Supplemental Case 1-29

G.R. No. 81958 June 30, 1988 PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner, vs. HON. FRANKLIN M. DRILON as Secretary of Labor and Employment, and TOMAS D. ACHACOSO, as Administrator of the Philippine Overseas Employment Administration, respondents. Gutierrez & Alo Law Offices for petitioner.

SARMIENTO, J.: The petitioner, Philippine Association of Service Exporters, Inc. (PASEI, for short), a firm "engaged principally in the recruitment of Filipino workers, male and female, for overseas placement," 1 challenges the Constitutional validity of Department Order No. 1, Series of 1988, of the Department of Labor and Employment, in the character of "GUIDELINES GOVERNING THE TEMPORARY SUSPENSION OF DEPLOYMENT OF FILIPINO DOMESTIC AND HOUSEHOLD WORKERS," in this petition for certiorari and prohibition. Specifically, the measure is assailed for "discrimination against males or females;" 2 that it "does not apply to all Filipino workers but only to domestic helpers and females with similar skills;" 3 and that it is violative of the right to travel. It is held likewise to be an invalid exercise of the lawmaking power, police power being legislative, and not executive, in character. In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the Constitution, providing for worker participation "in policy and decision-making processes affecting their rights and benefits as may be provided by law." 4 Department Order No. 1, it is contended, was passed in the absence of prior consultations. It is claimed, finally, to be in violation of the Charter's non-impairment clause, in addition to the "great and irreparable injury" that PASEI members face should the Order be further enforced. On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of Labor and Administrator of the Philippine Overseas Employment Administration, filed a Comment informing the Court that on March 8, 1988, the respondent Labor Secretary lifted the deployment ban in the states of Iraq, Jordan, Qatar, Canada, Hongkong, United States, Italy, Norway, Austria, and Switzerland. * In submitting the validity of the challenged "guidelines," the Solicitor General invokes the police power of the Philippine State. It is admitted that Department Order No. 1 is in the nature of a police power measure. The only question is whether or not it is valid under the Constitution. The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." 5 As defined, it consists of (1) an imposition of restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its allcomprehensive embrace. "Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to conditions and circumstances thus assuring the greatest benefits." 6 It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the Charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, 7 refers to it succinctly as the plenary power of the State "to govern its citizens." 8 "The police power of the State ... is a power coextensive with self- protection, and it is not inaptly termed the "law of overwhelming necessity." It may be said to be that inherent and plenary power in the State which enables it to prohibit all things hurtful to the comfort, safety, and welfare of society." 9

It constitutes an implied limitation on the Bill of Rights. According to Fernando, it is "rooted in the conception that men in organizing the state and imposing upon its government limitations to safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of citizens to obstruct unreasonably the enactment of such salutary measures calculated to ensure communal peace, safety, good order, and welfare." 10 Significantly, the Bill of Rights itself does not purport to be an absolute guaranty of individual rights and liberties "Even liberty itself, the greatest of all rights, is not unrestricted license to act according to one's will." 11 It is subject to the far more overriding demands and requirements of the greater number. Notwithstanding its extensive sweep, police power is not without its own limitations. For all its awesome consequences, it may not be exercised arbitrarily or unreasonably. Otherwise, and in that event, it defeats the purpose for which it is exercised, that is, to advance the public good. Thus, when the power is used to further private interests at the expense of the citizenry, there is a clear misuse of the power. 12 In the light of the foregoing, the petition must be dismissed. As a general rule, official acts enjoy a presumed vahdity. contrary, the presumption logically stands.

13

In the absence of clear and convincing evidence to the

The petitioner has shown no satisfactory reason why the contested measure should be nullified. There is no question that Department Order No. 1 applies only to "female contract workers," 14 but it does not thereby make an undue discrimination between the sexes. It is well-settled that "equality before the law" under the Constitution 15 does not import a perfect Identity of rights among all men and women. It admits of classifications, provided that (1) such classifications rest on substantial distinctions; (2) they are germane to the purposes of the law; (3) they are not confined to existing conditions; and (4) they apply equally to all members of the same class. 16 The Court is satisfied that the classification made-the preference for female workers — rests on substantial distinctions. As a matter of judicial notice, the Court is well aware of the unhappy plight that has befallen our female labor force abroad, especially domestic servants, amid exploitative working conditions marked by, in not a few cases, physical and personal abuse. The sordid tales of maltreatment suffered by migrant Filipina workers, even rape and various forms of torture, confirmed by testimonies of returning workers, are compelling motives for urgent Government action. As precisely the caretaker of Constitutional rights, the Court is called upon to protect victims of exploitation. In fulfilling that duty, the Court sustains the Government's efforts. The same, however, cannot be said of our male workers. In the first place, there is no evidence that, except perhaps for isolated instances, our men abroad have been afflicted with an Identical predicament. The petitioner has proffered no argument that the Government should act similarly with respect to male workers. The Court, of course, is not impressing some male chauvinistic notion that men are superior to women. What the Court is saying is that it was largely a matter of evidence (that women domestic workers are being ill-treated abroad in massive instances) and not upon some fanciful or arbitrary yardstick that the Government acted in this case. It is evidence capable indeed of unquestionable demonstration and evidence this Court accepts. The Court cannot, however, say the same thing as far as men are concerned. There is simply no evidence to justify such an inference. Suffice it to state, then, that insofar as classifications are concerned, this Court is content that distinctions are borne by the evidence. Discrimination in this case is justified. As we have furthermore indicated, executive determinations are generally final on the Court. Under a republican regime, it is the executive branch that enforces policy. For their part, the courts decide, in the proper cases, whether that policy, or the manner by which it is implemented, agrees with the Constitution or the laws, but it is not for them to question its wisdom. As a co-equal body, the judiciary has great respect for determinations of the Chief Executive or his subalterns, especially when the legislature itself has specifically given them enough room on how the law should be effectively enforced. In the case at bar, there is no gainsaying the fact, and the Court will deal with this at greater length shortly, that Department Order No. 1 implements the rule-making powers granted by the Labor Code. But what should be noted is the fact that in spite of such a fiction of finality, the Court is on its own persuaded that prevailing conditions indeed call for a deployment ban.

There is likewise no doubt that such a classification is germane to the purpose behind the measure. Unquestionably, it is the avowed objective of Department Order No. 1 to "enhance the protection for Filipino female overseas workers" 17 this Court has no quarrel that in the midst of the terrible mistreatment Filipina workers have suffered abroad, a ban on deployment will be for their own good and welfare. The Order does not narrowly apply to existing conditions. Rather, it is intended to apply indefinitely so long as those conditions exist. This is clear from the Order itself ("Pending review of the administrative and legal measures, in the Philippines and in the host countries . . ." 18), meaning to say that should the authorities arrive at a means impressed with a greater degree of permanency, the ban shall be lifted. As a stop-gap measure, it is possessed of a necessary malleability, depending on the circumstances of each case. Accordingly, it provides: 9. LIFTING OF SUSPENSION. — The Secretary of Labor and Employment (DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are: 1. Bilateral agreements or understanding with the Philippines, and/or, 2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 19 The Court finds, finally, the impugned guidelines to be applicable to all female domestic overseas workers. That it does not apply to "all Filipina workers" 20 is not an argument for unconstitutionality. Had the ban been given universal applicability, then it would have been unreasonable and arbitrary. For obvious reasons, not all of them are similarly circumstanced. What the Constitution prohibits is the singling out of a select person or group of persons within an existing class, to the prejudice of such a person or group or resulting in an unfair advantage to another person or group of persons. To apply the ban, say exclusively to workers deployed by A, but not to those recruited by B, would obviously clash with the equal protection clause of the Charter. It would be a classic case of what Chase refers to as a law that "takes property from A and gives it to B." 21 It would be an unlawful invasion of property rights and freedom of contract and needless to state, an invalid act. 22 (Fernando says: "Where the classification is based on such distinctions that make a real difference as infancy, sex, and stage of civilization of minority groups, the better rule, it would seem, is to recognize its validity only if the young, the women, and the cultural minorities are singled out for favorable treatment. There would be an element of unreasonableness if on the contrary their status that calls for the law ministering to their needs is made the basis of discriminatory legislation against them. If such be the case, it would be difficult to refute the assertion of denial of equal protection." 23 In the case at bar, the assailed Order clearly accords protection to certain women workers, and not the contrary.) It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas deployment. From scattered provisions of the Order, it is evident that such a total ban has hot been contemplated. We quote: 5. AUTHORIZED DEPLOYMENT-The deployment of domestic helpers and workers of similar skills defined herein to the following [sic] are authorized under these guidelines and are exempted from the suspension. 5.1 Hirings by immediate members of the family of Heads of State and Government; 5.2 Hirings by Minister, Deputy Minister and the other senior government officials; and 5.3 Hirings by senior officials of the diplomatic corps and duly accredited international organizations. 5.4 Hirings by employers in countries with whom the Philippines have [sic] bilateral labor agreements or understanding. xxx xxx xxx 7. VACATIONING DOMESTIC HELPERS AND WORKERS OF SIMILAR SKILLS--Vacationing domestic helpers and/or workers of similar skills shall be allowed to process with the POEA and leave for worksite only if they are returning to the same employer to finish an existing or partially served employment contract. Those workers returning to worksite to serve a new employer shall be covered by the suspension and the provision of these guidelines.

xxx xxx xxx 9. LIFTING OF SUSPENSION-The Secretary of Labor and Employment (DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are: 1. Bilateral agreements or understanding with the Philippines, and/or, 2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 24 xxx xxx xxx The consequence the deployment ban has on the right to travel does not impair the right. The right to travel is subject, among other things, to the requirements of "public safety," "as may be provided by law." 25 Department Order No. 1 is a valid implementation of the Labor Code, in particular, its basic policy to "afford protection to labor," 26pursuant to the respondent Department of Labor's rule-making authority vested in it by the Labor Code. 27 The petitioner assumes that it is unreasonable simply because of its impact on the right to travel, but as we have stated, the right itself is not absolute. The disputed Order is a valid qualification thereto. Neither is there merit in the contention that Department Order No. 1 constitutes an invalid exercise of legislative power. It is true that police power is the domain of the legislature, but it does not mean that such an authority may not be lawfully delegated. As we have mentioned, the Labor Code itself vests the Department of Labor and Employment with rulemaking powers in the enforcement whereof. 28 The petitioners's reliance on the Constitutional guaranty of worker participation "in policy and decision-making processes affecting their rights and benefits" 29 is not well-taken. The right granted by this provision, again, must submit to the demands and necessities of the State's power of regulation. The Constitution declares that: Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all. 30 "Protection to labor" does not signify the promotion of employment alone. What concerns the Constitution more paramountly is that such an employment be above all, decent, just, and humane. It is bad enough that the country has to send its sons and daughters to strange lands because it cannot satisfy their employment needs at home. Under these circumstances, the Government is duty-bound to insure that our toiling expatriates have adequate protection, personally and economically, while away from home. In this case, the Government has evidence, an evidence the petitioner cannot seriously dispute, of the lack or inadequacy of such protection, and as part of its duty, it has precisely ordered an indefinite ban on deployment. The Court finds furthermore that the Government has not indiscriminately made use of its authority. It is not contested that it has in fact removed the prohibition with respect to certain countries as manifested by the Solicitor General. The non-impairment clause of the Constitution, invoked by the petitioner, must yield to the loftier purposes targetted by the Government. 31 Freedom of contract and enterprise, like all other freedoms, is not free from restrictions, more so in this jurisdiction, where laissez faire has never been fully accepted as a controlling economic way of life. This Court understands the grave implications the questioned Order has on the business of recruitment. The concern of the Government, however, is not necessarily to maintain profits of business firms. In the ordinary sequence of events, it is profits that suffer as a result of Government regulation. The interest of the State is to provide a decent living to its citizens. The Government has convinced the Court in this case that this is its intent. We do not find the impugned Order to be tainted with a grave abuse of discretion to warrant the extraordinary relief prayed for. WHEREFORE, the petition is DISMISSED. No costs.

SO ORDERED.

BREW MASTER INTERNATIONAL INC., petitioner, vs. NATIONAL FEDERATION OF LABOR UNIONS (NAFLU), ANTONIO D. ESTRADA and HONORABLE NATIONAL LABOR RELATIONS COMMISSION (Third Division), respondents. DECISION DAVIDE, JR., J.: This is a special civil action for certiorari seeking the reversal of the 7 October 1994 decision [1] of the National Labor Relations Commission (NLRC) in NLRC Case No. 00-06-04136-93 (CA No. L-007370-94), which modified the 11 July 1994 decision[2] of the Labor Arbiter by directing the reinstatement of private respondent Antonio D. Estrada, the complainant, without loss of seniority rights and benefits. Private respondent National Federation of Labor Unions (NAFLU), a co-complainant in the labor case, is a labor union of which complainant is a member. The factual and procedural antecedents are summarized in the decision of the Labor Arbiter which we quote verbatim: Complainant was first employed by respondent on 16 September 1991 as route helper with the latest daily wage of P119.00. From 19 April 1993 up to 19 May 1993, for a period of one (1) month, complainant went on absent without permission (AWOP). On 20 May 1993, respondent thru Mr. Rodolfo Valentin, sent a Memo to complainant, to wit: “Please explain in writing within 24 hours of your receipt of this memo why no disciplinary action should be taken against you for the following offense: You were absent since April 19, 1993 up to May 19, 1993. For your strict compliance.” In answer to the aforesaid memo, complainant explained: “Sa dahilan po na ako ay hindi nakapagpaalam sainyo [sic] dahil inuwi ko ang mga anak ko sa Samar dahil ang asawa ko ay lumayas at walang mag-aalaga sa mga anak ko. Kaya naman hindi ako naka long distance or telegrama dahil wala akong pera at ibinili ko ng gamot ay puro utang pa.” Finding said explanation unsatisfactory, on 16 June 1993, respondent thru its Sales Manager, Mr. Henry A. Chongco issued a Notice of Termination which reads: “We received your letter of explanation dated May 21, 1993 but we regret to inform you that we do not consider it valid. You are aware of the company Rules and Regulations that absence without permission for six (6) consecutive working days is considered abandonment of work. In view of the foregoing, the company has decided to terminate your employment effective June 17, 1993 for abandonment of work.”

Hence, this complaint. Complainants contend that individual complainant’s dismissal was done without just cause; that it was not sufficiently established that individual complainant’s absence from April 19, 1993 to June 16, 1993 are unjustified; that the penalty of dismissal for such violation is too severe; that in imposing such penalty, respondent should have taken into consideration complainant’s length of service and as a first offender, a penalty less punitive will suffice such as suspension for a definite period, (Position Paper, complainants). Upon the other hand, respondent contends that individual complainant was dismissed for cause allowed by the company Rules and Regulations and the Labor Code; that the act of complainant in absenting from work for one (1) month without official leave is deleterious to the business of respondent; that it will result to stoppage of production which will not only destructive to respondent’s interests but also to the interest of its employees in general; that the dismissal of complainant from the service is legal, (Position Paper, respondent).[3] The Labor Arbiter dismissed the complaint for lack of merit, citing the principle of managerial control, which recognizes the employer’s prerogative to prescribe reasonable rules and regulations to govern the conduct of his employees. The principle allows the imposition of disciplinary measures which are necessary for the efficiency of both the employer and the employees. In complainant's case, he persisted in not reporting for work until 16 June 1993 notwithstanding his receipt of the memorandum requiring him to explain his absence without approval. The Labor Arbiter, relying on Shoemart, Inc. vs. NLRC,[4] thus concluded: Verily, it is crystal clear that individual complainant has indeed abandoned his work. The filing of the complaint on 25 June 1993 or almost two (2) months from the date complainant failed to report for work affirms the findings of this Office and therefore, under the law and jurisprudence which upholds the right of an employer to discharge an employee who incurs frequent, prolonged and unexplained absences as being grossly remiss in his duties to the employer and is therefore, dismissed for cause, (Shoemart, Inc. vs. NLRC, 176 SCRA 385). An employee is deemed to have abandoned his position or to have resigned from the same, whenever he has been absent therefrom without previous permission of the employer for three consecutive days or more. This justification is the obvious harm to employer’s interest, resulting from [sic] the non-availability of the worker’s services , (Supra). (underscoring supplied)[5] and ruled that complainant’s termination from his employment was “legal, the same with just or authorized cause and due process.”[6] Complainant appealed to the NLRC, alleging that the immediate filing of a complaint for illegal dismissal verily indicated that he never intended to abandon his work, then cited Policarpio v. Vicente Dy Sun, Jr.,[7] where the NLRC ruled that prolonged absence does not, by itself, necessarily mean abandonment. Accordingly, there must be a concurrence of intention and overt acts from which it can be inferred that the employee is no longer interested in working. Complainant likewise invoked compassion in the application of sanctions, as dismissal from employment brings untold hardship and sorrows on the dependents of the wage earners. In his case, a penalty less punitive than dismissal could have sufficed. In the assailed decision[8] of 7 October 1994, the NLRC modified the Labor Arbiter's decision and held that complainant’s dismissal was invalid for the following reasons: Complainant-appellant’s prolonged absences, although unauthorized, may not amount to gross neglect or abandonment of work to warrant outright termination of employment. Dismissal is too severe a penalty. For one, the mere fact that complainant-appellant is a first offender must be considered in his favor. Besides, it is generally impossible for an employee to anticipate when he would be ill or compelled to attend to some family problems or emergency like in the case at bar. Reliance on the ruling enunciated in the cited case of Shoemart Inc. vs. National Labor Relations, 176 SCRA 385, is quite misplaced because of the obvious dissimilarities of the attendant circumstances in the said case vis-a-vis those obtaining in the case at bar. Unlike in the aforecited Shoemart Case, herein complainant-appellant was not dismissed for unauthorized absences and eventually reinstated anterior to his second dismissal for the same offense nor was he given a second chance which he could have ignored.

Otherwise stated, the difference between the two cases greatly lies [in] the fact that complainant in the Shoemart Case in the language of the Supreme Court was “an inveterate absentee who does not deserve reinstatement” compared to herein complainant-appellant who is a first offender”[9] The NLRC then decreed as follows: PREMISES CONSIDERED, and [sic] the Decision of the Labor Arbiter, dated 11 July 1994 is hereby MODIFIED, by directing the reinstatement of complainant-appellant to his former position without loss of seniority rights and other benefits, but without backwages. The other findings in the appealed decision stand AFFIRMED.[10] Petitioner’s motion for the reconsideration[11] was denied by the NLRC in its 7 December 1994 resolution. [12] Petitioner thus filed this special civil action contending that the NLRC committed grave abuse of discretion in ordering complainant's reinstatement, which in effect countenances the reinstatement of an employee who is found guilty of “excessive” absences without prior approval. It further argued that the NLRC failed to consider the rationale behind petitioner’s Rules and Regulations; that it was deprived of its prerogative to enforce them; and that complainant's reinstatement would adversely affect its business and send the wrong signals to its employees. In its comment[13] for public respondent NLRC, the Office of the Solicitor General maintained that dismissal from employment was too severe a penalty for a first time offender like complainant. Although he violated petitioner’s rules and regulations, his absences were justified: he had to bring his children to Samar, his home province, as his wife deserted him. While that by itself might not excuse the failure to seek permission, the Office of the Solicitor General submitted, however, that “it would be at [sic] the height of callousness if one, considering his plight under the circumstance[s], would not give due consideration to [complainant’s] explanation. There has to be an exception.”[14] Applying Itogon-Suyoc Mines, Inc. v. NLRC,[15] the Office of the Solicitor General recommended complainant’s reinstatement, which would be more harmonious to the dictates of social justice and equity. It further emphasized that the reinstatement should not be considered a condonation of complainant’s irresponsible behavior, rather, it must be viewed as a mitigation of the severity of the penalty of dismissal. Accordingly, it prays that this petition be dismissed. In its reply,[16] petitioner disputed the application of Itogon-Suyoc because: (1) the employee involved therein had been in the service for twenty-three years while complainant herein had served petitioner for only two years; and (2) the offense in Itogon-Suyoc was limited to a single act of high grading while complainant herein committed a series of unexcused absences. We gave due course to the petition and dispensed with complainant’s comment. The sole issue to be resolved is whether the NLRC committed grave abuse of discretion in modifying the decision of the Labor Arbiter. The answer must be in the negative. A scrutiny of the facts discloses that complainant’s absence was precipitated by a grave family problem as his wife unexpectedly deserted him and abandoned the family. Considering that he had a full-time job, there was no one to whom he could entrust the children and he was thus compelled to bring them to the province. It would have been extremely difficult for him to have been husband and wife/father and mother at the same time to the children in the metropolis. He was then under emotional, psychological, spiritual and physical stress and strain. The reason for his absence is, under these circumstances, justified. While his failure to inform and seek petitioner's approval was an omission which must be corrected and chastised, he did not merit the severest penalty of dismissal from the service. Petitioner’s finding that complainant was guilty of abandonment is misplaced. Abandonment as a just and valid ground for dismissal requires the deliberate, unjustified refusal of the employee to resume his employment. Two elements must then be satisfied: (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 the more determinative factor and must be evinced by overt acts.[17] Likewise, the burden of proof is on the employer to show the employee’s clear and deliberate intent to discontinue his employment without any intention of returning, [18] mere absence is not sufficient.[19] These elements are not present here. First, as held above, complainant's absence was justified under the circumstances. As to the second requisite, we are not convinced that complainant ever intended to sever the employer-employee relationship. Complainant immediately complied with the memo requiring him to

explain his absence, and upon knowledge of his termination, immediately sued for illegal dismissal. These plainly refuted any claim that he was no longer interested in returning to work.[20] Without doubt, the intention is lacking. Moreover, petitioner failed to discharge the burden of proof that complainant was guilty of abandonment. No evidence other than complainant’s letter explaining his absence was presented. Needless to state, the letter did not indicate, in the least, that complainant was no longer interested in returning to work. On the contrary, complainant sought petitioner’s understanding. In declaring him guilty of abandonment, petitioner merely relied on its Rules and Regulations which limited its application to a six-day continuous absence, contrary to the purpose of the law. While the employer is not precluded from prescribing rules and regulations to govern the conduct of his employees, these rules and their implementation must be fair, just and reasonable. It must be underscored that no less than our Constitution looks with compassion on the workingman and protects his rights not only under a general statement of a state policy, [21] but under the Article on Social Justice and Human Rights, [22] thus placing labor contracts on a higher plane and with greater safeguards. Verily, relations between capital and labor are not merely contractual. They are impressed with public interest and labor contracts must, perforce, yield to the common good.[23] We then conclude that complainant’s "prolonged" absence without approval does not fall within the definition of abandonment and that his dismissal was unjustified. While we do not decide here the validity of petitioner's Rules and Regulations on continuous, unauthorized absences, what is plain is that it was wielded with undue haste resulting in a deprivation of due process, thus not allowing for a determination of just cause or abandonment. In this light, petitioner's dismissal was illegal. This is not to say that his absence should go unpunished, as impliedly noted by the NLRC in declining to award back wages. In the absence of the appropriate offense which defines complainant’s infraction in the company’s Rules and Regulations, equity dictates that a penalty commensurate to the infraction be imposed. WHEREFORE, the petition is hereby DISMISSED and the decision of the National Labor Relations Commission in NLRC Case No. 06-04136-93 is hereby AFFIRMED. No pronouncement as to costs. SO ORDERED.

ROLANDO Y. TAN, petitioner, vs. LEOVIGILDO LAGRAMA and THE HONORABLE COURT OF APPEALS,respondents. DECISION MENDOZA, J.:

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

Separation Pay P 59,000.00 Backwages 47,200.00 (from 17 October 1998 to 17 June 1999) 13th month pay (3 years) 17,700.00 Service Incentive Leave Pay (3 years) 2, 949.99 Damages 10,000.00 TOTAL [P136,849.99]

Complainant’s other claims are dismissed for lack of merit.[3] Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City, which, on June 30, 2000, rendered a decision[4] finding Lagrama to be an independent contractor, and for this reason reversing the decision of the Labor Arbiter.

Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of merit by the NLRC in a resolution of September 29, 2000. He then filed a petition for certiorari under Rule 65 before the Court of Appeals. The Court of Appeals found that petitioner exercised control over Lagrama’s work by dictating the time when Lagrama should submit his billboards and murals and setting rules on the use of the work area and rest room. Although it found that Lagrama did work for other cinema owners, the appeals court held it to be a mere sideline insufficient to prove that he was not an employee of Tan. The appeals court also found no evidence of any intention on the part of Lagrama to leave his job or sever his employment relationship with Tan. Accordingly, on May 31, 2001, the Court of Appeals rendered a decision, the dispositive portion of which reads: IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The Resolutions of the Public Respondent issued on June 30, 2000 and September 29, 2000 are ANNULLED. The Decision of the Honorable Labor Arbiter Rogelio P. Legaspi on June 17, 1999 is hereby REINSTATED. Petitioner moved for a reconsideration, but the Court of Appeals found no reason to reverse its decision and so denied his motion for lack of merit. [5] Hence, this petition for review on certiorari based on the following assignments of errors: I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP NO. 63160 is bereft of any finding that Public Respondent NLRC, 5th Division, had no jurisdiction or exceeded it or otherwise gravely abused its discretion in its Resolution of 30 June 2000 in NLRC CA-NO. M-004950-99. II. With all due respect, respondent Court of Appeals, absent any positive finding on its part that the Resolution of 30 June 2000 of the NLRC is not supported by substantial evidence, is without authority to substitute its conclusion for that of said NLRC. III. With all due respect, respondent Court of Appeals’ discourse on “freelance artists and painters” in the decision in question is misplaced or has no factual or legal basis in the record. IV. With all due respect, respondent Court of Appeals’ opening statement in its decision as to “employment,” “monthly salary of P1,475.00” and “work schedule from Monday to Saturday, from 8:00 o’clock in the morning up to 5:00 o’clock in the afternoon” as “facts” is not supported by the evidence on record. V. With all due respect, the case of Lambo, et al., v. NLRC, et al., 317 SCRA 420 [G.R. No. 111042 October 26, 1999] relied upon by respondent Court of Appeals is not applicable to the peculiar circumstances of this case.[6] The issues raised boil down to whether or not an employer-employee relationship existed between petitioner and private respondent, and whether petitioner is guilty of illegally dismissing private respondent. We find the answers to these issues to be in the affirmative. I. In determining whether there is an employer-employee relationship, we have applied a “four-fold test,” to wit: (1) whether the alleged employer has the power of selection and engagement of employees; (2) whether he has control of the employee with respect to the means and methods by which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether the employee was paid wages. [7] These elements of the employeremployee relationship are present in this case. First. The existence in this case of the first element is undisputed. It was petitioner who engaged the services of Lagrama without the intervention of a third party. It is the existence of the second element, the power of control, that requires discussion here. Of the four elements of the employer-employee relationship, the “control test” is the most important. Compared to an employee, an independent contractor is one who carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof. [8] Hence, while an independent contractor enjoys independence and freedom from the control and supervision of his principal, an employee is subject to the employer’s power to control the means and methods by which the employee’s work is to be performed and accomplished.

In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was an independent contractor and never his employee, the evidence shows that the latter performed his work as painter under the supervision and control of petitioner. Lagrama worked in a designated work area inside the Crown Theater of petitioner, for the use of which petitioner prescribed rules. The rules included the observance of cleanliness and hygiene and a prohibition against urinating in the work area and any place other than the toilet or the rest rooms. [9] Petitioner’s control over Lagrama’s work extended not only to the use of the work area, but also to the result of Lagrama’s work, and the manner and means by which the work was to be accomplished. Moreover, it would appear that petitioner not only provided the workplace, but supplied as well the materials used for the paintings, because he admitted that he paid Lagrama only for the latter’s services.[10] Private respondent Lagrama claimed that he worked daily, from 8 o’clock in the morning to 5 o’clock in the afternoon. Petitioner disputed this allegation and maintained that he paid Lagrama P1,475.00 per week for the murals for the three theaters which the latter usually finished in 3 to 4 days in one week.[11] Even assuming this to be true, the fact that Lagrama worked for at least 3 to 4 days a week proves regularity in his employment by petitioner. Second. That petitioner had the right to hire and fire was admitted by him in his position paper submitted to the NLRC, the pertinent portions of which stated: Complainant did not know how to use the available comfort rooms or toilets in and about his work premises. He was urinating right at the place where he was working when it was so easy for him, as everybody else did and had he only wanted to, to go to the comfort rooms. But no, the complainant had to make a virtual urinal out of his work place! The place then stunk to high heavens, naturally, to the consternation of respondents and everyone who could smell the malodor. ... Given such circumstances, the respondents had every right, nay all the compelling reason, to fire him from his painting job upon discovery and his admission of such acts. Nonetheless, though thoroughly scolded, he was not fired. It was he who stopped to paint for respondents.[12] By stating that he had the right to fire Lagrama, petitioner in effect acknowledged Lagrama to be his employee. For the right to hire and fire is another important element of the employer-employee relationship. [13] Indeed, the fact that, as petitioner himself said, he waited for Lagrama to report for work but the latter simply stopped reporting for work reinforces the conviction that Lagrama was indeed an employee of petitioner. For only an employee can nurture such an expectancy, the frustration of which, unless satisfactorily explained, can bring about some disciplinary action on the part of the employer. Third. Payment of wages is one of the four factors to be considered in determining the existence of employeremployee relation. Wages are defined as “remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered.” [14] That Lagrama worked for Tan on a fixed piece-work basis is of no moment. Payment by result is a method of compensation and does not define the essence of the relation. [15] It is a method of computing compensation, not a basis for determining the existence or absence of employer-employee relationship. One may be paid on the basis of results or time expended on the work, and may or may not acquire an employment status, depending on whether the elements of an employer-employee relationship are present or not.[16] The Rules Implementing the Labor Code require every employer to pay his employees by means of payroll. [17] The payroll should show among other things, the employee’s rate of pay, deductions made, and the amount actually paid to the employee. In the case at bar, petitioner did not present the payroll to support his claim that Lagrama was not his employee, raising speculations whether his failure to do so proves that its presentation would be adverse to his case.[18] The primary standard for determining regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual trade or business of the employer. [19] In this case, there is such a connection between the job of Lagrama painting billboards and murals and the business of petitioner. To let the people know what movie was to be shown in a movie theater requires billboards. Petitioner in fact admits that the billboards are important to his business.[20]

The fact that Lagrama was not reported as an employee to the SSS is not conclusive on the question of whether he was an employee of petitioner.[21] Otherwise, an employer would be rewarded for his failure or even neglect to perform his obligation.[22] Neither does the fact that Lagrama painted for other persons affect or alter his employment relationship with petitioner. That he did so only during weekends has not been denied by petitioner. On the other hand, Samuel Villalba, for whom Lagrama had rendered service, admitted in a sworn statement that he was told by Lagrama that the latter worked for petitioner.[23] Lagrama had been employed by petitioner since 1988. Under the law, therefore, he is deemed a regular employee and is thus entitled to security of tenure, as provided in Art. 279 of Labor Code: ART. 279. Security of Tenure. — In cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by this Title. An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to his other benefits or their monetary equivalent computed from the time his compensation was withheld from him up to the time of his actual reinstatement. This Court has held that if the employee has been performing the job for at least one year, even if not continuously but intermittently, the repeated and continuing need for its performance is sufficient evidence of the necessity, if not indispensability, of that activity to the business of his employer. Hence, the employment is also considered regular, although with respect only to such activity, and while such activity exists.[24] It is claimed that Lagrama abandoned his work. There is no evidence to show this. Abandonment requires two elements: (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship, with the second element as the more determinative factor and being manifested by some overt acts.[25] Mere absence is not sufficient. What is more, the burden is on the employer to show a deliberate and unjustified refusal on the part of the employee to resume his employment without any intention of returning.[26] In the case at bar, the Court of Appeals correctly ruled: Neither do we agree that Petitioner abandoned his job. In order for abandonment to be a just and valid ground for dismissal, the employer must show, by clear proof, the intention of the employee to abandon his job. . . . In the present recourse, the Private Respondent has not established clear proof of the intention of the Petitioner to abandon his job or to sever the employment relationship between him and the Private Respondent. On the contrary, it was Private Respondent who told Petitioner that he did not want the latter to draw for him and thereafter refused to give him work to do or any mural or billboard to paint or draw on. More, after the repeated refusal of the Private Respondent to give Petitioner murals or billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch No. X of the National Labor Relations Commission, a Complaint for “Illegal Dismissal and Money Claims.” Such act has, as the Supreme Court declared, negate any intention to sever employment relationship. . . .[27] II. The second issue is whether private respondent Lagrama was illegally dismissed. To begin, the employer has the burden of proving the lawfulness of his employee’s dismissal. [28] The validity of the charge must be clearly established in a manner consistent with due process. The Implementing Rules of the Labor Code[29] provide that no worker shall be dismissed except for a just or authorized cause provided by law and after due process. This provision has two aspects: (1) the legality of the act of dismissal, that is, dismissal under the grounds provided for under Article 282 of the Labor Code and (2) the legality in the manner of dismissal. The illegality of the act of dismissal constitutes discharge without just cause, while illegality in the manner of dismissal is dismissal without due process.[30] In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out of his sight as the latter tried to explain his side, petitioner made it plain that Lagrama was dismissed. Urinating in a work place other than the one designated for the purpose by the employer constitutes violation of reasonable regulations intended to promote a healthy environment under Art. 282(1) of the Labor Code for purposes of terminating employment, but

the same must be shown by evidence. Here there is no evidence that Lagrama did urinate in a place other than a rest room in the premises of his work. Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the Labor Arbiter found that the relationship between the employer and the employee has been so strained that the latter’s reinstatement would no longer serve any purpose. The parties do not dispute this finding. Hence, the grant of separation pay in lieu of reinstatement is appropriate. This is of course in addition to the payment of backwages which, in accordance with the ruling in Bustamante v. NLRC,[31] should be computed from the time of Lagrama’s dismissal up to the time of the finality of this decision, without any deduction or qualification. The Bureau of Working Conditions[32] classifies workers paid by results into two groups, namely; (1) those whose time and performance is supervised by the employer, and (2) those whose time and performance is unsupervised by the employer. The first involves an element of control and supervision over the manner the work is to be performed, while the second does not. If a piece worker is supervised, there is an employer-employee relationship, as in this case. However, such an employee is not entitled to service incentive leave pay since, as pointed out in Makati Haberdashery v. NLRC[33] and Mark Roche International v. NLRC,[34] he is paid a fixed amount for work done, regardless of the time he spent in accomplishing such work. WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing that the Court of Appeals committed any reversible error. The decision of the Court of Appeals, reversing the decision of the National Labor Relations Commission and reinstating the decision of the Labor Arbiter, is AFFIRMED with the MODIFICATION that the backwages and other benefits awarded to private respondent Leovigildo Lagrama should be computed from the time of his dismissal up to the time of the finality of this decision, without any deduction and qualification. However, the service incentive leave pay awarded to him is DELETED. SO ORDERED.

G.R. No. 84484 November 15, 1989

INSULAR LIFE ASSURANCE CO., LTD., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents. Tirol & Tirol for petitioner. Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.

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

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly seeking a reconsideration, Basiao sued the Company in a civil action and this, he was later to claim, prompted the latter to terminate also his engagement under the first contract and to stop payment of his commissions starting April 1, 1980. 3 Basiao thereafter filed with the then Ministry of Labor a complaint 4 against the Company and its president. Without contesting the termination of the first contract, the complaint sought to recover commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an independent contractor and that the Company had no obligation to him for unpaid commissions under the terms and conditions of his contract. 5 The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the underwriting agreement had established an employer-employee relationship between him and the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his claim. Said official's decision directed payment of his unpaid commissions "... equivalent to the balance of the first year's premium remaining unpaid, at the time of his termination, of all the insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10% attorney's fees. 6 This decision was, on appeal by the Company, affirmed by the National Labor Relations Commission. 7 Hence, the present petition for certiorari and prohibition. The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the Company's employee by virtue of the contract invoked by him, thereby placing his claim for unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under the provisions of Section 217 of the Labor Code, 8 or, contrarily, as the Company would have it, that under said contract Basiao's status was that of an independent contractor whose claim was thus cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action. The Company's thesis, that no employer-employee relation in the legal and generally accepted sense existed between it and Basiao, is drawn from the terms of the contract they had entered into, which, either expressly or by necessary implication, made Basiao the master of his own time and selling methods, left to his judgment the time, place and means of soliciting insurance, set no accomplishment quotas and compensated him on the basis of results obtained. He was not bound to observe any schedule of working hours or report to any regular station; he could seek and work on his prospects anywhere and at anytime he chose to, and was free to adopt the selling methods he deemed most effective. Without denying that the above were indeed the expressed implicit conditions of Basiao's contract with the Company, the respondents contend that they do not constitute the decisive determinant of the nature of his engagement, invoking precedents to the effect that the critical feature distinguishing the status of an employee from that of an independent contractor is control, that is, whether or not the party who engages the services of another has the power to control the latter's conduct in rendering such services. Pursuing the argument, the respondents draw attention to the provisions of Basiao's contract obliging him to "... observe and conform to all rules and regulations which the Company may from time to time prescribe ...," as well as to the fact that the Company prescribed the qualifications of applicants for insurance, processed their applications and determined the amounts of insurance cover to be issued as indicative of the control, which made Basiao, in legal contemplation, an employee of the Company. 9 It is true that the "control test" expressed in the following pronouncement of the Court in the 1956 case of Viana vs. Alejo Al-Lagadan 10 ... In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employees' conduct — although the latter is the most important element (35 Am. Jur. 445). ... has been followed and applied in later cases, some fairly recent. 11 Indeed, it is without question a valid test of the character of a contract or agreement to render service. It should, however, be obvious that not every form of control that the hiring party reserves to himself over the conduct of the party hired in relation to the services rendered may be accorded the effect of establishing an employer-employee relationship between them in the legal or technical

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

The Court, therefore, rules that under the contract invoked by him, Basiao was not an employee of the petitioner, but a commission agent, an independent contractor whose claim for unpaid commissions should have been litigated in an ordinary civil action. The Labor Arbiter erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion renders it unnecessary and premature to consider Basiao's claim for commissions on its merits. WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-0010-83 is dismissed. No pronouncement as to costs. SO ORDERED.

G.R. No. L-48645 January 7, 1987 "BROTHERHOOD" LABOR UNITY MOVEMENT OF THE PHILIPPINES, ANTONIO CASBADILLO, PROSPERO TABLADA, ERNESTO BENGSON, PATRICIO SERRANO, ANTONIO B. BOBIAS, VIRGILIO ECHAS, DOMINGO PARINAS, NORBERTO GALANG, JUANITO NAVARRO, NESTORIO MARCELLANA, TEOFILO B. CACATIAN, RUFO L. EGUIA, CARLOS SUMOYAN, LAMBERTO RONQUILLO, ANGELITO AMANCIO, DANILO B. MATIAR, ET AL., petitioners, vs. HON. RONALDO B. ZAMORA, PRESIDENTIAL ASSISTANT FOR LEGAL AFFAIRS, OFFICE OF THE PRESIDENT, HON. AMADO G. INCIONG, UNDERSECRETARY OF LABOR, SAN MIGUEL CORPORATION, GENARO OLIVES, ENRIQUE CAMAHORT, FEDERICO OÑATE, ERNESTO VILLANUEVA, ANTONIO BOCALING and GODOFREDO CUETO, respondents. Armando V. Ampil for petitioners. Siguion Reyna, Montecillo and Ongsiako Law Office for private respondents.

GUTIERREZ, JR., J.: The elemental question in labor law of whether or not an employer-employee relationship exists between petitioners-members of the "Brotherhood Labor Unit Movement of the Philippines" (BLUM) and respondent San Miguel Corporation, is the main issue in this petition. The disputed decision of public respondent Ronaldo Zamora, Presidential Assistant for legal Affairs, contains a brief summary of the facts involved: 1. The records disclose that on July 11, 1969, BLUM filed a complaint with the now defunct Court of Industrial Relations, charging San Miguel Corporation, and the following officers: Enrique Camahort, Federico Ofiate Feliciano Arceo, Melencio Eugenia Jr., Ernesto Villanueva, Antonio Bocaling and Godofredo Cueto of unfair labor

practice as set forth in Section 4 (a), sub-sections (1) and (4) of Republic Act No. 875 and of Legal dismissal. It was alleged that respondents ordered the individual complainants to disaffiliate from the complainant union; and that management dismissed the individual complainants when they insisted on their union membership. On their part, respondents moved for the dismissal of the complaint on the grounds that the complainants are not and have never been employees of respondent company but employees of the independent contractor; that respondent company has never had control over the means and methods followed by the independent contractor who enjoyed full authority to hire and control said employees; and that the individual complainants are barred by estoppel from asserting that they are employees of respondent company. While pending with the Court of Industrial Relations CIR pleadings and testimonial and documentary evidences were duly presented, although the actual hearing was delayed by several postponements. The dispute was taken over by the National Labor Relations Commission (NLRC) with the decreed abolition of the CIR and the hearing of the case intransferably commenced on September 8, 1975. On February 9, 1976, Labor Arbiter Nestor C. Lim found for complainants which was concurred in by the NLRC in a decision dated June 28, 1976. The amount of backwages awarded, however, was reduced by NLRC to the equivalent of one (1) year salary. On appeal, the Secretary in a decision dated June 1, 1977, set aside the NLRC ruling, stressing the absence of an employer-mployee relationship as borne out by the records of the case. ... The petitioners strongly argue that there exists an employer-employee relationship between them and the respondent company and that they were dismissed for unionism, an act constituting unfair labor practice "for which respondents must be made to answer." Unrebutted evidence and testimony on record establish that the petitioners are workers who have been employed at the San Miguel Parola Glass Factory since 1961, averaging about seven (7) years of service at the time of their termination. They worked as "cargadores" or "pahinante" at the SMC Plant loading, unloading, piling or palleting empty bottles and woosen shells to and from company trucks and warehouses. At times, they accompanied the company trucks on their delivery routes. The petitioners first reported for work to Superintendent-in-Charge Camahort. They were issued gate passes signed by Camahort and were provided by the respondent company with the tools, equipment and paraphernalia used in the loading, unloading, piling and hauling operation. Job orders emanated from Camahort. The orders are then transmitted to an assistant-officer-in-charge. In turn, the assistant informs the warehousemen and checkers regarding the same. The latter, thereafter, relays said orders to the capatazes or group leaders who then give orders to the workers as to where, when and what to load, unload, pile, pallet or clean. Work in the glass factory was neither regular nor continuous, depending wholly on the volume of bottles manufactured to be loaded and unloaded, as well as the business activity of the company. Work did not necessarily mean a full eight (8) hour day for the petitioners. However, work,at times, exceeded the eight (8) hour day and necessitated work on Sundays and holidays. For this, they were neither paid overtime nor compensation for work on Sundays and holidays. Petitioners were paid every ten (10) days on a piece rate basis, that is, according to the number of cartons and wooden shells they were able to load, unload, or pile. The group leader notes down the number or volume of work that each individual worker has accomplished. This is then made the basis of a report or statement which is compared with the notes of the checker and warehousemen as to whether or not they tally. Final approval of report is by officer-in-charge Camahort. The pay check is given to the group leaders for encashment, distribution, and payment to the petitioners in accordance with payrolls prepared by said leaders. From the total earnings of the group, the group leader gets a participation or share of ten (10%) percent plus an additional amount from the earnings of each individual.

The petitioners worked exclusive at the SMC plant, never having been assigned to other companies or departments of SMC plant, even when the volume of work was at its minimum. When any of the glass furnaces suffered a breakdown, making a shutdown necessary, the petitioners work was temporarily suspended. Thereafter, the petitioners would return to work at the glass plant. Sometime in January, 1969, the petitioner workers — numbering one hundred and forty (140) organized and affiliated themselves with the petitioner union and engaged in union activities. Believing themselves entitled to overtime and holiday pay, the petitioners pressed management, airing other grievances such as being paid below the minimum wage law, inhuman treatment, being forced to borrow at usurious rates of interest and to buy raffle tickets, coerced by withholding their salaries, and salary deductions made without their consent. However, their gripes and grievances were not heeded by the respondents. On February 6, 1969, the petitioner union filed a notice of strike with the Bureau of Labor Relations in connection with the dismissal of some of its members who were allegedly castigated for their union membership and warned that should they persist in continuing with their union activities they would be dismissed from their jobs. Several conciliation conferences were scheduled in order to thresh out their differences, On February 12, 1969, union member Rogelio Dipad was dismissed from work. At the scheduled conference on February 19, 1969, the complainant union through its officers headed by National President Artemio Portugal Sr., presented a letter to the respondent company containing proposals and/or labor demands together with a request for recognition and collective bargaining. San Miguel refused to bargain with the petitioner union alleging that the workers are not their employees. On February 20, 1969, all the petitioners were dismissed from their jobs and, thereafter, denied entrance to respondent company's glass factory despite their regularly reporting for work. A complaint for illegal dismissal and unfair labor practice was filed by the petitioners. The case reaches us now with the same issues to be resolved as when it had begun. The question of whether an employer-employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises because that judicial relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139). In determining the existence of an employer-employee relationship, the elements that are generally considered are the following: (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. It. is the called "control test" that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra,and Rosario Brothers, Inc. v. Ople, 131 SCRA 72). Applying the above criteria, the evidence strongly indicates the existence of an employer-employee relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting firm. The facts and evidence on record negate respondent SMC's claim. The existence of an independent contractor relationship is generally established by the following criteria: "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 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" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727) None of the above criteria exists in the case at bar.

Highly unusual and suspect is the absence of a written contract to specify the performance of a specified piece of work, the nature and extent of the work and the term and duration of the relationship. The records fail to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral agreements of employment or labor contracting where the same would involve considerable expenses and dealings with a large number of workers over a long period of time. Despite respondent company's allegations not an iota of evidence was offered to prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious doubts. Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked continuously and exclusively for the respondent company's shipping and warehousing department. Considering the length of time that the petitioners have worked with the respondent company, there is justification to conclude that they were engaged to perform activities necessary or desirable in the usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454). As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra): ... [T]he employer-employee relationship between the parties herein is not coterminous with each loading and unloading job. As earlier shown, respondents are engaged in the business of fishing. For this purpose, they have a fleet of fishing vessels. Under this situation, respondents' activity of catching fish is a continuous process and could hardly be considered as seasonal in nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or desirable in the business of respondents. This circumstance makes the employment of complainants a regular one, in the sense that it does not depend on any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo).lwphl@itç so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere until the present controversy arose. The term of the petitioners' employment appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company, Even under the assumption that a contract of employment had indeed been executed between respondent SMC and the alleged labor contractor, respondent's case will, nevertheless, fail. Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides: 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. We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower or labor force which the alleged contractors supply, suggesting the existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office, which consists of a space at respondent company's warehouse, table, chair, typewriter and cabinet, are provided for by respondent SMC. It is therefore clear that the alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance thereof or in the payment of its workers' salaries. The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee relationship whether between respondent company and petitioners or between the alleged independent contractor

and petitioners. It is important to emphasize that in a truly independent contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum without indicating or implying that the basis of such lump sum is the salary per worker multiplied by the number of workers assigned to the company. This is the rule inSocial Security System v. Court of Appeals (39 SCRA 629, 635). The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of work they. had accomplished individually. These are based on payrolls, reports or statements prepared by the workers' group leader, warehousemen and checkers, where they note down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or pallet and see whether they tally. The amount paid by respondent company to the alleged independent contractor considers no business expenses or capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of its business provided for as an amount over and above the workers' wages. Instead, the alleged contractor receives a percentage from the total earnings of all the workers plus an additional amount corresponding to a percentage of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized deductions from their salaries by the respondents. Anent the argument that the petitioners are not employees as they worked on piece basis, we merely have to cite our rulings in Dy Keh Beng v. International Labor and Marine Union of the Philippines (90 SCRA 161), as follows: "[C]ircumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time . . . and units of work are in establishments like respondent (sic) just yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure." Article 106 of the Labor Code provides the legal effect of a labor only contracting scheme, to wit: ... 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. Firmly establishing respondent SMC's role as employer is the control exercised by it over the petitioners that is, control in the means and methods/manner by which petitioners are to go about their work, as well as in disciplinary measures imposed by it. Because of the nature of the petitioners' work as cargadores or pahinantes, supervision as to the means and manner of performing the same is practically nil. For, how many ways are there to load and unload bottles and wooden shells? The mere concern of both respondent SMC and the alleged contractor is that the job of having the bottles and wooden shells brought to and from the warehouse be done. More evident and pronounced is respondent company's right to control in the discipline of petitioners. Documentary evidence presented by the petitioners establish respondent SMC's right to impose disciplinary measures for violations or infractions of its rules and regulations as well as its right to recommend transfers and dismissals of the piece workers. The inter-office memoranda submitted in evidence prove the company's control over the petitioners. That respondent SMC has the power to recommend penalties or dismissal of the piece workers, even as to Abner Bungay who is alleged by SMC to be a representative of the alleged labor contractor, is the strongest indication of respondent company's right of control over the petitioners as direct employer. There is no evidence to show that the alleged labor contractor had such right of control or much less had been there to supervise or deal with the petitioners. The petitioners were dismissed allegedly because of the shutdown of the glass manufacturing plant. Respondent company would have us believe that this was a case of retrenchment due to the closure or cessation of operations of the establishment or undertaking. But such is not the case here. The respondent's shutdown was merely temporary, one of its furnaces needing repair. Operations continued after such repairs, but the petitioners had already been refused entry to the premises and dismissed from respondent's service. New workers manned their positions. It is apparent that the closure of respondent's warehouse was merely a ploy to get rid of the petitioners, who were then agitating the respondent company for benefits, reforms and collective bargaining as a union. There is no showing that petitioners had been remiss in their obligations and inefficient in their jobs to warrant their separation.

As to the charge of unfair labor practice because of SMC's refusal to bargain with the petitioners, it is clear that the respondent company had an existing collective bargaining agreement with the IBM union which is the recognized collective bargaining representative at the respondent's glass plant. There being a recognized bargaining representative of all employees at the company's glass plant, the petitioners cannot merely form a union and demand bargaining. The Labor Code provides the proper procedure for the recognition of unions as sole bargaining representatives. This must be followed. WHEREFORE, IN VIEW OF THE FOREGOING, the petition is GRANTED. The San Miguel Corporation is hereby ordered to REINSTATE petitioners, with three (3) years backwages. However, where reinstatement is no longer possible, the respondent SMC is ordered to pay the petitioners separation pay equivalent to one (1) month pay for every year of service. SO ORDERED.

San Miguel Corporation, petitioner, vs. MAERC Integrated Services, Inc.; and Emerberto Orque, ROGELIO PRADO, JR., EDDIE SELLE, ALEJANDRO ANNABIEZA, ANNIAS JUAMO-AS, CONSORCIO MANLOLOYO, ANANIAS ALCONTIN, REY GESTOPA, EDGARDO NUÑEZ, JUNEL CABATINGAN, PAUL DUMAQUETA, FELIMON ECHAVEZ, VITO SEALANA, DENECIA PALAO, ROBERTO LAPIZ, BALTAZAR LABIO, LEONARDO BONGO, EL CID ICALINA, JOSE DIOCAMPO, ADELO CANTILLAS, ISAIAS BRANZUELA, RAMON ROSALES, GAUDENCIO PESON, HECTOR CABAÑOG, EDGARDO DAGMAYAN, ROGELIO CRUZ, ROLANDO ESPINA, BERNARDINO REGIDOR, ARNELIO SUMALINOG, GUMERSINDO ALCONTIN, LORETO NUÑEZ, JOEBE BOY DAYON, CONRADO MESANQUE, MARCELO PESCADOR, MARCELINO JABAGAT, VICENTE DEVILLERES, VICENTE ALIN, RODOLFO

PAHUGOT, RUEL NAVARES, DANILO ANABIEZA, ALEX JUEN, JUANITO GARCES, SILVINO LIMBAGA, AURELIO JURPACIO, JOVITO LOON, VICTOR TENEDERO, SASING MORENO, WILFREDO HORTEZUELA, JOSELITO MELENDEZ, ALFREDO GESTOPA, REGINO GABUYA, JORGE GAMUZARNO, LOLITO COCIDO, EFRAIM YUBAL, VENERANDO ROAMAR, GERARDO BUTALID, HIPOLITO VIDAS, VENGELITO FRIAS, VICENTE CELACIO, CORLITO PESTAÑAS, ERVIN HYROSA, ROMMEL GUERERO, RODRIGO ENERLAS, FRANCISCO CARBONILLA, NICANOR CUIZON, PEDRO BRIONES, RODOLFO CABALHUG, TEOFILO RICARDO, DANILO R. DIZON, ALBERTO EMBONG, ALFONSO ECHAVEZ, GONZALO RORACEÑA, MARCELO CARACINA, RAUL BORRES, LINO TONGALAMOS, ARTEMIO BONGO, JR., ROY AVILA, MELCHOR FREGLO, RAUL CABILLADA, EDDIE CATAB, MELENCIO DURANO, ALLAN RAGO, DOMINADOR CAPARIDA, JOVITO CATAB, ALBERT LASPIÑAS, ALEX ANABIEZA, NESTOR REYNANTE, EULOGIO GESTOPA, MARIO BOLO, EDERLITO A. BALOCANO, JOEL PEPITO, REYNALDO LUDIA, MANUEL CINCO, ALLAN AGUSTIN, PABLITO POLEGRATES, CLYDE PRADO, DINDO MISA, ROGER SASING, RAMON ARCALLANA, GABRIEL SALAS, EDWIN SASAN, DIOSDADO BARRIGA, MOISES SASAN, SINFORIANO CANTAGO, LEONARDO MARTURILLAS, MARIO RANIS, ALEJANDRO RANIDO, JEROME PRADO, RAUL OYAO, VICTOR CELACIO, GERALDO ROQUE, ZOSIMO CARARATON, VIRGILIO ZANORIA, JOSE ZANORIA, ALLAN ZANORIA, VICTORINO SENO, TEODULO JUMAO-AS, ALEXANDER HERA, ANTHONY ARANETA, ALDRIN SUSON, VICTOR VERANO, RUEL SUFRERENCIA, ALFRED NAPARATE, WENCESLAO BACLOHON, EDUARDO LANGITA, FELIX ORDENEZA, ARSENIO LOGARTA, EDUARDO DELA VEGA, JOVENTINO CANOOG, ROGELIO ABAPO, RICARDO RAMAS, JOSE BANDIALAN, ANTONIO BASALAN, LYNDON BASALAN, WILFREDO ALIVIANO, BIENVENIDO ROSARIO, JESUS CAPANGPANGAN, RENATO MENDOZA, ALEJANDRO CATANDEJAN, RUBEN TALABA, FILEMON ECHAVEZ, MARCELINO CARACENA, IGNACIO MISA, FELICIANO AGBAY, VICTOR MAGLASANG, ARTURO HEYROSA, ALIPIO TIROL, ROSENDO MONDARES, ANICETO LUDIA, REYNALDO LAVANDERO, REUYAN HERCULANO, TEODULO NIQUE, EMERBERTO ORQUE, ZOSIMO BAOBAO, MEDARDO SINGSON, ANTONIO PATALINGHUG, ERNESTO SINGSON, ROBERTO TORRES, CESAR ESCARIO, LEODEGARIO DOLLECIN, ALBERTO ANOBA, RODRIGO BISNAR, ZOSIMO BINGAS, ROSALIO DURAN, SR., ROSALIO DURAN, JR., ROMEO DURAN, ANTONIO ABELLA, MARIANO REPOLLO, POLEGARPO DEGAMO, MARIO CEREZA, ANTONIO LAOROMILLA, PROCTUSO MAGALLANES, ELADIO TORRES, WARLITO DEMANA, HENRY GEDARO, DOISEDERIO GEMPERAO, ANICETO GEMPERAO, JERRY CAPAROSO, SERLITO NOYNAY, LUCIANO RECOPELACION, JUANITO GARCES, FELICIANO TORRES, RANILO VILLAREAL, FERMIN ALIVIANO, JUNJIE LAVISTE, TOMACITO DE CASTRO, JOSELITO CAPILINA, SAMUEL CASQUEJO, LEONARDO NATAD, BENJAMIN SAYSON, PEDRO INOC, EDWARD FLORES, EDWIN SASAN, JOSE REY INOT, EDGAR CORTES, ROMEO LOMBOG, NICOLAS RIBO, JAIME RUBIN, ORLANDO REGIS, RICKY ALCONZA, RUDY TAGALOG, VICTORINO TAGALOG, EDWARD COLINA, RONIE GONZAGA, PAUL CABILLADA, WILFREDO MAGALONA, JOEL PEPITO, PROSPERO MAGLASANG, ALLAN AGUSTIN, FAUSTO BARGAYO, NOMER SANCHEZ, JOLITO ALIN, BIRNING REGIDOR, GARRY DIGNOS, EDWIN DIGNOS, DARIO DIGNOS, ROGELIO DIGNOS, JIMMY CABIGAS, FERNANDO ANAJAO, ALEX FLORES, FERNANDO REMEDIO, TOTO MOSQUIDA, ALBERTO YAGONIA, VICTOR BARIQUIT, IGNACIO MISA, ELISEO VILLARENO, MANUEL LAVANDERO, VIRCEDE, MARIO RANIS, JAIME RESPONSO, MARIANITO AGUIRRE, MARCIAL HERUELA, GODOFREDO TUÑACAO, PERFECTO REGIS, ROEL DEMANA, ELMER CASTILLO, WINEFREDO CALAMOHOY, RUDY LUCERNAS, ANTONIO CAÑETE, EFRAIM YUBAL, JESUS CAPANGPANGAN, DAMIAN CAPANGPANGAN, TEOFILO CAPANGPANGAN, NILO CAPANGPANGAN, CORORENO CAPANGPANGAN, EMILIO MONDARES, PONCIANO AGANA, VICENTE DEVILLERES, MARIO ALIPAN, ROMANITO ALIPAN, ALDEON ROBINSON, FORTUNATO SOCO, CELSO COMPUESTO, WILLIAM ITORALDE, ANTONIO PESCADOR, JEREMIAS RONDERO, ESTROPIO PUNAY, LEOVIJILDO PUNAY, ROMEO QUILONGQUILONG, WILFREDO GESTOPA, ELISEO SANTOS, HENRY ORIO, JOSE YAP, NICANOR MANAYAGA, TEODORO SALINAS, ANICETO MONTERO, RAFAELITO VERZOSA, ALEJANDRO RANIDO, HENRY TALABA, ROMULO TALABA, DIOSDADO BESABELA, SYLVESTRE TORING, EDILBERTO

PADILLA, ALLAN HEROSA, ERNESTO SUMALINOG, ARISTON VELASCO, JR., FERNANDO LOPEZ, ALFONSO ECHAVEZ, NICANOR CUIZON, DOMINADOR CAPARIDA, ZOSIMO CORORATION, ARTEMIO LOVERANES, DIONISIO YAGONIA, VICTOR CELOCIA, HIPOLITO VIDAS, TEODORO ARCILLAS, MARCELINO HABAGAT, GAUDIOSO LABASAN, LEOPOLDO REGIS, AQUILLO DAMOLE, WILLY ROBLE and NIEL ZANORIA, respondents. DECISION BELLOSILLO , J.: TWO HUNDRED NINETY-ONE (291) workers filed their complaints (nine [9] complaints in all) against San Miguel Corporation (petitioner herein) and Maerc Integrated Services, Inc. (respondent herein), for illegal dismissal, underpayment of wages, non-payment of service incentive leave pays and other labor standards benefits, and for separation pays from 25 June to 24 October 1991. The complainants alleged that they were hired by San Miguel Corporation (SMC) through its agent or intermediary Maerc Integrated Services, Inc. (MAERC) to work in two (2) designated workplaces in Mandaue City: one, inside the SMC premises at the Mandaue Container Services, and another, in the Philphos Warehouse owned by MAERC. They washed and segregated various kinds of empty bottles used by SMC to sell and distribute its beer beverages to the consuming public. They were paid on a per piece or pakiao basis except for a few who worked as checkers and were paid on daily wage basis. Complainants alleged that long before SMC contracted the services of MAERC a majority of them had already been working for SMC under the guise of being employees of another contractor, Jopard Services, until the services of the latter were terminated on 31 January 1988. SMC denied liability for the claims and averred that the complainants were not its employees but of MAERC, an independent contractor whose primary corporate purpose was to engage in the business of cleaning, receiving, sorting, classifying, etc., glass and metal containers. It appears that SMC entered into a Contract of Services with MAERC engaging its services on a non-exclusive basis for one (1) year beginning 1 February 1988. The contract was renewed for two (2) more years in March 1989. It also provided for its automatic renewal on a month-to-month basis after the two (2)-year period and required that a written notice to the other party be given thirty (30) days prior to the intended date of termination, should a party decide to discontinue with the contract. In a letter dated 15 May 1991, SMC informed MAERC of the termination of their service contract by the end of June 1991. SMC cited its plans to phase out its segregation activities starting 1 June 1991 due to the installation of labor and cost-saving devices. When the service contract was terminated, complainants claimed that SMC stopped them from performing their jobs; that this was tantamount to their being illegally dismissed by SMC who was their real employer as their activities were directly related, necessary and desirable to the main business of SMC; and, that MAERC was merely made a tool or a shield by SMC to avoid its liability under the Labor Code. MAERC for its part admitted that it recruited the complainants and placed them in the bottle segregation project of SMC but maintained that it was only conveniently used by SMC as an intermediary in operating the project or work directly related to the primary business concern of the latter with the end in view of avoiding its obligations and responsibilities towards the complaining workers. The nine (9) cases[1] were consolidated. On 31 January 1995 the Labor Arbiter rendered a decision holding that MAERC was an independent contractor.[2] He dismissed the complaints for illegal dismissal but ordered MAERC to pay complainants' separation benefits in the total amount of P2,334,150.00. MAERC and SMC were also ordered to jointly and severally pay complainants their wage differentials in the amount of P845,117.00 and to pay attorney's fees in the amount of P317,926.70. The complainants appealed the Labor Arbiter's finding that MAERC was an independent contractor and solely liable to pay the amount representing the separation benefits to the exclusion of SMC, as well as the Labor Arbiter's failure to grant the Temporary Living Allowance of the complainants. SMC appealed the award of attorney's fees. The National Labor Relations Commission (NLRC) ruled in its 7 January 1997 decision that MAERC was a labor-only contractor and that complainants were employees of SMC. [3] The NLRC also held that whether MAERC was a job contractor or a labor-only contractor, SMC was still solidarily liable with MAERC for the latter's unpaid obligations, citing Art. 109[4] of the Labor Code. Thus, the NLRC modified the judgment of the Labor Arbiter and

held SMC jointly and severally liable with MAERC for complainants' separation benefits. In addition, both respondents were ordered to pay jointly and severally an indemnity fee of P2,000.00 to each complainant. SMC moved for a reconsideration which resulted in the reduction of the award of attorney's fees from P317,926.70 to P84,511.70. The rest of the assailed decision was unchanged.[5] On 12 March 1998, SMC filed a petition for certiorari with prayer for the issuance of a temporary restraining order and/or injunction with this Court which then referred the petition to the Court of Appeals. On 28 April 2000 the Court of Appeals denied the petition and affirmed the decision of the NLRC. [6] The appellate court also denied SMC's motion for reconsideration in a resolution [7] dated 26 July 2000. Hence, petitioner seeks a review of the Court of Appeals’ judgment before this Court. Petitioner poses the same issues brought up in the appeals court and the pivotal question is whether the complainants are employees of petitioner SMC or of respondent MAERC. Relying heavily on the factual findings of the Labor Arbiter, petitioner maintained that MAERC was a legitimate job contractor. It directed this Court's attention to the undisputed evidence it claimed to establish this assertion: MAERC is a duly organized stock corporation whose primary purpose is to engage in the business of cleaning, receiving, sorting, classifying, grouping, sanitizing, packing, delivering, warehousing, trucking and shipping any glass and/or metal containers and that it had listed in its general information sheet two hundred seventy-eight (278) workers, twenty-two (22) supervisors, seven (7) managers/officers and a board of directors; it also voluntarily entered into a service contract on a non-exclusive basis with petitioner from which it earned a gross income of P42,110,568.24 from 17 October 1988 to 27 November 1991; the service contract specified that MAERC had the selection, engagement and discharge of its personnel, employees or agents or otherwise in the direction and control thereof; MAERC admitted that it had machinery, equipment and fixed assets used in its business valued at P4,608,080.00; and, it failed to appeal the Labor Arbiter's decision which declared it to be an independent contractor and ordered it to solely pay the separation benefits of the complaining workers. We find no basis to overturn the Court of Appeals and the NLRC. Well-established is the principle that findings of fact of quasi-judicial bodies, like the NLRC, are accorded with respect, even finality, if supported by substantial evidence.[8] Particularly when passed upon and upheld by the Court of Appeals, they are binding and conclusive upon the Supreme Court and will not normally be disturbed.[9] This Court has invariably held that in ascertaining an employer-employee relationship, the following factors are considered: (a) the selection and engagement of employee; (b) the payment of wages; (c) the power of dismissal; and, (d) the power to control an employee's conduct, the last being the most important. [10] Application of the aforesaid criteria clearly indicates an employer-employee relationship between petitioner and the complainants. Evidence discloses that petitioner played a large and indispensable part in the hiring of MAERC's workers. It also appears that majority of the complainants had already been working for SMC long before the signing of the service contract between SMC and MAERC in 1988. The incorporators of MAERC admitted having supplied and recruited workers for SMC even before MAERC was created.[11] The NLRC also found that when MAERC was organized into a corporation in February 1988, the complainants who were then already working for SMC were made to go through the motion of applying for work with Ms. Olga Ouano, President and General Manager of MAERC, upon the instruction of SMC through its supervisors to make it appear that complainants were hired by MAERC. This was testified to by two (2) of the workers who were segregator and forklift operator assigned to the Beer Marketing Division at the SMC compound and who had been working with SMC under a purported contractor Jopard Services since March 1979 and March 1981, respectively. Both witnesses also testified that together with other complainants they continued working for SMC without break from Jopard Services to MAERC. As for the payment of workers' wages, it is conceded that MAERC was paid in lump sum but records suggest that the remuneration was not computed merely according to the result or the volume of work performed. The memoranda of the labor rates bearing the signature of a Vice-President and General Manager for the Vismin Beer Operations[12] as well as a director of SMC[13] appended to the contract of service reveal that SMC assumed the responsibility of paying for the mandated overtime, holiday and rest day pays of the MAERC workers. [14] SMC also paid the employer's share of the SSS and Medicare contributions, the 13th month pay, incentive leave pay and maternity benefits.[15] In the lump sum received, MAERC earned a marginal amount representing the contractor’s share. These lend credence to the complaining workers' assertion that while MAERC paid the wages of the complainants, it merely acted as an agent of SMC.

Petitioner insists that the most significant determinant of an employer-employee relationship, i.e., the right to control, is absent. The contract of services between MAERC and SMC provided that MAERC was an independent contractor and that the workers hired by it "shall not, in any manner and under any circumstances, be considered employees of the Company, and that the Company has no control or supervision whatsoever over the conduct of the Contractor or any of its workers in respect to how they accomplish their work or perform the Contractor's obligations under the Contract."[16] In deciding the question of control, the language of the contract is not determinative of the parties' relationship; rather, it is the totality of the facts and surrounding circumstances of each case.[17] Despite SMC’s disclaimer, there are indicia that it actively supervised the complainants. SMC maintained a constant presence in the workplace through its own checkers. Its asseveration that the checkers were there only to check the end result was belied by the testimony of Carlito R. Singson, head of the Mandaue Container Service of SMC, that the checkers were also tasked to report on the identity of the workers whose performance or quality of work was not according to the rules and standards set by SMC. According to Singson, "it (was) necessary to identify the names of those concerned so that the management [referring to MAERC] could call the attention to make these people improve the quality of work."[18] Viewed alongside the findings of the Labor Arbiter that the MAERC organizational set-up in the bottle segregation project was such that the segregators/cleaners were supervised by checkers and each checker was also under a supervisor who was in turn under a field supervisor, the responsibility of watching over the MAERC workers by MAERC personnel became superfluous with the presence of additional checkers from SMC. Reinforcing the belief that the SMC exerted control over the work performed by the segregators or cleaners, albeit through the instrumentality of MAERC, were letters by SMC to the MAERC management. These were letters[19] written by a certain Mr. W. Padin[20] addressed to the President and General Manager of MAERC as well as to its head of operations,[21] and a third letter[22] from Carlito R. Singson also addressed to the President and General Manager of MAERC. More than just a mere written report of the number of bottles improperly cleaned and/or segregated, the letters named three (3) workers who were responsible for the rejection of several bottles, specified the infraction committed in the segregation and cleaning, then recommended the penalty to be imposed. Evidently, these workers were reported by the SMC checkers to the SMC inspector. While the Labor Arbiter dismissed these letters as merely indicative of the concern in the end-result of the job contracted by MAERC, we find more credible the contention of the complainants that these were manifestations of the right of petitioner to recommend disciplinary measures over MAERC employees. Although calling the attention of its contractors as to the quality of their services may reasonably be done by SMC, there appears to be no need to instruct MAERC as to what disciplinary measures should be imposed on the specific workers who were responsible for rejections of bottles. This conduct by SMC representatives went beyond a mere reminder with respect to the improperly cleaned/segregated bottles or a genuine concern in the outcome of the job contracted by MAERC. Control of the premises in which the contractor's work was performed was also viewed as another phase of control over the work, and this strongly tended to disprove the independence of the contractor. [23] In the case at bar, the bulk of the MAERC segregation activities was accomplished at the MAERC-owned PHILPHOS warehouse but the building along with the machinery and equipment in the facility was actually being rented by SMC. This is evident from the memoranda of labor rates which included rates for the use of forklifts and the warehouse at the PHILPHOS area, hence, the NLRC’s conclusion that the payment for the rent was cleverly disguised since MAERC was not in the business of renting warehouses and forklifts.[24] Other instances attesting to SMC’s supervision of the workers are found in the minutes of the meeting held by the SMC officers on 5 December 1988. Among those matters discussed were the calling of SMC contractors to have workers assigned to segregation to undergo and pass eye examination to be done by SMC EENT company doctor and a review of compensation/incentive system for segregators to improve the segregation activities.[25] But the most telling evidence is a letter by Mr. Antonio Ouano, Vice-President of MAERC dated 27 May 1991 addressed to Francisco Eizmendi, SMC President and Chief Executive Officer, asking the latter to reconsider the phasing out of SMC’s segregation activities in Mandaue City. The letter was not denied but in fact used by SMC to advance its own arguments. [26] Briefly, the letter exposed the actual state of affairs under which MAERC was formed and engaged to handle the segregation project of SMC. It provided an account of how in 1987 Eizmendi approached the would-be

incorporators of MAERC and offered them the business of servicing the SMC bottle-washing and segregation department in order to avert an impending labor strike. After initial reservations, MAERC incorporators accepted the offer and before long trial segregation was conducted by SMC at the PHILPHOS warehouse.[27] The letter also set out the circumstances under which MAERC entered into the Contract of Services in 1988 with the assurances of the SMC President and CEO that the employment of MAERC's services would be long term to enable it to recover its investments. It was with this understanding that MAERC undertook borrowings from banking institutions and from affiliate corporations so that it could comply with the demands of SMC to invest in machinery and facilities. In sum, the letter attested to an arrangement entered into by the two (2) parties which was not reflected in the Contract of Services. A peculiar relationship mutually beneficial for a time but nonetheless ended in dispute when SMC decided to prematurely end the contract leaving MAERC to shoulder all the obligations to the workers. Petitioner also ascribes as error the failure of the Court of Appeals to apply the ruling in Neri v. NLRC.[28] 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[29] 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,[30] 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.[31] In Neri, the Court considered not only the fact that respondent Building Care Corporation (BBC) had substantial capitalization but noted that BCC 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.[32] The Court likewise mentioned that the employees of BCC were engaged to perform specific special services for their principal.[33] 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. In comparison, MAERC, as earlier discussed, displayed the characteristics of a labor-only contractor. Moreover, while MAERC’s investments in the form of buildings, tools and equipment amounted to more than P4 Million, we cannot disregard the fact that it was the SMC which required MAERC to undertake such investments under the understanding that the business relationship between petitioner and MAERC would be on a long term basis. Nor do we believe MAERC to have an independent business. Not only was it set up to specifically meet the pressing needs of SMC which was then having labor problems in its segregation division, none of its workers was also ever assigned to any other establishment, thus convincing us that it was created solely to service the needs of SMC. Naturally, with the severance of relationship between MAERC and SMC followed MAERC’s cessation of operations, the loss of jobs for the whole MAERC workforce and the resulting actions instituted by the workers. Petitioner also alleged that the Court of Appeals erred in ruling that "whether MAERC is an independent contractor or a labor-only contractor, SMC is liable with MAERC for the latter's unpaid obligations to MAERC's workers." On this point, we agree with petitioner as distinctions must be made. In legitimate job contracting, the law creates an employer-employee relationship for a limited purpose, i.e., to ensure that the employees are paid their

wages.[34] The principal 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 principal employer is not responsible for any claim made by the employees. On the other hand, in labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer. The principal employer therefore becomes solidarily liable with the labor-only contractor for all the rightful claims of the employees. This distinction between job contractor and labor-only contractor, however, will not discharge SMC from paying the separation benefits of the workers, inasmuch as MAERC was shown to be a labor-only contractor; in which case, petitioner's liability is that of a direct employer and thus solidarily liable with MAERC. SMC also failed to comply with the requirement of written notice to both the employees concerned and the Department of Labor and Employment (DOLE) which must be given at least one (1) month before the intended date of retrenchment.[35] The fines imposed for violations of the notice requirement have varied. [36] The measure of this award depends on the facts of each case and the gravity of the omission committed by the employer. [37] For its failure, petitioner was justly ordered to indemnify each displaced worker P2,000.00. The NLRC and the Court of Appeals affirmed the Labor Arbiter’s award of separation pay to the complainants in the total amount ofP2,334,150.00 and of wage differentials in the total amount of P845,117.00. These amounts are the aggregate of the awards due the two hundred ninety-one (291) complainants as computed by the Labor Arbiter. The following is a summary of the computation of the benefits due the complainants which is part of the Decision of the Labor Arbiter. SUMMARY NAME Case No. O6-1165-91 1. Rogelio Prado, Jr

SALARY DIFFERENTIAL P3,056.00

SEPARATION PAY P8,190.00

TOTAL

P11,246.00

xxxx- xxxx-xxxxx-xxxxx-xxxx-xxxx TOTAL

P391,424.00

P1,138,410.00

P1,529,834.00

RECAP CASE NO.

SALARY DIFFERENTIAL 06-1165-91 P330,621.00 07-1177-91 3,056.00 06-1176-91 3,056.00 07-1219-91 39,728.00 07-1283-91 11,984.00 10-1584-91 3,056.00 08-1321-91 3,056.00 09-1507-91 59,136.00 06-1145-91 391,424.00 GRAND TOTAL P845,117.00

SEPARATION PAY P884,520.00 5,460.00 8,190.00 76,440.00 32,760.00 8,190.00 8,190.00 171,990.00 1,138,410.00 P2,334,150.00

TOTAL P1,215,141.00 8,516.00 11,246.00 116,168.00 44,744.00 11,246.00 11,246.00 231,126.00 1,529,834.00 P3,179,267.00

However, certain matters have cropped up which require a review of the awards to some complainants and a recomputation by the Labor Arbiter of the total amounts. A scrutiny of the enumeration of all the complainants shows that some names 38 appear twice by virtue of their being included in two (2) of the nine (9) consolidated cases. A check of the Labor Arbiter’s computation discloses that most of these names were awarded different amounts of separation pay or wage differential in each separate case where they were impleaded as parties because the allegations of the length and period of their employment for the separate cases, though overlapping, were also different. The records before us are incomplete and do not aid in verifying whether these names belong to the same persons but at least three (3) of those names were found to have identical signatures in the complaint forms they filed in the separate cases. It is likely therefore that the Labor

Arbiter erroneously granted some complainants separation benefits and wage differentials twice. Apart from this, we also discovered some names that are almost identical.39 It is possible that the minor variance in the spelling of some names may have been a typographical error and refer to the same persons although the records seem to be inconclusive. Furthermore, one of the original complainants 40 was inadvertently omitted by the Labor Arbiter from his computations.41 The counsel for the complainants promptly filed a motion for inclusion/correction 42 which motion was treated as an appeal of the Decision as the Labor Arbiter was prohibited by the rules of the NLRC from entertaining any motion at that stage of the proceedings. 43 The NLRC for its part acknowledged the omission 44 but both the Commission and subsequently the Court of Appeals failed to rectify the oversight in their decisions. Finally, the NLRC ordered both MAERC and SMC to pay P84,511.70 in attorneys fees which is ten percent (10%) of the salary differentials awarded to the complainants in accordance with Art. 111 of the Labor Code. The Court of Appeals also affirmed the award. Consequently, with the recomputation of the salary differentials, the award of attorney’s fees must also be modified. WHEREFORE, the petition is DENIED. The assailed Decision of the Court of Appeals dated 28 April 2000 and the Resolution dated 26 July 2000 are AFFIRMED with MODIFICATION. Respondent Maerc Integrated Services, Inc. is declared to be a labor-only contractor. Accordingly, both petitioner San Miguel Corporation and respondent Maerc Integrated Services, Inc., are ordered to jointly and severally pay complainants (private respondents herein) separation benefits and wage differentials as may be finally recomputed by the Labor Arbiter as herein directed, plus attorney’s fees to be computed on the basis of ten percent (10%) of the amounts which complainants may recover pursuant to Art. 111 of the Labor Code, as well as an indemnity fee of P2,000.00 to each complainant. The Labor Arbiter is directed to review and recompute the award of separation pays and wage differentials due complainants whose names appear twice or are notably similar, compute the monetary award due to complainant Niel Zanoria whose name was omitted in the Labor Arbiter’s Decision and immediately execute the monetary awards as found in the Labor Arbiter’s computations insofar as those complainants whose entitlement to separation pay and wage differentials and the amounts thereof are no longer in question. Costs against petitioner. SO ORDERED.