the Sub-Consultancy Agreement it entered into with TMI.

WHEREFORE, the Court GRANTS the petition. The Court SETS ASIDE the 7 October 2003 Decision and 17 December 2003 Resolution of the Court of Appeals in CA-G.R. SP No. 59916 and REINSTATES the 16 February 2000 Decision of the National Labor Relations Commission.

SO ORDERED.

RAUL G. LOCSIN andG.R. No. 185251EDDIE B. TOMAQUIN,

Petitioners,Present:

YNARES-SANTIAGO, J.,

Chairperson, - versus -

CHICO-NAZARIO,VELASCO, JR.,NACHURA, andPERALTA, JJ.

PHILIPPINE LONG DISTANCE Promulgated:TELEPHONE COMPANY,

Respondent.October 2, 2009

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

VELASCO, JR., J.:

The Case

This Petition for Review on Certiorari under Rule 45 seeks the reversal of the May 6, 2008 Decision1[1] and November 4, 2008 Resolution2[2] of the Court of Appeals (CA) in CA-G.R. SP No. 97398, entitled Philippine Long Distance Telephone Company v. National Labor Relations Commission, Raul G. Locsin and Eddie B. Tomaquin . The assailed decision set aside the Resolutions of the National Labor Relations Commission (NLRC) dated October 28, 2005 and August 28, 2006 which in turn affirmed the Decision dated February 13, 2004 of the Labor Arbiter. The assailed resolution, on the other hand, denied petitioners’ motion for reconsideration of the assailed decision.

The Facts

On November 1, 1990, respondent Philippine Long Distance Telephone Company (PLDT) and the Security and Safety Corporation of the Philippines (SSCP) entered into a Security Services Agreement3[3] (Agreement) whereby SSCP would provide armed security guards to PLDT to be assigned to its various offices.

Pursuant to such agreement, petitioners Raul Locsin and Eddie Tomaquin, among other security guards, were posted at a PLDT office.

On August 30, 2001, respondent issued a Letter dated August 30, 2001 terminating the Agreement effective October 1, 2001.4[4]

Despite the termination of the Agreement, however, petitioners continued to secure the premises of their assigned office. They were allegedly directed to remain at their post by representatives of respondent. In support of their contention, petitioners provided the Labor Arbiter with copies of petitioner Locsin’s pay slips for the period of January to September 2002.5[5]

Then, on September 30, 2002, petitioners’ services were terminated.

Thus, petitioners filed a complaint before the Labor Arbiter for illegal dismissal and recovery of money claims such as overtime pay, holiday pay, premium pay for holiday and rest day, service incentive leave pay, Emergency Cost of Living Allowance, and moral and exemplary damages against PLDT.

The Labor Arbiter rendered a Decision finding PLDT liable for illegal dismissal. It was explained in the Decision that petitioners were found to be employees of PLDT and not of SSCP. Such conclusion was arrived at with the factual finding that petitioners continued to serve as guards of PLDT’s offices. As such employees, petitioners were entitled to substantive and procedural due process before termination of employment. The Labor Arbiter held that respondent failed to observe such due process requirements. The dispositive portion of the Labor Arbiter’s Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering respondent Philippine Long Distance and Telephone Company (PLDT) to pay complainants Raul E. Locsin and Eddie Tomaquin their separation pay and back wages computed as follows:

NAME SEPARATION PAY BACKWAGES1. Raul E. Locsin P127,500.00 P240,954.672. Eddie B. Tomaquin P127,500.00 P240,954.67

P736,909.34

All other claims are DISMISSED for want of factual basis.

Let the computation made by the Computation and Examination Unit form part of this decision.

SO ORDERED.

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2

3

4

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PLDT appealed the above Decision to the NLRC which rendered a Resolution affirming in toto the Arbiter’s Decision.

Thus, PDLT filed a Motion for Reconsideration of the NLRC’s Resolution which was also denied.

Consequently, PLDT filed a Petition for Certiorari with the CA asking for the nullification of the Resolution issued by the NLRC as well as the Labor Arbiter’s Decision. The CA rendered the assailed decision granting PLDT’s petition and dismissing petitioners’ complaint. The dispositive portion of the CA Decision provides:

WHEREFORE, the instant Petition for Certiorari is GRANTED. The Resolutions dated October 28, 2005 and August 28, 2006 of the National Labor Relations Commission are ANNULLED and SET ASIDE. Private respondents’ complaint against Philippine Long Distance Telephone Company is DISMISSED.

SO ORDERED.

The CA applied the four-fold test in order to determine the existence of an employer-employee relationship between the parties but did not find such relationship. It determined that SSCP was not a labor-only contractor and was an independent contractor having substantial capital to operate and conduct its own business. The CA further bolstered its decision by citing the Agreement whereby it was stipulated that there shall be no employer-employee relationship between the security guards and PLDT.

Anent the pay slips that were presented by petitioners, the CA noted that those were issued by SSCP and not PLDT; hence, SSCP continued to pay the salaries of petitioners after the Agreement. This fact allegedly proved that petitioners continued to be employees of SSCP albeit performing their work at PLDT’s premises.

From such assailed decision, petitioners filed a motion for reconsideration which was denied in the assailed resolution.

Hence, we have this petition.

The Issues

1. Whether or not; complainants extended services to the respondent for one (1) year from October 1, 2001, the effectivity of the termination of the contract of complainants agency SSCP, up to September 30, 2002, without a renewed contract, constitutes an employer-employee relationship between respondent and the complainants.

2. Whether or not; in accordance to the provision of the Article 280 of the Labor Code, complainants extended services to the respondent for another one (1) year without a contract be considered as contractual employment.

3. Whether or not; in accordance to the provision of the Article 280 of the Labor Code, does complainants thirteen (13) years of service to the respondent with manifestation to the respondent thirteen (13) years renewal of its security contract with the complainant agency SSCP, can be considered only as “seasonal in nature” or fixed as [specific projects] or undertakings and its completion or termination can be dictated as [controlled] by the respondent anytime they wanted to.

4. Whether or not; complainants from being an alleged contractual employees of the respondent for thirteen (13) years as they were then covered by a contract, becomes regular employees of the respondent as the one (1) year extended services of the complainants were not covered by a contract, and can be considered as direct employment pursuant to the provision of the Article 280 of the Labor Code.

5. Whether or not; the Court of Appeals committed grave abuse of discretion when it set aside and [annulled] the labor [arbiter’s] decision and of the NLRC’s resolution declaring the dismissal of the complainant as illegal.6[6]

The Court’s Ruling

This petition is hereby granted.

An Employer-Employee

6

Relationship Existed Between the Parties

It is beyond cavil that there was no employer-employee relationship between the parties from the time of petitioners’ first assignment to respondent by SSCP in 1988 until the alleged termination of the Agreement between respondent and SSCP. In fact, this was the conclusion that was reached by this Court in Abella v. Philippine Long Distance Telephone Company,7[7] where we ruled that petitioners therein, including herein petitioners, cannot be considered as employees of PLDT. It bears pointing out that petitioners were among those declared to be employees of their respective security agencies and not of PLDT.

The only issue in this case is whether petitioners became employees of respondent after the Agreement between SSCP and respondent was terminated.

This must be answered in the affirmative.

Notably, respondent does not deny the fact that petitioners remained in the premises of their offices even after the Agreement was terminated. And it is this fact that must be explained.

To recapitulate, the CA, in rendering a decision in favor of respondent, found that: (1) petitioners failed to prove that SSCP was a labor-only contractor; and (2) petitioners are employees of SSCP and not of PLDT.

In arriving at such conclusions, the CA relied on the provisions of the Agreement, wherein SSCP undertook to supply PLDT with the required security guards, while furnishing PLDT with a performance bond in the amount of PhP 707,000. Moreover, the CA gave weight to the provision in the Agreement that SSCP warranted that it “carry on an independent business and has substantial capital or investment in the form of equipment, work premises, and other materials which are necessary in the conduct of its business.”

Further, in determining that no employer-employee relationship existed between the parties, the CA quoted the express provision of the Agreement, stating that no employer-employee relationship existed between the parties herein. The CA disregarded the pay slips of Locsin considering that they were in fact issued by SSCP and not by PLDT.

From the foregoing explanation of the CA, the fact remains that petitioners remained at their post after the termination of the Agreement. Notably, in its Comment dated March 10, 2009,8[8] respondent never denied that petitioners remained at their post until September 30, 2002. While respondent denies the alleged circumstances stated by petitioners, that they were told to remain at their post by respondent’s Security Department and that they were informed by SSCP Operations Officer Eduardo Juliano that their salaries would be coursed through SSCP as per arrangement with PLDT, it does not state why they were not made to vacate their posts. Respondent said that it did not know why petitioners remained at their posts.

Rule 131, Section 3(y) of the Rules of Court provides:

SEC. 3. Disputable presumptions.—The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by other evidence:

x x x x

(y) That things have happened according to the ordinary course of nature and the ordinary habits of life.

In the ordinary course of things, responsible business owners or managers would not allow security guards of an agency with whom the owners or managers have severed ties with to continue to stay within the business’ premises. This is because upon the termination of the owners’ or managers’ agreement with the security agency, the agency’s undertaking of liability for any damage that the security guard would cause has already been terminated. Thus, in the event of an accident or otherwise damage caused by such security guards, it would be the business owners and/or managers who would be liable and not the agency. The business owners or managers would, therefore, be opening themselves up to liability for acts of security guards over whom the owners or managers allegedly have no control.

At the very least, responsible business owners or managers would inquire or learn why such security guards were remaining at their posts, and would have a clear understanding of the circumstances of the guards’ stay. It is but logical that responsible business owners or managers would be aware of the situation in their premises.

We point out that with respondent’s hypothesis, it would seem that SSCP was paying petitioners’ salaries while securing respondent’s premises despite the termination of their Agreement. Obviously, it would only be respondent that would benefit from such a situation. And it is seriously doubtful that a security agency that was established for profit would allow its security guards to secure respondent’s premises when the Agreement was already terminated.

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From the foregoing circumstances, reason dictates that we conclude that petitioners remained at their post under the instructions of respondent. We can further conclude that respondent dictated upon petitioners that the latter perform their regular duties to secure the premises during operating hours. This, to our mind and under the circumstances, is sufficient to establish the existence of an employer-employee relationship. Certainly, the facts as narrated by petitioners are more believable than the irrational denials made by respondent. Thus, we ruled in Lee Eng Hong v. Court of Appeals:9[9]

Evidence, to be believed, must not only proceed from the mouth of a credible witness, but it must be credible in itself — such as the common experience and observation of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs to the miraculous and is outside judicial cognizance (Castañares v. Court of Appeals, 92 SCRA 568 [1979]).

To reiterate, while respondent and SSCP no longer had any legal relationship with the termination of the Agreement, petitioners remained at their post securing the premises of respondent while receiving their salaries, allegedly from SSCP. Clearly, such a situation makes no sense, and the denials proffered by respondent do not shed any light to the situation. It is but reasonable to conclude that, with the behest and, presumably, directive of respondent, petitioners continued with their services. Evidently, such are indicia of control that respondent exercised over petitioners.

Such power of control has been explained as the “right to control not only the end to be achieved but also the means to be used in reaching such end.” 10[10] With the conclusion that respondent directed petitioners to remain at their posts and continue with their duties, it is clear that respondent exercised the power of control over them; thus, the existence of an employer-employee relationship.

In Tongko v. The Manufacturers Life Insurance Co. (Phils.) Inc.,11[11] we reiterated the oft repeated rule that control is the most important element in the determination of the existence of an employer-employee relationship:

In the determination of whether an employer-employee relationship exists between two parties, this Court applies the four-fold test to determine the existence of the elements of such relationship. In Pacific Consultants International Asia, Inc. v. Schonfeld, the Court set out the elements of an employer-employee relationship, thus:

Jurisprudence is firmly settled that whenever the existence of an employment relationship is in dispute, four elements constitute the reliable yardstick: (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’s conduct. It is the so-called “control test” which constitutes the most important index of the existence of the employer-employee relationship that is, whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is to be accomplished. Stated otherwise, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end to be achieved but also the means to be used in reaching such end.

Furthermore, Article 106 of the Labor Code contains a provision on contractors, to wit:

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 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

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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 supplied.)

Thus, the Secretary of Labor issued Department Order No. 18-2002, Series of 2002, implementing Art. 106 as follows:

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) the 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.

On the other hand, Sec. 7 of the department order contains the consequence of such labor-only contracting:

Section 7. Existence of an employer-employee relationship.––The contractor or subcontractor shall be considered the employer of the contractual employee for purposes of enforcing the provisions of the Labor Code and other social legislation. The principal, however, shall be solidarily liable with the contractor in the event of any violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of the following cases as declared by a competent authority:

(a) where there is labor-only contracting; or

(b) where the contracting arrangement falls within the prohibitions provided in Section 6 (Prohibitions) hereof. (Emphasis supplied.)

Evidently, respondent having the power of control over petitioners must be considered as petitioners’ employer––from the termination of the Agreement onwards––as this was the only time that any evidence of control was exhibited by respondent over petitioners and in light of our ruling in Abella.12[12] Thus, as aptly declared by the NLRC, petitioners were entitled to the rights and benefits of employees of respondent, including due process requirements in the termination of their services.

Both the Labor Arbiter and NLRC found that respondent did not observe such due process requirements. Having failed to do so, respondent is guilty of illegal dismissal.

WHEREFORE, we SET ASIDE the CA’s May 6, 2008 Decision and November 4, 2008 Resolution in CA-G.R. SP No. 97398. We hereby REINSTATE the Labor Arbiter’s Decision dated February 13, 2004 and the NLRC’s Resolutions dated October 28, 2005 and August 28, 2006.

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No costs.

SO ORDERED.

OLDARICO S. TRAVEÑO, ROVEL A. GENELSA, RUEL U. VILLARMENTE, ALFREDO A. PANILAGAO, CARMEN P. DANILA, ELIZABETH B. MACALINO, RAMIL P. ALBITO, REYNALDO A. LADRILLO, LUCAS G. TAMAYO, DIOSDADO A. AMORIN, RODINO C. VASQUEZ, GLORIA A. FELICANO, NOLE E. FERMILAN, JOSELITO B. RENDON, CRISTETA D. CAÑA, EVELYN D. ARCENAL and JEORGE M. NONO,

Petitioners,

- versus -

BOBONGON BANANA GROWERS MULTI-PURPOSE COOPERATIVE, TIMOG AGRICULTURAL CORPORATION, DIAMOND FARMS, INC., and DOLE ASIA PHILIPPINES,

Respondents.

G.R. No. 164205

Present:

QUISUMBING, J., Chairperson, CORONA,* CARPIO MORALES, DEL CASTILLO, and ABAD, JJ.

Promulgated:

September 3, 2009

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CARPIO MORALES, J.:By the account of petitioner Oldarico Traveño and his 16 co-petitioners, in

1992, respondent Timog Agricultural Corporation (TACOR) and respondent Diamond Farms, Inc. (DFI) hired them to work at a banana plantation at Bobongon, Santo Tomas, Davao Del Norte which covered lands previously planted with rice and corn but whose owners had agreed to convert into a banana plantation upon being convinced that TACOR and DFI could provide the needed capital, expertise, and equipment. Petitioners helped prepare the lands for the planting of banana suckers and eventually carried out the planting as well.13[1]

Petitioners asseverated that while they worked under the direct control of supervisors assigned by TACOR and DFI, these companies used different schemes to make it appear that petitioners were hired through independent contractors, including individuals, unregistered associations, and cooperatives; that the successive changes in the names of their employers notwithstanding, they continued to perform the same work under the direct control of TACOR and DFI supervisors; and that under the last scheme adopted by these companies, the nominal individual contractors were required to, as they did, join a cooperative and thus became members of respondent Bobongon Banana Growers Multi-purpose Cooperative (the Cooperative).14[2]

Continued petitioners: Sometime in 2000, above-named respondents began utilizing harassment tactics to ease them out of their jobs. Without first seeking the approval of the Department of Labor and Employment (DOLE), they changed their compensation package from being based on a daily rate to a pakyawan rate that depended on the combined productivity of the “gangs” they had been grouped into. Soon thereafter, they stopped paying their salaries, prompting them to stop working.15[3]

One after another, three separate complaints for illegal dismissal were filed by petitioners, individually and collectively, with the National Labor Relations Commission (NLRC) against said respondents including respondent Dole Asia Philippines as it then supposedly owned TACOR,16[4] for unpaid salaries, overtime pay, 13th month pay, service incentive leave pay, damages, and attorney’s fees.17[5]

DFI answered for itself and TACOR, which it claimed had been merged with it and ceased to exist as a corporation. Denying that it had engaged the services of petitioners,18[6] DFI alleged that during the corporate lifetime of TACOR, it had an

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arrangement with several landowners in Santo Tomas, Davao Del Norte whereby TACOR was to extend financial and technical assistance to them for the development of their lands into a banana plantation on the condition that the bananas produced therein would be sold exclusively to TACOR; that the landowners worked on their own farms and hired laborers to assist them; that the landowners themselves decided to

form a cooperative in order to better attain their business objectives; and that it was not in a position to state whether petitioners were working on the banana plantation of the landowners who had contracted with TACOR.19[7]

The Cooperative failed to file a position paper despite due notice, prompting the Labor Arbiter to consider it to have waived its right to adduce evidence in its defense.

Nothing was heard from respondent Dole Asia Philippines.By consolidated Decision dated October 30, 2002,20[8] the Labor Arbiter,

found respondent Cooperative guilty of illegal dismissal. It dropped the complaints against DFI, TACOR and Dole Asia Philippines. Thus it disposed:

WHEREFORE, judgment is hereby rendered:

1. Declaring respondent Bobongon Banana Growers Multi-purpose Cooperative guilty of illegal dismissal;

2. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to pay complainants full backwages from the time of their illegal dismissal up to this promulgation, to be determined during the execution stage;

3. Ordering respondent Bobongon Banana Growers Multi-purpose Cooperative to reinstate complainants to their former positions without loss of seniority rights and if not possible, to pay them separation pay equivalent to 1/2 month pay for every year of service;

4. Ordering respondent Bobongon Banana Grower Cooperative [sic] to pay 10% of the total award as Attorney’s fees;

5. All other respondents are hereby dropped as party-respondents for lack of merit. (Underscoring supplied)

In finding for petitioners, the Labor Arbiter relied heavily on the following Orders submitted by DFI which were issued in an earlier case filed with the DOLE, viz: (1) Order dated July 11, 1995 of the Director of DOLE Regional Office No. XI declaring the Cooperative as the employer of the 341 workers in the farms of its several members; (2) Order dated December 17, 1997 of the DOLE Secretary affirming the Order dated July 11, 1995 of the Director of DOLE Regional Office No. XI; and (3) Order dated June 23, 1998 of the DOLE Secretary denying the Cooperative’s Motion for Reconsideration.

On partial appeal to the NLRC, petitioners questioned the Labor Arbiter’s denial of their money claims and the dropping of their complaints against TACOR, DFI, and Dole Asia Philippines.

By Resolution dated July 30, 2003,21[9] the NLRC sustained the Labor Arbiter’s ruling that the employer of petitioners is the Cooperative, there being no showing that the earlier mentioned Orders of the DOLE Secretary had been set aside by a court of competent jurisdiction. It partially granted petitioners’ appeal, however, by ordering the Cooperative to pay them their unpaid wages, wage differentials, service incentive leave pay, and 13th month pay. It thus remanded the case to the Labor Arbiter for computation of those awards.

Their Motion for Reconsideration having been denied by Resolution of September 30, 2003,22[10] petitioners appealed to the Court of Appeals via certiorari.23[11]

By Resolution dated February 20, 2004,24[12] the appellate court dismissed petitioners’ petition for certiorari on the ground that the accompanying verification and

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certification against forum shopping was defective, it having been signed by only 19 of the 22 therein named petitioners. Their Motion for Reconsideration having been denied by Resolution of May 13, 2004,25[13] petitioners lodged the present Petition for Review on Certiorari.

Petitioners posit that the appellate court erred in dismissing their petition on a mere technicality as it should have, at most, dismissed the petition only with respect to the non-signing petitioners.

Dwelling on the merits of the case, petitioners posit that the Labor Arbiter and the NLRC disregarded evidence on record showing that while the Cooperative was their employer on paper, the other respondents exercised control and supervision over them; that the Cooperative was a labor-only contractor; and that the Orders of the DOLE Secretary relied upon by the Labor Arbiter and the NLRC are not applicable to them as the same pertained to a certification election case involving different parties and issues.26[14]

DFI, commenting for itself and TACOR, maintains that, among other things, it was not the employer of petitioners; and that it cannot comment on their money claims because no evidence was submitted in support thereof.27[15]

It appears that respondent Cooperative had been dissolved.28[16]

As respondent Dole Asia Philippines failed to file a comment, the Court, by Resolution of November 29, 2006,29[17] required it to (1) show cause why it should not be held in contempt for its failure to heed the Court’s directive, and (2) file the required comment, within 10 days from notice.

Dole Philippines, Inc. (DPI) promptly filed an Urgent Manifestation30[18]

stating that, among other things, while its division located in Davao City received the Court’s Resolution directing Dole Asia Philippines to file a comment on the present petition, DPI did not file a comment as the directive was addressed to “Dole Asia Philippines”, an entity which is not registered at the Securities and Exchange Commission.

Commenting on DPI’s Urgent Manifestation, petitioners contend that DPI cannot be allowed to take advantage of their lack of knowledge as to its exact corporate name, DPI having raised the matter for the first time before this Court notwithstanding its receipt of all pleadings and court processes from the inception of this case.31[19]

Upon review of the records, the Court finds that DPI never ever participated in the proceedings despite due notice. Its posturing, therefore, that the court processes it received were addressed to “Dole Asia Philippines,” a non-existent entity, does not lie. That DPI is the intended respondent, there is no doubt.

Respecting the appellate court’s dismissal of petitioners’ appeal due to the failure of some of them to sign the therein accompanying verification and certification against forum-shopping, the Court’s guidelines for the bench and bar in Altres v. Empleo,32[20] which were culled “from jurisprudential pronouncements,” are instructive:

For the guidance of the bench and bar, the Court restates in capsule form the jurisprudential pronouncements already reflected above respecting non-compliance with the requirements on, or submission of defective, verification and certification against forum shopping:

1) A distinction must be made between non-compliance with the requirement on or submission of defective verification, and non-compliance with the requirement on or submission of defective

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certification against forum shopping.

2) As to verification, non-compliance therewith or a defect therein does not necessarily render the pleading fatally defective. The court may order its submission or correction or act on the pleading if the attending circumstances are such that strict compliance with the Rule may be dispensed with in order that the ends of justice may be served thereby.

3) Verification is deemed substantially complied with when one who has ample knowledge to swear to the truth of the allegations in the complaint or petition signs the verification, and when matters alleged in the petition have been made in good faith or are true and correct.

4) As to certification against forum shopping, non-compliance therewith or a defect therein, unlike in verification, is generally not curable by its subsequent submission or correction thereof, unless there is a need to relax the Rule on the ground of “substantial compliance” or presence of “special circumstances or compelling reasons.”

5) The certification against forum shopping must be signed by all the plaintiffs or petitioners in a case; otherwise, those who did not sign will be dropped as parties to the case. Under reasonable or justifiable circumstances, however, as when all the plaintiffs or petitioners share a common interest and invoke a common cause of action or defense, the signature of only one of them in the certification against forum shopping substantially complies with the Rule.

6) Finally, the certification against forum shopping must be executed by the party-pleader, not by his counsel. If, however, for reasonable or justifiable reasons, the party-pleader is unable to sign, he must execute a Special Power of Attorney designating his counsel of record to sign on his behalf. (Emphasis and underscoring supplied)

The foregoing restated pronouncements were lost in the challenged Resolutions of the appellate court. Petitioners’ contention that the appellate court should have dismissed the petition only as to the non-signing petitioners or merely dropped them as parties to the case is thus in order.

Instead of remanding the case to the appellate court, however, the Court deems it more practical to decide the substantive issue raised in this petition so as not to further delay the disposition of this case.33[21] And it thus resolves to deviate as well from the general rule that factual questions are not entertained in petitions for review on certiorari of the appellate court’s decisions in order to write finis to this protracted litigation.

The sole issue is whether DFI (with which TACOR had been merged) and DPI should be held solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims.

The Labor Code and its Implementing Rules empower the Labor Arbiter to be the trier of facts in labor cases.34[22] Much reliance is thus placed on the Arbiter’s findings of fact, having had the opportunity to discuss with the parties and their witnesses the factual matters of the case during the conciliation phase.35[23] Just the same, a review of the records of the present case does not warrant a conclusion different from the Arbiter’s, as affirmed by the NLRC, that the Cooperative is the employer of petitioners.

To be sure, the matter of whether the Cooperative is an independent contractor or a labor-only contractor may not be used to predicate a ruling in this case. Job contracting or subcontracting refers to an arrangement whereby a principal agrees to farm out with a contractor or subcontractor the performance 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.36[24] The present case does not involve such an arrangement.

DFI did not farm out to the Cooperative the performance of a specific job, work, or service. Instead, it entered into a Banana Production and Purchase Agreement37[25] (Contract) with the Cooperative, under which the Cooperative would handle and fund the production of bananas and operation of the plantation covering lands owned by its members in consideration of DFI’s commitment to provide financial

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and technical assistance as needed, including the supply of information and equipment in growing, packing, and shipping bananas. The Cooperative would hire its own workers and pay their wages and benefits, and sell exclusively to DFI all export quality bananas produced that meet the specifications agreed upon.

To the Court, the Contract between the Cooperative and DFI, far from being a job contracting arrangement, is in essence a business partnership that partakes of the nature of a joint venture.38[26] The rules on job contracting are, therefore, inapposite. The Court may not alter the intention of the contracting parties as gleaned from their stipulations without violating the autonomy of contracts principle under Article 1306 of the Civil Code which gives the contracting parties the utmost liberality and freedom to establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good custom, public order or public policy.

Petitioners’ claim of employment relationship with the Cooperative’s herein co-respondents must be assessed on the basis of four standards, viz: (a) the manner of their selection and engagement; (b) the mode of payment of their wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of control over their conduct. Most determinative among these factors is the so-called “control test.”39[27]

There is nothing in the records which indicates the presence of any of the foregoing elements of an employer-employee relationship.

The absence of the first requisite, which refers to selection and engagement, is shown by DFI’s total lack of knowledge on who actually were engaged by the Cooperative to work in the banana plantation. This is borne out by the Contract between the Cooperative and DFI, under which the Cooperative was to hire its own workers. As TACOR had been merged with DFI, and DPI is merely alleged to have previously owned TACOR, this applies to them as well. Petitioners failed to prove the contrary. No employment contract whatsoever was submitted to substantiate how petitioners were hired and by whom.

On the second requisite, which refers to the payment of wages, it was likewise the Cooperative that paid the same. As reflected earlier, under the Contract, the Cooperative was to handle and fund the production of bananas and operation of the plantation.40[28] The Cooperative was also to be responsible for the proper conduct, safety, benefits, and general welfare of its members and workers in the plantation.41[29]

As to the third requisite, which refers to the power of dismissal, and the fourth requisite, which refers to the power of control, both were retained by the Cooperative. Again, the Contract stipulated that the Cooperative was to be responsible for the proper conduct and general welfare of its members and workers in the plantation.

The crucial element of control refers to the authority of the employer to control the employee not only with regard to the result of the work to be done, but also to the means and methods by which the work is to be accomplished.42[30] While it suffices that the power of control exists, albeit not actually exercised, there must be some evidence of such power. In the present case, petitioners did not present any.

There being no employer-employee relationship between petitioners and the Cooperative’s co-respondents, the latter are not solidarily liable with the Cooperative for petitioners’ illegal dismissal and money claims.

While the Court commiserates with petitioners on their loss of employment, especially now that the Cooperative is no longer a going concern, it cannot simply, by default, hold the Cooperative’s co-respondents liable for their claims without any factual and legal justification therefor. The social justice policy of labor laws and the Constitution is not meant to be oppressive of capital.

En passant, petitioners are not precluded from pursuing any available remedies against the former members of the defunct Cooperative as their individual circumstances may warrant.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

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G.R. Nos. 82763-64 March 19, 1990

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, LABOR ARBITER ISABEL P. ORTIGUERRA, and LABOR ALLIANCE FOR NATIONAL DEVELOPMENT, respondents.

The Legal Counsel for petitioner.Piorello E. Azura, Errol Ismael, B. Palaci and Maria Lourdes C. Legaspi for APT.Pablo B. Castillon for respondent LAND.

MELENCIO-HERRERA, J.:

This Petition for Certiorari addresses itself to the 12 February 1986 Order of the National Labor Relations Commission directing petitioner Development Bank of the Philippines (DBP) to remit the sum of P6,292,380.00 "out of proceeds of the foreclosed properties of Lirag Textile Mills Inc., sold at public auction in order to satisfy the judgment" in NLRC Cases Nos. NCR-3-2581-82 and 2-2090-82.

The background facts of these two cases may be summarized as follows:

The complainants in the two cases filed below were former employees of Lirag Textile Mills, Inc. (LIRAG, for short). LIRAG was a mortgage debtor of DBP. Private respondent Labor Alliance for National Development (LAND, for brevity) was the bargaining representative of the more or less 800 former rank and file employees of LIRAG. Around September 1981, LIRAG started terminating the services of its employees on the ground of retrenchment. By December of the said year there were already 180 regular employees separated from the service. LIRAG has since ceased operations presumably due to financial reverses.

In February 1982, Joselito Albay, one of the employees dismissed in September 1981, filed a complaint before the National Labor Relations Commission (NLRC) against LIRAG for illegal dismissal (Case No. 2-2090-82). On 1 March 1982, LAND, on behalf of 180 dismissed members, also filed a Complaint against LIRAG seeking separation pay, 13th month pay, gratuity pay, sick leave and vacation leave pay and emergency allowance (Case No. 3-2581-82). These two cases were consolidated and jointly heard by the NLRC. Said complainants have since been joined by supervisors and managers.

In a Decision, dated 30 July 1982, Labor Arbiter Apolinar L. Sevilla ordered LIRAG to pay the individual complainants. The NLRC (Third Division) affirmed the same on 28 March 1982. That judgment became final and executory.

On 15 April 1983, a Writ of Execution was issued. On the same day, DBP extrajudicially foreclosed the mortgaged properties for failure of LIRAG to pay its mortgage obligation. As the only bidder at the foreclosure sale, DBP acquired said mortgaged properties for P31,346,462.90. Since DBP was the sole mortgagee, no actual payment was made, the amount of the bid having been merely credited in partial satisfaction of LIRAG's indebtedness.

By reason of said foreclosure, the Writ of Execution issued in favor of the complainants remained unsatisfied. A Notice of Levy on Execution on the properties of LIRAG was then entered.

On 7 December 1984, LAND filed a "Motion for Writ of Execution and Garnishment" of the proceeds of the foreclosure sale.

On 30 May 1985, upon motion of LAND, Labor Arbiter Apolinar L. Sevilla ordered the DBP impleaded "in the interest of justice and due process," and required it to intervene.

On 12 February 1986, and over the opposition of DBP, Labor Arbiter Sevilla granted the Writ of Garnishment and directed DBP to remit to the NLRC the sum of P6,292,380.00 out of the proceeds of the foreclosed properties of LIRAG sold at public auction in order to satisfy the judgment previously rendered.

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DBP sought reconsideration of the above Order on the grounds of NLRC's lack of jurisdiction over it since it was not a party to the case, and that it was deprived of its property without due process of law. Public respondent, Labor Arbiter Isabel P. Ortiguerra denied reconsideration on 25 May 1987. DBP appealed that denial to the NLRC.

In the meantime, on 3 February 1987, by virtue of Proclamation Nos. 50 and 50-A, the Asset Privatization Trust (APT) became the transferee of the DBP foreclosed assets of LIRAG. On 12 July 1989, by virtue of that transfer, we deemed APT impleaded as a party-petitioner and gave it time within which to file its pleading. It submitted a Memorandum on 22 November 1989.

It appears that on 21 December 1987, a partial Compromise Agreement was entered into between APT and LAND (Litex Chapter) whereby APT paid the complainants-employees, ex gratia, the sum of P750,000.00 "in full settlement of their claims, past and present, with respect to all assets of LITEX transferred by DBP to APT." That amount was received by LAND's local President. Apparently, however, on 25 January 1988, LAND, through its national President, filed its opposition to the Compromise Agreement for being contrary to law, morals and public policy.

On 25 March 1988, the NLRC (First Division) affirmed the appealed Order and dismissed the DBP appeal.

DBP is now before us seeking a review and reversal. On 30 January 1989, the Court resolved to give due course to the petition and to require the parties to submit simultaneous memoranda. On 1 February 1990, the Court's Second Division referred the case to the Court en banc, which the latter accepted on the same date.

It is true that DBP was not an original party and that it was ordered impleaded only after the Writs of Execution were not satisfied because the properties levied upon on execution had been foreclosed extrajudicially by it. DBP had to be impleaded, however, for the proper satisfaction of a final judgment. Being an incident in the execution of the final judgment award, NLRC retained jurisdiction and control over the case and could issue such orders as were necessary for the implementation of that award. Its inclusion as a party could not have been accomplished at the earlier stages of the proceedings because at the time of the filing of the Complaint, private respondents' cause of action was only against LIRAG.

DBP cannot rightfully contend that it was deprived of due process. It was given the opportunity to be heard and to present its evidence. It had actually filed its Opposition to the Motion for Execution and Garnishment filed by LAND on 7 January 1985, and the Order granting the Motion was issued only after hearing. DBP had also addressed an appeal to the NLRC. It had submitted, therefore, to the jurisdiction of the NLRC.

Now, for the core issue — whether or not the NLRC gravely abused its discretion in affirming the Order of the Labor Arbiter granting the Writ of Garnishment out of the proceeds of LIRAG's properties foreclosed by DBP to satisfy the judgment in these cases.

We are constrained to rule in the affirmative.

Article 110 of the Labor Code provides:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

In implementation of the foregoing, Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code, as amended, provides:

Sec. 10. Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer. (Emphasis supplied).

In interpreting the foregoing provisions, the Court, in Development Bank of the Philippines vs. Santos (G.R. Nos. 78261-62, 8 March 1989), categorically stated:

It is quite clear from the provision that a declaration of bankruptcy or a judicial liquidation must be present before the workers preference may be enforced. Thus, Article 110 of the Labor Code and its implementing rule

cannot be invoked by the respondents in this case absent a formal declaration of bankruptcy or a liquidation order. . . .

Since then, however, Article 110 has been amended by Republic Act No. 6715 and now reads as follows:

Sec. 1. Article 110 of Presidential Decree No. 442, as amended, otherwise known as the Labor Code of the Philippines, is hereby further amended to read as follows:

Art. 110. Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their unpaid wages and other monetary claims, any provision of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before the claims of the Government and other creditors may be paid. (Amendments emphasized).

The amendment expands worker preference to cover not only unpaid wages but also other monetary claims to which even claims of the Government must be deemed subordinate.

Section 10, Rule III, Book III of the Omnibus Rules Implementing the Labor Code has also been amended by Section 1 of the Rules and Regulations Implementing RA 6715 as approved by the then Secretary of Labor and Employment on 24 May 1989, and now provides:

Sec. 10. Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.

Notably, the terms "declaration" of bankruptcy or "judicial" liquidation have been eliminated. Does this mean then that liquidation proceedings have been done away with?

We opine in the negative, upon the following considerations:

1. Because of its impact on the entire system of credit, Article 110 of the Labor Code cannot be viewed in isolation but must be read in relation to the Civil Code scheme on classification and preference of credits.

Article 110 of the Labor Code, in determining the reach of its terms, cannot be viewed in isolation. Rather, Article 110 must be read in relation to the provisions of the Civil Code concerning the classification, concurrence and preference of credits, which provisions find particular application in insolvency proceedings where the claims of all creditors, preferred or non-preferred, may be adjudicated in a binding manner. . . . Republic vs. Peralta (G.R. No. L-56568, May 20, 1987, 150 SCRA 37).

2. In the same way that the Civil Code provisions on classification of credits and the Insolvency Law have been brought into harmony, so also must the kindred provisions of the Labor Law be made to harmonize with those laws.

3. In the event of insolvency, a principal objective should be to effect an equitable distribution of the insolvent's property among his creditors. To accomplish this there must first be some proceeding where notice to all of the insolvents's creditors may be given and where the claims of preferred creditors may be bindingly adjudicated (De Barretto vs. Villanueva, No. L-14938, December 29, 1962, 6 SCRA 928). The rationale therefore has been expressed in the recent case of DBP vs. Secretary of Labor (G.R. No. 79351, 28 November 1989), which we quote:

A preference of credit bestows upon the preferred creditor an advantage of having his credit satisfied first ahead of other claims which may be established against the debtor. Logically, it becomes material only when the properties and assets of the debtors are insufficient to pay his debts in full; for if the debtor is amply able to pay his various creditors in full, how can the necessity exist to determine which of his creditors shall be paid first or whether they shall be paid out of the proceeds of the sale the debtor's specific property? Indubitably, the preferential right of credit attains significance only after the properties of the debtor have been inventoried and liquidated, and the claims held by his various creditors have been established (Kuenzle & Streiff (Ltd.) vs. Villanueva, 41 Phil 611 (1916); Barretto vs. Villanueva, G.R. No. 14938, 29 December 1962, 6 SCRA 928; Philippine Savings Bank vs. Lantin, G.R. 33929, 2 September 1983, 124 SCRA 476).

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4. A distinction should be made between a preference of credit and a lien. A preference applies only to claims which do not attach to specific properties. A lien creates a charge on a particular property. The right of first preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the discharge of the funds of the judgment debtor.

In the words of Republic vs. Peralta, supra:

Article 110 of the Labor Code does not purport to create a lien in favor of workers or employees for unpaid wages either upon all of the properties or upon any particular property owned by their employer. Claims for unpaid wages do not therefore fall at all within the category of specially preferred claims established under Articles 2241 and 2242 of the Civil Code, except to the extent that such complaints for unpaid wages are already covered by Article 2241, number 6: "claims for laborers wages, on the goods manufactured or the work done;" or by Article 2242, number 3: "claims of laborers and other workers engaged in the construction, reconstruction or repair of buildings, canals and other works, upon said buildings, canals and other works, upon said buildings, canals and other works." To the extent that claims for unpaid wages fall outside the scope of Article 2241, number 6 and 2242, number 3, they would come within the ambit of the category of ordinary preferred credits under Article 2244.

5. The DBP anchors its claim on a mortgage credit. A mortgage directly and immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Article 2176, Civil Code). It creates a real right which is enforceable against the whole world. It is a lien on an identified immovable property, which a preference is not. A recorded mortgage credit is a special preferred credit under Article 2242 (5) of the Civil Code on classification of credits. The preference given by Article 110, when not falling within Article 2241 (6) and Article 2242 (3) of the Civil Code and not attached to any specific property, is an ordinary preferred credit although its impact is to move it from second priority to first priority in the order of preference established by Article 2244 of the Civil Code (Republic vs. Peralta, supra).

In fact, under the Insolvency Law (Section 29) a creditor holding a mortgage or lien of any kind as security is not permitted to vote in the election of the assignee in insolvency proceedings unless the value of his security is first fixed or he surrenders all such property to the receiver of the insolvent's estate.

6. Even if Article 110 and its Implementing Rule, as amended, should be interpreted to mean "absolute preference," the same should be given only prospective effect in line with the cardinal rule that laws shall have no retroactive effect, unless the contrary is provided (Article 4, Civil Code). Thereby, any infringement on the constitutional guarantee on non-impairment of the obligation of contracts (Section 10, Article III, 1987 Constitution) is also avoided. In point of fact, DBP's mortgage credit antedated by several years the amendatory law, RA No. 6715. To give Article 110 retroactive effect would be to wipe out the mortgage in DBP's favor and expose it to a risk which it sought to protect itself against by requiring a collateral in the form of real property.

In fine, the right to preference given to workers under Article 110 of the Labor Code cannot exist in any effective way prior to the time of its presentation in distribution proceedings. It will find application when, in proceedings such as insolvency, such unpaid wages shall be paid in full before the "claims of the Government and other creditors" may be paid. But, for an orderly settlement of a debtor's assets, all creditors must be convened, their claims ascertained and inventoried, and thereafter the preferences determined in the course of judicial proceedings which have for their object the subjection of the property of the debtor to the payment of his debts or other lawful obligations. Thereby, an orderly determination of preference of creditors' claims is assured (Philippine Savings Bank vs. Lantin, No. L-33929, September 2, 1983, 124 SCRA 476); the adjudication made will be binding on all parties-in-interest, since those proceedings are proceedings in rem; and the legal scheme of classification, concurrence and preference of credits in the Civil Code, the Insolvency Law, and the Labor Code is preserved in harmony.

WHEREFORE, Certiorari is GRANTED, and the assailed Decision of public respondent, the National Labor Relations Commission (NLRC), dated 25 March 1988, is hereby SET ASIDE.

The Development Bank of the Philippines, the Asset Privatization Trust, the Labor Alliance for National Development (LAND), and other creditors who may be so minded, are hereby directed, within sixty (60) days from notice, to institute involuntary insolvency proceedings before the proper Court where all the assets of Lirag Textile Mills, Inc., may be inventoried, the preferences of all its creditors determined, and their claims discharged in a binding and conclusive manner. No costs.

SO ORDERED.

Fernan, C.J., Narvasa, Gutierrez, Jr., Feliciano, Gancayco, Bidin, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Separate Opinions

CRUZ, J., dissenting:

I was the lone dissenter in Republic v. Peralta, 150 SCRA 37, which is the mainstay of the present majority ponencia. Even then, I was convinced that it was the intention of the legislature to give absolute preference to the workers' claims pursuant to the social justice policy. The amendment of Article 110 of the Labor Code only strengthens that conviction and, I like to think, vindicates my original position. I reiterate it now and repeat that:

Social Justice is not a mere catch phrase to be mouthed with sham fervor in Labor Day celebrations for the delectation and seduction of the working class. It is a mandate we should pursue with energy and sincerity if we are to truly insure the dignity and well-being of the laborer.

I am proud to dissent once again on the side of labor.

PADILLA, J., dissenting:

The material facts are riot disputed. Lirag Textile (LIRAG) ceased operations by early 1982. Pursuant to a final and executory judgment of the NLRC, dated 20 March 1983, LIRAG was adjudged liable to its workers for unpaid wages and salaries which, as of 12 February 1986, amounted to P6,292,380.00.

LIRAG's only remaining asset was mortgaged to Development Bank of the Philippines (DBP) which on 15 April 1983 foreclosed the mortgage and acquired said property at public auction for P31,346.462.90, in partial satisfaction of LIRAG's indebtedness to DBP. LIRAG's workers through their union (LAND) thereupon sought to garnish on DBP the proceeds of the foreclosure sale, to the extent of their adjudged unpaid wages (P6,292,380.00). The NLRC ruled for LAND over DBP's objection. The issue therefore, in practical terms, is whether P6,292,380.00 should be deducted from the P31,346,462.90 realized by DBP from the foreclosure sale of LIRAG's property, to fully satisfy LAND's claim for LIRAG workers' unpaid wages, thereby leaving a balance of P25,054,082.90 only in partial satisfaction of LIRAG's debt to DBP.

The majority holds that LAND may not enforce its first preference in the satisfaction of unpaid monetary claims of its members, viz. LIRAG's workers, over that of DBP, in the absence of a formal declaration of bankruptcy or judicial liquidation of LIRAG's business.

I regret that I cannot join the majority ruling in the light of the amendment to Article 110 of the Labor Code by Republic Act 6715, approved on 2 March 1989, and the resultant amendment of Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code.

Before its amendment by Republic Act 6715, Article 110 of the Labor Code provided —

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards wages due them for services rendered during the period prior to the bankruptcy or liquidation, any provision of law to the contrary notwithstanding. Unpaid wages shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

After Republic Act 6715, Art. 110 now provides:

Worker preference in case of bankruptcy. — In the event of bankruptcy or liquidation of an employer's business, his workers shall enjoy first preference as regards their wages and other monetary claims, any provisions of law to the contrary notwithstanding. Such unpaid wages and monetary claims shall be paid in full before claims of the government and other creditors may be paid.

Section 10 of the Implementing Rules, before Republic Act 6715 provided:

Payment of wages in case of bankruptcy. — Unpaid wages earned by the employees before the declaration of bankruptcy or judicial liquidation of the employer's business shall be given first preference and shall be paid in full before other creditors may establish any claim to a share in the assets of the employer.

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After Republic Act 6715, Section 10 of the Rules now provides:

Payment of wages and other monetary claims in case of bankruptcy. — In case of bankruptcy or liquidation of the employer's business, the unpaid wages and other monetary claims of the employees shall be given first preference and shall be paid in full before the claims of government and other creditors may be paid.

The majority, in my considered opinion, has failed to fully take into account the radical change introduced by Republic Act 6715 into the system of priorities or preferences among credits or creditors ordained by the Civil Code.

Under the provisions of the Civil Code, specifically, Articles 2241 and 2242, jointly with Articles 2246 to 2249, a two-tier order of preference of credits is established. The first tier includes only taxes, duties and fees on specific movable or immovable property. All other special preferred credits stand on a second tier. 1

Under the system of preferences in the Civil Code, only taxes enjoy absolute preference i.e., they exclude the credits of the lower order until such taxes are fully satisfied out of the proceeds of the sale of the property subject of the preference, and taxes can even exhaust such proceeds. All other special preferred credits enjoy no priority among themselves but must be paid or satisfied pro rata. To make the prorating fully effective, the preferred creditors enumerated in Nos. 2 to 13 of Article 2241 and Nos. 2 to 10 of Article 2242 must be convened and the import of their claims ascertained in some proceeding where the claims of all may be bindingly adjudicated.

With the amendment of Article 110 of the Labor Code by Republic Act 6715, a three-tier order of preference is established wherein unpaid wages and other monetary claims of workers enjoy absolute preference over all other claims, including those of the Government, in cases where a debtor-employer is unable to pay in full all his obligations. The absolute preference given to monetary claims of workers, to which claims of the Government, i.e., taxes, are now subordinated, manifests the clear and deliberate intent of our lawmaker to put flesh and blood into the expressed Constitutional policy of protecting the rights of workers and promoting their welfare. 2

I thus take exception to the proposition that a prior formal declaration of insolvency or bankruptcy or a judicial liquidation of the employer's business is a condition sine qua non to the operation of the preference accorded to workers under Article 110 of the Labor Code, for the following specific reasons:

First, the majority reads into the aforesaid law and implementing rule a qualification that is not there. Nowhere is it stated in the present law and its new implementing rule that a prior declaration of bankruptcy or judicial liquidation is a condition sine qua non to the operation of Article 110. In fact, it will be noted that the phrase declaration of bankruptcy or judicial liquidation of the employer's business, which formerly appeared in Section 10, Rule VIII, Book III of the Revised Rules and Regulations Implementing the Labor Code has been deleted in the new implementing rule. What is to me even more obvious and, therefore, significant in the present law and implementing new rule is the unconditional and unqualified grant of priority to workers' monetary claims over and above all other claims as against all the assets of an employer incapable of fully paying his obligations.

Second, a proceeding in rem, by its nature, seeks to bar any other person who claims any interest in the property or right subject of the suit. To my mind, such a proceeding is not essential or necessary to enforce the workers' preferential right over the assets of the insolvent debtor as against other creditors of the lower tier, as Article 110 of the Labor Code itself bars the satisfaction of claims of other creditors, including the Government, until unpaid wages and monetary claims of the workers are first satisfied in full. Further, it appears that such a proceeding is essential only where the credits are concurring and enjoy no preference over one another, but not when the law accords to one of the credits absolute priority and undisputed supremacy. This submission finds support, by analogy, in the case of De Barreto vs. Villanueva, where the Court stated:

Thus it becomes evident that one preferred creditor's third party claim to the proceeds of the foreclosure (as in the case now before us) is not the proceeding contemplated by law for the enforcement of preference under Article 2242, unless the claimant were enforcing credit for taxes that enjoy absolute priority. If none of the claim is for taxes, a dispute between two creditors will not enable the court to ascertain the prorata dividend corresponding to each, because the rights of other creditors likewise enjoying preference under Article 2242 cannot be ascertained. 3 (Emphasis ours)

In sum, it is to me clear that, whether or not there be a judicial proceeding in rem, i.e., insolvency, bankruptcy or liquidation proceedings, the fact remains that Congress intends that the assets of the insolvent debtor be held, first and above all else, to satisfy in full the unpaid wages and monetary claims of its workers. Translated into the case at bar, a formal declaration of insolvency or bankruptcy or judicial liquidation of the

employer's business should not be a price imposed upon the workers to enable them to get their much needed and already adjudicated unpaid wages. This position, I believe, is only in keeping with a fundamental state policy enshrined in the Constitutional mandate to accord protection to labor. The legislative intent being clear and manifest, it is the duty of this Court, I submit, not to decimate but to give it breath and life.

ACCORDINGLY, I vote to DISMISS the DBP petition and to AFFIRM the resolution of the NLRC in favor of LAND.

Paras, J., concur.

SARMIENTO, J., dissenting:

I join Mr. Justice Teodoro Padilla in his dissent. It is also my considered opinion that under Republic Act No. 6715, the payment of unpaid wages and other benefits to labor enjoys preference over all other indebtedness, including taxes, of management, with or without a declaration of insolvency.

It is likewise so, because labor enjoys protection not only from statute but from the very Constitution. Thus:

Sec. 18. The State affirms labor as a primary social economic force. It shall protect the rights of workers and promote their welfare. (Article II)

xxx xxx xxx

Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality or employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers and the preferential use of voluntary modes in settling disputes, including conciliation, and shall enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers recognizing the right of labor to its just share in the fruits of production and the right of enterprises to reasonable returns on investments, and to expansion and growth. (Article XIII)

On the other hand, under the Labor Code:

Art. 3. Declaration of basic policy — The State shall afford protection to labor, promote full employment, ensure equal work opportunities regardless of sex, race or creed and regulate the relations between workers and employers. The State shall assure the rights of workers to self-organization, collective bargaining security of tenure, and just and humane conditions of work.

Art. 4. Construction in favor of labor — All doubts in the implementation and interpretation of the provisions of this code, including its implementing rules and regulations, shall be resolved in favor of labor.

Under the Civil Code:

Art. 1700. 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.

xxx xxx xxx

Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer.

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It is true that under the Charter, "[n]o person shall be deprived," among other things, "of property without due process of law," however, the basic document also states, that:

Sec. 6. The use of property bears a social function, and all economic agents shall contribute to the common good. Individuals and private groups, including corporations, cooperatives, and similar collective organizations, shall have the right to own, establish, and operate economic enterprises, subject to the duty of the State to promote distributive justice and to intervene when the common good so demands. (Article XII)

Pascual says that in any productive economy, the first factor is labor. [PASCUAL, LABOR AND TENANCY RELATIONS LAW 2 (1975 ed.)]. I agree with him. For in any enterprise, it is labor on which management depends to run its business, to till its land, and to make its money. Yet, labor has been the doormat of the economy when it should be its hub. And now, we will make them fall in line along with creditors of management in collecting what it (labor) already owns — its just wages. I do not think that this is in accord with established State policies.

[G.R. No. 151983-84, July 31, 2008]

JOSE MAX S. ORTIZ, PETITIONER, VS. SAN MIGUEL CORPORATION, RESPONDENT.

CHICO-NAZARIO, J.:

This case is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure seeking to modify or partially reconsider the Decision[1] dated 22 August 2001 and Resolution[2] dated 9 January 2002 of the Court of Appeals in CA-G.R. SP No. 54576-77, insofar as the award of attorney's fees is concerned. Herein petitioner Jose Max S. Ortiz prays that this Court affirm the award of attorney's fees equivalent to 10% of the monetary award adjudged by the National Labor Relations Commission (NLRC) in its Decisions dated 21 July 1995 and 25 July 1995 in NLRC Cases No. V-0255-94[3] and No. V-0068-95, [4] respectively. Petitioner asserts that he is entitled to the said attorney's fees.

Petitioner is a member of the Philippine Bar who represented the complainants in NLRC Cases No. V-0255-94 and No. V-0068-95 instituted against herein private respondent San Miguel Corporation sometime in 1992 and 1993.

Private respondent, on the other hand, is a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines. It is primarily engaged in the manufacture and sale of food and beverage particularly beer products. In line with its business, it operates breweries and sales offices throughout the Philippines.[5] The complainants in NLRC Cases No. V-0255-94 and No. V-0068-95 were employees at private respondent's Sales Offices in the provinces.

NLRC Case No. V-0255-94 (Aguirre Cases)

In 1992, several employees from the Bacolod, Cadiz, and Himamaylan Beer Sales Offices filed with the Labor Arbiter separate complaints against private respondent for illegal dismissal with prayer for reinstatement with backwages; elevation of employment status from casual- temporary to regular-permanent reckoned after six months from the start of complainants' employment; underpayment of salaries; non-payment of holiday pay, service incentive leave pay, allowances and sick leaves; non-payment of benefits under the existing Collective Bargaining Agreements (CBA); attorney's fees; moral, exemplary and other damages; and interest. The foregoing complaints were consolidated and initially docketed as RAB Cases No. 06-01-10031-92; 06-01-10048-92; 06-01-10049-92; 06-02-10210-92; 06-02-10211-92; and 06-03-10255-92 (hereinafter collectively referred to as the Aguirre Cases). After conducting a full-blown trial, the parties were given the opportunity to submit their respective memoranda. Subsequently, the cases were submitted for resolution.

On 30 June 1994, Labor Arbiter Reynaldo J. Gulmatico (Labor Arbiter Gulmatico) rendered a Decision [6] in the Aguirre Cases finding all the complainants to have been illegally dismissed. He ordered complainants' reinstatement to their previous or equivalent positions without loss of seniority rights. He also ordered private respondent to pay the complainants (1) full backwages and other CBA benefits in the total amount of P6,197,952.88; (2) rice subsidy or its monetary equivalent; and (3) attorney's fees equivalent to 10% of the monetary award or in the amount of P619,795.28. Labor Arbiter Gulmatico, however, dismissed complainants' claim for overtime pay, holiday pay, 13th month pay differential, service incentive leave pay, moral damages and all other claims for lack of merit.[7]

Unsatisfied with Labor Arbiter Gulmatico's monetary and economic awards, complainants appealed to the NLRC, where the Aguirre Cases were collectively docketed as NLRC Case No. V-0255-94. The NLRC would later render a Decision dated 21 July 1995 in the Aguirre Cases affirming the Decision of Labor Arbiter Gulmatico, with the following modifications: (1) granting sales commission to the complainants and adopting their computation thereof in their Appeal Memorandum[8] filed before the NLRC; (2) adjusting and/or reducing the amounts awarded to complainants Alfredo Gadian, Jr.,

Renato Junsay, Agustines Llacuna, and Florencio de la Piedra depending on the dates they were employed; (3) determining that Modesto Jabaybay, who died on 28 December 1993, was to receive only the amount of P356,128.02; (4) declaring that all the complainants except Romeo Magbanua, who withdrew his complaint, were entitled to whatever benefits were given under the CBA; and (5) that complainants Romeo Magbanua and Modesto Jabaybay shall no longer be reinstated.[9]

Private respondent moved for the reconsideration of the aforesaid 21 July 1995 NLRC Decision, but its motion was denied by the NLRC in its Resolution[10] dated 27 February 1996.

NLRC Case No. V-0068-95 (Toquero Case)

While the Aguirre Cases were still pending resolution by Labor Arbiter Gulmatico, three other employees at the San Carlos Sales Office filed with the Labor Arbiter a similar complaint for illegal dismissal against private respondent in 1993. Their complaint was docketed as RAB Case No. 06-07-10404-93 (hereinafter referred to as the Toquero Case).

On 26 December 1994, Labor Arbiter Ray Allan T. Drilon (Labor Arbiter Drilon) rendered his Decision[11] in the Toquero Case also ruling that the three complainants were illegally dismissed. Thus, he ordered the complainants' immediate reinstatement to their former positions without loss of seniority rights. He ordered private respondent to pay complainants (1) backwages and other benefits in the amount of P572,542.50; (2) all benefits, privileges and rights enjoyed by the private respondent's regular employees in the total amount of P339,055.00; (3) a total of 159 sacks of rice ration; (4) sales commissions based on the monthly sales of beer sold by their office for the last three years; and (5) attorney's fees in the amount of P91,159.75.[12]

Again, the complainants were not contented with Labor Arbiter Drilon's Decision, and they appealed their case to the NLRC which was then docketed as NLRC Case No. V-0068-95. On 25 July 1995, the NLRC rendered a Decision modifying the 26 December 1994 Decision of Labor Arbiter Drilon by ordering the private respondent to pay the complainants the following: (1) additional awards of sales commission; (2) tailoring allowance; (3) monetary equivalent of their uniform for two years consisting of 24 sets of t-shirts and 6 pairs of pants; and (4) attorney's fees of 10% of the total monetary award or P198,296.95.[13]

In its Resolution[14] dated 9 October 1995, the NLRC partially granted private respondent's motion for reconsideration by allowing the deduction from the award of backwages any earnings of complainants elsewhere during the pendency of their case.[15]

CA-G.R. SP No. 54576-77

Failing to get a favorable ruling from the NLRC in both the Aguirre and Toquero Cases, private respondent elevated the NLRC Decisions to this Court via a Petition for Certiorari, where they were docketed as G.R. No. 124426[16] and G.R. No. 122975, respectively.[17] On 15 July 1996, this Court issued a Resolution[18] consolidating the two cases. In another Resolution[19] dated 30 June 1999, this Court referred the said cases to the Court of Appeals conforming to its ruling in St. Martin Funeral Home v. NLRC and Bienvenido Aricayos.[20] The Court of Appeals accepted the consolidated cases in its Resolution[21] dated 7 September 1999, and docketed the same as CA-G.R. SP No. 54576-77.

While the private respondent's Petitions for Certiorari were pending before the Court of Appeals, all but one of the remaining complainants in the Aguirre and Toquero Cases appeared on various dates before Labor Arbiters Gulmatico and Drilon, and in the presence of two witnesses, signed separate Deeds of Release, Waiver and Quitclaim[22] in favor of private respondent. Based on the Deeds they executed, the complainants agreed to settle their claims against private respondent for amounts less than what the NLRC actually awarded. Private respondent withheld 10% of the total amount agreed upon by the parties in the said Deeds as attorney's fees and handed it over to petitioner.

Private respondent then attached the Deeds of Release, Waiver and Quitclaim to its Manifestation and Motion[23] filed before the appellate court. On 22 August 2001, the Court of Appeals rendered a Decision[24] in CA-G.R. SP No. 54576-77 affirming the NLRC Decision dated 21 July 1995 and Resolution dated 27 February 1996 in the Aguirre Cases, only insofar as it concerned complainant Alfredo Gadian, Jr. (complainant Gadian), the only complainant who did not execute a Deed of Release, Waiver and Quitclaim. With respect to the other complainants in the Aguirre and Toquero Cases, their complaints were dismissed on account of their duly executed Deeds of Release, Waiver and Quitclaim.[25]

Private respondent moved for the partial reconsideration of the 22 August 2001 Decision of the Court of Appeals, seeking the reversal and setting aside of the 22 August 2001 Decision of the Court of Appeals in CA-G.R. SP. No. 54576-77, which affirmed the 21 July 1995 Decision and 27 February 1996 Resolution of the NLRC in the Aguirre Cases, insofar as complainant Gadian was concerned; and the dismissal of complainant Gadian's complaint against private respondent for lack of merit.[26] Complainant Gadian and his counsel, herein petitioner, for their part, likewise moved for the partial reconsideration of the same Decision of the appellate court praying that the award of

DO 18-02 Cases 76

attorney's fees of 10% should be based on the monetary awards adjudged by the NLRC.[27] In a Resolution[28] dated 9 January 2002, the appellate court denied both motions.

G.R. No. 151421 and No. 151427

Private respondent appealed before this Court by filing a Petition for Review, docketed as G.R. No. 151421 and No. 151427. However, private respondent's Petition was denied due course by this Court in a Resolution[29] dated 18 March 2002 for failure of the private respondent to show that a reversible error had been committed by the appellate court. The Court also denied private respondent's motion for reconsideration.[30] The denial of the private respondent's Petition in G.R. No. 151421 and No. 151427 became final and executory on 24 July 2002. [31]

G.R. No. 151983-84

Petitioner filed this present Petition for Review on his own behalf, docketed as G.R. No. 151983-84, praying that this Court grant him attorney's fees equivalent to those awarded by the NLRC in the Aguirre and Toquero Cases. He makes the following lone assignment of error in his Petition:

THE HONORABLE PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN NOT AWARDING ATTORNEY'S FEES BASED ON THE ORIGINAL AWARD MADE BY THE NLRC-FOURTH DIVISON.[32]

In his Memorandum, [33] petitioner posits the following issues:

I. WHETHER THE PRESENT PETITION RAISES A QUESTION OF LAW.II. WHETHER PETITIONER IS A REAL PARTY IN INTEREST TO FILE THE PRESENT

PETITION.III. WHETHER PETITIONER IS ENTITLED TO ADDITIONAL ATTORNEY'S FEES ON

TOP OF WHAT WAS ALREADY RECEIVED.[34]

Petitioner alleges that the Decision of the appellate court was prejudicial only insofar as it failed to grant 10% attorney's fees based on the monetary and economic awards adjudged by the NLRC in its Decisions in the Aguirre and Toquero Cases. Considering that the only complainant who did not execute a Deed of Release, Waiver and Quitclaim, namely, complainant Gadian, obtained a favorable judgment from the Court of Appeals, he was no longer interested in pursuing an appeal; and petitioner is, thus, constrained to bring the present Petition, with himself as the forced petitioner, for the purpose of recovering the aforesaid attorney's fees.

In the instant Petition, petitioner is claiming additional attorney's fees, representing the difference between the amount as decreed in the NLRC Decisions in the Aguirre and Toquero Cases and the amount he already received from private respondent, equivalent to the 10% attorney's fees the latter withheld from the amounts it actually paid to the complainants who signed the Deeds of Release, Waiver and Quitclaim.

Petitioner avows that he is entitled to attorney's fees based on the monetary awards as stated in the Decisions of the NLRC in the Aguirre and Toquero Cases because (1) the Deeds of Release, Waiver and Quitclaim executed by all but one of the complainants during the pendency of CA-G.R. SP. No. 54576-77 before the Court of Appeals were done without his conformity; (2) he, together with his assistant lawyers, had invested substantial time and effort for more than seven or eight years and even spent considerable amounts of personal money for the prosecution of these consolidated cases from the Labor Arbiter up to this Court; hence, it would be grossly unfair for the petitioner to receive only 10% of the financial assistance given to the complainants by virtue of the Deeds of Release, Waiver and Quitclaim they signed; and (3) petitioner's right to attorney's fees has become vested after rendering painstaking legal services to the complainants, making him and his collaborating counsels entitled to the full amount of attorney's fees as awarded by the NLRC.

While this Court concedes that the instant Petition for Review raises a question of law, it denies the Petition for lack of merit and lack of petitioner's standing to file the same.

This Court has consistently ruled that a question of law exists when there is a doubt or controversy as to what the law is on a certain state of facts. On the other hand, there is a question of fact when the doubt or difference arises as to the alleged truth or falsehood of the alleged facts. For a question to be one of law, it must involve no examination of the probative value of the evidence presented by the litigants or any of them.[35] The test of whether a question is one of law or of fact is not the appellation given to such question by the party raising the same; rather, it is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise, it is a question of fact.[36]

In the case at bar, the core issue presented by the petitioner is with respect to the amount of attorney's fees to which he should be entitled: whether he is entitled to the amount of attorney's fees as adjudged by the NLRC in its Decisions in the Aguirre and Toquero Cases or only to the 10% of the amounts actually paid to his clients, the complainants who signed the Deeds of Release, Waiver and Quitclaim.

The aforesaid issue evidently involves a question of law. In determining whether the petitioner should be entitled to the attorney's fees stated in the NLRC Decisions, this Court does not need to go over the pieces of evidence submitted by the parties in the proceedings below to determine their probative value. What it needs to do is ascertain and apply the relevant law and jurisprudence on the award of attorney's fees to the prevailing parties in labor cases.

Article 111 of the Labor Code, as amended, specifically provides:

ART. 111. ATTORNEY'S FEES. - (a) In 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.

(b) It shall be unlawful for any person to demand or accept, in any judicial or administrative proceedings for the recovery of the wages, attorney's fees which exceed ten percent of the amount of wages recovered. (Emphasis supplied.)

In PCL Shipping Philippines, Inc. v. National Labor Relations Commission[37] citing Dr. Reyes v. Court of Appeals,[38] this Court enunciated that there are two commonly accepted concepts of attorney's fees, the so-called ordinary and extraordinary. In its ordinary concept, an attorney's fee is the reasonable compensation paid to a lawyer by his client for the legal services the former has rendered to the latter. The basis of this compensation is the fact of the attorney's employment by and his agreement with the client. In its extraordinary concept, attorney's fees are deemed indemnity for damages ordered by the court to be paid by the losing party in a litigation. The instances in which these may be awarded are those enumerated in Article 2208 of the Civil Code, specifically paragraph 7[39] thereof, which pertains to actions for recovery of wages, and is payable not to the lawyer but to the client, unless they have agreed that the award shall pertain to the lawyer as additional compensation or as part thereof.[40] Article 111 of the Labor Code, as amended, contemplates the extraordinary concept of attorney's fees.

Still according to PCL Shipping, Article 111 is an exception to the declared policy of strict construction in the awarding of attorney's fees. Although express findings of fact and law are still necessary to prove the merit of the award, there need not be any showing that the employer acted maliciously or in bad faith when it withheld the wages. In carrying out and interpreting the Labor Code's provisions and implementing regulations, the employee's welfare should be the primordial and paramount consideration. This kind of interpretation gives meaning and substance to the liberal and compassionate spirit of the law as provided in Article 4 of the Labor Code, which states that "all doubts in the implementation and interpretation of the provisions of the Labor Code including its implementing rules and regulations, shall be resolved in favor of labor"; and Article 1702 of the Civil Code, which provides that "in case of doubt, all labor legislation and all labor contracts shall be construed in favor of the safety and decent living for the laborer." [41]

Based on the foregoing, the attorney's fees awarded by the NLRC in its Decisions in the Aguirre and Toquero Cases pertain to the complainants, petitioner's clients, as indemnity for damages; and not to petitioner as compensation for his legal services. Records show that the petitioner neither alleged nor proved that his clients, the complainants, willingly agreed that the award of attorney's fees would accrue to him as an additional compensation or part thereof.

What the complainants explicitly agreed to in their individual Deeds of Release, Waiver, and Quitclaim was that the 10% attorney's fees of the petitioner shall be deducted from the amount of the gross settlement. Provision 8 of the Deeds of Release, Waiver and Quitclaim reads:

8. x x x. As a client, I have the right to decide on the matter of whether to settle my case and the amount of the settlement, which right I am now exercising without prejudice to my counsel's claim to the legally mandated 10% attorney's fees. As a matter of fact, I had requested and [herein private respondent] has complied with it, that [private respondent] deduct from the gross settlement 10% representing attorney's fees of [herein petitioner] and make a check payable to the latter in such amount.[42]

(Emphasis supplied.)

The foregoing provision cannot be taken to mean that the complainants concerned agreed that the attorney's fees awarded by the NLRC pertained to petitioner as additional compensation or part thereof since (1) the Deeds were executed between complainants and private respondent, the petitioner was not even a party to the said documents; and (2) private complainants' request that private respondent withhold 10% attorney's fees to be payable to petitioner was in relation to the amount of gross settlement under the Deeds and not to the amounts awarded by the NLRC. In fact, petitioner challenges the due execution of the Deeds, and may not now take an inconsistent position by using the provisions of the very same Deeds as proof that complainants impliedly or expressly agreed that the attorney's fees awarded by the NLRC pertained to him under the ordinary concept of attorney's fees.

Thus, this Court has no recourse but to interpret the award of attorney's fees by the NLRC in its extraordinary concept. And since the attorney's fees pertained to the complainants as indemnity for damages, it was totally within the complainants' right to waive the amount of said attorney's fees and settle for a lesser amount thereof in

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exchange for the immediate end to litigation. Petitioner cannot prevent complainants from compromising and/or withdrawing their complaints at any stage of the proceedings just to protect his anticipated attorney's fees.

Even assuming arguendo that the complainants in the Aguirre and Toquero Cases did indeed agree that the attorney's fees awarded by the NLRC should be considered in their ordinary concept, i.e. , as compensation for petitioner's services, we refer back to Article 111 of the Labor Code, as amended, which provides that the attorney's fees should be equivalent to 10% of the amount of wages recovered. Since the complainants decided to settle their complaints against the private respondent, the amounts actually received by them pursuant to the Deeds of Release, Waiver and Quitclaim are the amounts "recovered" and the proper basis for determining the 10% attorney's fees.

Petitioner cannot claim further to be a real party in interest herein for the very same reasons already discussed above.

It is elementary that it is only in the name of a real party in interest that a civil suit may be prosecuted.[43] Section 2, Rule 3 of the 1997 Revised Rules of Civil Procedure, as amended, provides:

SEC. 2. Parties in interest. - A real party in interest is the party who stands to be benefited or injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless otherwise authorized by law or these Rules, every action must be prosecuted or defended in the name of the real party in interest.

The established rule is that a real party in interest is one who would be benefited or injured by the judgment, or one entitled to the avails of the suit. The word "interest," as contemplated by the Rules, means material interest or an interest in issue and to be affected by the judgment, as distinguished from mere interest in the question involved or a mere incidental interest. Stated differently, the rule refers to a real or present substantial interest as distinguished from a mere expectancy or a future, contingent, subordinate, or consequential interest. As a general rule, one who has no right or interest to protect cannot invoke the jurisdiction of the court asparty-plaintiffinanaction.[44]

The afore-quoted rule has two requirements: 1) to institute an action, the plaintiff must be the real party in interest; and 2) the action must be prosecuted in the name of the real party in interest. Necessarily, the purposes of this provision are 1) to prevent the prosecution of actions by persons without any right or title to or interest in the case; 2) to require that the actual party entitled to legal relief be the one to prosecute the action; 3) to avoid a multiplicity of suits; and 4) to discourage litigation and keep it within certain bounds, pursuant to sound public policy.[45]

In the case at bar, it is beyond cavil that the petitioner is not the real party in interest; hence, he cannot file this Petition to recover the attorney's fees as adjudged by the NLRC in its Decisions dated 21 July 1995 and 25 July 1995 in the Aguirre and Toquero Cases, respectively. To reiterate, the award of attorney's fees pertain to the prevailing parties in the NLRC cases, namely, the complainants, all but one of whom no longer pursued their complaints against private respondent after executing Deeds of Release, Waiver and Quitclaim. Not being the party to whom the NLRC awarded the attorney's fees, neither is the petitioner the proper party to question the non-awarding of the same by the appellate court.

In addition, as found by the Court of Appeals, when the complainants executed their respective Deeds of Release, Waiver and Quitclaim, petitioner already received attorney's fees equivalent to 10% of the amounts paid to the complainants in accordance with the Deeds, as evidenced by several cash vouchers and checks payable to petitioner[46] and signed by his representative.[47] Even petitioner himself admitted this fact.

This would show that petitioner has been compensated for the services he rendered the complainants. It may do well for petitioner to remember that as a lawyer, he is a member of an honorable profession, the primary vision of which is justice. The practice of law is a decent profession and not a money-making trade. Compensation should be but a mere incident. [48]

If petitioner earnestly believes that the amounts he already received are grossly deficient, considering the substantial time and efforts he and his assistant lawyers invested, as well as the personal money he expended for the prosecution of complainants' cases for more than seven or eight years, then petitioner's remedy is not against the private respondent, but against his own clients, the complainants. He should file a separate action for collection of sum of money against complainants to recover just compensation for his legal services, and not the present Petition for Review to claim from private respondent the attorney's fees which were adjudged by the NLRC in favor of complainants as the prevailing parties in the Aguirre and Toquero Cases.

Finally, as stated earlier, petitioner assails the Deeds of Release, Waiver and Quitclaim executed by the complainants for being executed without his conformity and, thus, in violation of the requirements of the Labor Code. Such argument is specious.

There is no specific provision in the Labor Code, as amended, which requires the conformity of petitioner, as the complainants' counsel, to make their Deeds of Release, Waiver and Quitclaim valid. The only requisites for the validity of any Deed of Release,

Waiver and Quitclaim are the following: (1) that there was no fraud or deceit on the part of any of the parties; (2) that the consideration for the quitclaim is credible and reasonable; and (3) that the contract is not contrary to law, public order, public policy, morals or good customs or prejudicial to a third person with a right recognized by law.[49]

In this case, it cannot be questioned that those requisites were completely satisfied, making the Deeds of Release, Waiver and Quitclaim individually executed by the complainants valid.

Moreover, both the NLRC and the Court of Appeals found the Deeds of Release, Waiver and Quitclaim to be validly and willfully executed by the complainants. The Court of Appeals ruled:

Further, as correctly stated by the [herein private respondent], to wit:

`The separate Deeds of Release, Waiver and Quitclaim were all executed and signed by the private respondents concerned before the Labor Arbiter, Hon. Reynaldo Gulmatico, who handled the case a quo and rendered the decision in favor of [complainants therein]. As a matter of course, a Labor Arbiter asks, and even explains, to the person executing a quitclaim before him about the contents and the implications thereof. It is only after the Labor Arbiter has satisfied himself that the quitclaim involved was voluntarily executed by the person concerned and that there is a substantial consideration involved would he sign it.'

"While quitclaims executed by employees are commonly frowned upon as contrary to public policy and are ineffective to bar claims for the full measure of the employees' legal rights, there are legitimate waivers that represent a voluntary and reasonable settlement of laborers' claims which should be respected by the courts as the law between the parties."[50]

WHEREFORE, premises considered, the instant Petition is hereby DENIED. Costs against petitioner.

SO ORDERED.

WE CONCUR:

Ynares-Santiago, (Chairperson), Austria-Martinez, Reyes, and Leonardo-De Castro, JJ., concur.