Labor

/ nG.R. No. 189255, June 17, 2015
JESUS G. REYES, Petitioner, v. GLAUCOMA RESEARCH
FOUNDATION, INC., EYE REFERRAL CENTER AND
MANUEL B. AGULTO, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking
to reverse and set aside the Decision1and Resolution2 of the
Court of Appeals (CA), dated April 20, 2009 and August 25,
2009, respectively, in CA-G.R. SP No. 104261. The assailed CA
Decision annulled the Decision of the National Labor Relations
Commission (NLRC) in NLRC NCR Case No. 05-0441-05 and
reinstated the Decision of the Labor Arbiter (LA) in the same
case, while the CA Resolution denied petitioner's motion for
reconsideration.
The instant petition arose from a complaint for illegal
dismissal filed by petitioner against respondents with the
NLRC, National Capital Region, Quezon City. Petitioner alleged
that: on August 1, 2003, he was hired by respondent
corporation as administrator of the latter's Eye Referral Center
(ERC); he performed his duties as administrator and
continuously received his monthly salary of P20,000.00 until
the end of January 2005; beginning February 2005,
respondent withheld petitioner's salary without notice but he
still continued to report for work; on April 11, 2005, petitioner
wrote a letter to respondent Manuel Agulto (Agulto), who is
the Executive Director of respondent corporation, informing
the latter that he has not been receiving his salaries since
February 2005 as well as his 14th month pay for 2004;
petitioner did not receive any response from Agulto; on April
21, 2005, petitioner was informed by the Assistant to the
Executive Director as well as the Assistant Administrative
Officer, that he is no longer the Administrator of the ERC;
subsequently, petitioner's office was padlocked and closed
without notice; he still continued to report for work but on
April 29, 2005 he was no longer allowed by the security guard
on duty to enter the premises of the ERC.
On their part, respondents contended that: upon petitioner's
representation that he is an expert in corporate organizational
structure and management affairs, they engaged his services
as a consultant or adviser in the formulation of an updated
organizational set-up and employees' manual which is
compatible with their present condition; based on his claim
that there is a need for an administrator for the ERC, he later
designated himself as such on a trial basis; there is no
employer-employee relationship between them because
respondents had no control over petitioner in terms of working
hours as he reports for work at anytime of the day and leaves
as he pleases; respondents also had no control as to the
manner in which he performs his alleged duties as consultant;
he became overbearing and his relationship with the
employees and officers of the company soured leading to the
filing of three complaints against him; petitioner was not
dismissed as he was the one who voluntarily severed his
relations with respondents.
On January 20, 2006, the LA assigned to the case rendered a
Decision3 dismissing petitioner's complaint. The LA held,
among others, that petitioner failed to establish that the
elements of an employer-employee relationship existed
between him and respondents because he was unable to
show that he was, in fact, appointed as administrator of the
ERC and received salaries as such; he also failed to deny that
during his stint with respondents, he was, at the same time, a
consultant of various government agencies such as the Manila
International Airport Authority, Manila Intercontinental Port
Authority, Anti-Terrorist Task Force for Aviation and Air
Transportation Sector; his actions were neither supervised nor
controlled by the management of the ERC; petitioner, likewise,
did not observe working hours by reporting for work and
leaving therefrom as he pleased; and, he was receiving
allowances, not salaries, as a consultant.
On appeal, the NLRC reversed and set aside the Decision of
the LA. The NLRC declared petitioner as respondents'
employee, that he was illegally dismissed and ordered
respondents to reinstate him to his former position without
loss of seniority rights and privileges with full backwages. The
NLRC held that the basis upon which the conclusion of the LA
was drawn lacked support; that it was incumbent for
respondents to discharge the burden of proving that
petitioner's dismissal was for cause and effected after due
process was observed; and, that respondents failed to
discharge this burden.4

Respondents filed a motion for reconsideration, but it was
denied by the NLRC in its Resolution5 dated May 30, 2008.
Respondents then filed a Petition for Certiorari6 with the CA.
In its assailed Decision, the CA annulled and set aside the
judgment of the NLRC and reinstated the Decision of the LA.
The CA held that the LA was correct in ruling that, under the
control test and the economic reality test, no employeremployee relationship existed between respondents and
petitioner.
Petitioner filed a motion for reconsideration, but the CA denied
it in its Resolution dated August 25, 2009.
Hence, the present petition for review on certiorari based on
the following grounds:chanroblesvirtuallawlibrary
I
THE HONORABLE COURT OF APPEALS ERRED AND ABUSED ITS
DISCRETION IN NOT DISMISSING RESPONDENTS' PETITION
FOR CERTIORARI ON THE GROUND THAT RESPONDENTS
SUBMITTED A VERIFICATION THAT FAILS TO COMPLY WITH THE
2004 RULES ON NOTARIAL PRACTICE.cralawlawlibrary
II
THE HONORABLE COURT OF APPEALS ERRED AND ABUSED ITS
DISCRETION IN RULING THAT NO EMPLOYER-EMPLOYEE
RELATIONSHIP EXISTS BETWEEN RESPONDENTS AND
PETITIONER.7cralawlawlibrary
As to the first ground, petitioner contends that respondents'
petition for certiorari filed with the CA should have been
dismissed on the ground that it was improperly verified
because the jurat portion of the verification states only the
community tax certificate number of the affiant as evidence of
her identity. Petitioner argues that under the 2004 Rules on
Notarial Practice, as amended by a Resolution8 of this Court,
dated February 19, 2008, a community tax certificate is not
among those considered as competent evidence of identity.
The Court does not agree.
This Court has already ruled that competent evidence of
identity is not required in cases where the affiant is personally
known to the notary public.9
Thus, in Jandoquile v. Revilla, Jr.,10 this Court held
that:chanroblesvirtuallawlibrary
If the notary public knows the affiants personally, he
need not require them to show their valid identification
cards. This rule is supported by the definition of a "jurat"
under Section 6, Rule II of the 2004 Rules on Notarial Practice.
A "jurat" refers to an act in which an individual on a single
occasion: (a) appears in person before the notary public and
presents an instrument or document; (b) is personally known
to the notary public or identified by the notary public through
competent evidence of identity; (c) signs the instrument or
document in the presence of the notary; and (d) takes an oath
or affirmation before the notary public as to such instrument
or document.11cralawlawlibrary
Also, Section 2(b), Rule IV of the 2004 Rules on Notarial
Practice provides as follows:chanroblesvirtuallawlibrary
SEC. 2. Prohibitions (a) x x x
(b) A person shall not perform a notarial act if the person
involved as signatory to the instrument or document (1) is not in the notary's presence personally at the time of
the notarization; and
(2) is not personally known to the notary public or otherwise
identified by the notary public through competent evidence of
identity as defined by these Rules.
Moreover, Rule II, Section 6 of the same Rules states that:
SEC 6. Jurat. - "Jurat" refers to an act in which an individual on
a single occasion:chanroblesvirtuallawlibrary

1

(a) appears in person before the notary public and presents
an instrument or document;
(b) is personally known to the notary public or identified by
the notary public through competent evidence of identity as
defined by these Rules;
(c) signs the instrument or document in the presence of the
notary; and
(d) takes an oath or affirmation before the notary public as to
such instrument or document.
In legal hermeneutics, "or" is a disjunctive that expresses an
alternative or gives a choice of one among two or more
things.12 The word signifies disassociation and independence
of one thing from another thing in an enumeration. 13
Thus, as earlier stated, if the affiant is personally known to the
notary public, the latter need not require the former to show
evidence of identity as required under the 2004 Rules on
Notarial Practice, as amended.
Applying the above rule to the instant case, it is undisputed
that the attorney-in-fact of respondents who executed the
verification and certificate against forum shopping, which was
attached to respondents' petition filed with the CA, is
personally known to the notary public before whom the
documents were acknowledged. Both attorney-in-fact and the
notary public hold office at respondents' place of business and
the latter is also the legal counsel of respondents.
In any event, this Court's disquisition in the fairly recent case
of Heirs of Amada Zaulda v. Isaac Zaulda14 regarding the
import of procedural rules vis-a-vis the substantive rights of
the parties, is instructive, to wit:chanroblesvirtuallawlibrary
[G]ranting, arguendo, that there was non-compliance with the
verification requirement, the rule is that courts should not be
so strict about procedural lapses which do not really impair
the proper administration of justice. After all, the higher
objective of procedural rule is to ensure that the substantive
rights of the parties are protected. Litigations should, as much
as possible, be decided on the merits and not on
technicalities. Every party-litigant must be afforded ample
opportunity for the proper and just determination of his case,
free from the unacceptable plea of technicalities.
In Coca-Cola Bottlers v. De la Cruz, where the verification was
marred only by a glitch in the evidence of the identity of the
affiant, the Court was of the considered view that, in the
interest of justice, the minor defect can be overlooked and
should not defeat the petition.
The reduction in the number of pending cases is laudable, but
if it would be attained by precipitate, if not preposterous,
application of technicalities, justice would not be served. The
law abhors technicalities that impede the cause of justice. The
court's primary duty is to render or dispense justice. "It is a
more prudent course of action for the court to excuse a
technical lapse and afford the parties a review of the case on
appeal rather than dispose of the case on technicality and
cause a grave injustice to the parties, giving a false
impression of speedy disposal of cases while actually resulting
in more delay, if not miscarriage of justice."
What should guide judicial action is the principle that a partylitigant should be given the fullest opportunity to establish the
merits of his complaint or defense rather than for him to lose
life, liberty, honor, or property on technicalities. The rules of
procedure should be viewed as mere tools designed to
facilitate the attainment of justice. Their strict and rigid
application, which would result in technicalities that tend to
frustrate rather than promote substantial justice, must always
be eschewed. At this juncture, the Court reminds all members
of the bench and bar of the admonition in the often-cited case
ofAlonso v. Villamor:chanroblesvirtuallawlibrary
Lawsuits, unlike duels, are not to be won by a rapier's thrust.
Technicality, when it deserts its proper office as an aid to
justice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no
vested rights in technicalities.15cralawlawlibrary
Anent the second ground, petitioner insists that, based on
evidence on record, an employer-employee relationship exists
between him and respondents.
The Court is not persuaded.

It is a basic rule of evidence that each party must prove his
affirmative allegation.16 If he claims a right granted by law, he
must prove his claim by competent evidence, relying on the
strength of his own evidence and not upon the weakness of
that of his opponent.17 The test for determining on whom the
burden of proof lies is found in the result of an inquiry as to
which party would be successful if no evidence of such
matters were given.18 In an illegal dismissal case, the onus
probandi rests on the employer to prove that its dismissal of
an employee was for a valid cause.19 However, before a case
for illegal dismissal can prosper, an employer-employee
relationship must first be established.20 Thus, in filing a
complaint before the LA for illegal dismissal, based on the
premise that he was an employee of respondents, it is
incumbent upon petitioner to prove the employer-employee
relationship by substantial evidence.21
In regard to the above discussion, the issue of whether or not
an employer-employee relationship existed between petitioner
and respondents is essentially a question of fact. 22 The factors
that determine the issue include who has the power to select
the employee, who pays the employee's wages, who has the
power to dismiss the employee, and who exercises control of
the methods and results by which the work of the employee is
accomplished.23 Although no particular form of evidence is
required to prove the existence of the relationship, and any
competent and relevant evidence to prove the relationship
may be admitted, a finding that the relationship exists must
nonetheless rest on substantial evidence, which is that
amount of relevant evidence that a reasonable mind might
accept as adequate to justify a conclusion. 24
Generally, the Court does not review factual questions,
primarily because the Court is not a trier of facts.25 However,
where, like here, there is a conflict between the factual
findings of the LA and the CA, on one hand, and those of the
NLRC, on the other, it becomes proper for the Court, in the
exercise of its equity jurisdiction, to review and re-evaluate
the factual issues and to look into the records of the case and
re-examine the questioned findings.26
Etched in an unending stream of cases are four standards in
determining the existence of an employer-employee
relationship, namely: (a) the manner of selection and
engagement of the putative employee; (b) the mode of
payment of wages; (c) the presence or absence of power of
dismissal; and, (d) the presence or absence of control of the
putative employee's conduct. Most determinative among
these factors is the so-called "control test." 27
Indeed, the power of the employer to control the work of the
employee is considered the most significant determinant of
the existence of an employer-employee relationship. 28 This
test is premised on whether the person for whom the services
are performed reserves the right to control both the end
achieved and the manner and means used to achieve that
end.29
In the present case, petitioner contends that, as evidence of
respondents' supposed control over him, the organizational
plans he has drawn were subject to the approval of
respondent corporation's Board of Trustees. However, the
Court agrees with the disquisition of the CA on this matter, to
wit:chanroblesvirtuallawlibrary
[Respondents'] power to approve or reject the organizational
plans drawn by [petitioner] cannot be the control
contemplated in the "control test." It is but logical that one
who commissions another to do a piece of work should have
the right to accept or reject the product. The important factor
to consider in the "control test" is still the element of control
over how the work itself is done, not just the end result
thereof.
Well settled is the rule that where a person who works for
another performs his job more or less at his own pleasure, in
the manner he sees fit, not subject to definite hours or
conditions of work, and is compensated according to the
result of his efforts and not the amount thereof, no employeremployee relationship exists.30cralawlawlibrary
What was glaring in the present case is the undisputed fact
that petitioner was never subject to definite working hours. He
never denied that he goes to work and leaves therefrom as he
pleases.31In fact, on December 1-31, 2004, he went on leave
without seeking approval from the officers of respondent
company. On the contrary, his letter32 simply informed
respondents that he will be away for a month and even
advised them that they have the option of appointing his

2

replacement during his absence. This Court has held that
there is no employer-employee relationship where the
supposed employee is not subject to a set of rules and
regulations governing the performance of his duties under the
agreement with the company and is not required to report for
work at any time, nor to devote his time exclusively to
working for the company.33
In this regard, this Court also agrees with the ruling of the CA
that:chanroblesvirtuallawlibrary
Aside from the control test, the Supreme Court has also used
the economic reality test in determining whether an employeremployee relationship exists between the parties. Under this
test, the economic realities prevailing within the activity or
between the parties are examined, taking into consideration
the totality of circumstances surrounding the true nature of
the relationship between the parties. This is especially
appropriate when, as in this case, there is no written
agreement or contract on which to base the relationship. In
our jurisdiction, the benchmark of economic reality in
analyzing possible employment relationships for purposes of
applying the Labor Code ought to be the economic
dependence of the worker on his employer.
In the instant case, as shown by the resume of [petitioner], he
concurrently held consultancy positions with the Manila
International Airport Authority (from 04 March 2001 to
September 2003 and from 01 November 2004 up to the
present) and the Anti-Terrorist Task Force for Aviation and Air
Transportation Sector (from 16 April 2004 to 30 June 2004)
during his stint with the Eye Referral Center (from 01 August
2003 to 29 April 2005). Accordingly, it cannot be said that the
[petitioner] was wholly dependent on [respondent]
company.34cralawlawlibrary
In bolstering his contention that there was an employeremployee relationship, petitioner draws attention to the pay
slips he supposedly received from respondent corporation.
However, he does not dispute the findings of the CA that there
are no deductions for SSS and withholding tax from his
compensation, which are the usual deductions from
employees' salaries. Thus, the alleged pay slips may not be
treated as competent evidence of petitioner's claim that he is
respondents' employee.
In addition, the designation of the payments to petitioner as
salaries, is not determinative of the existence of an employeremployee relationship.35 Salary is a general term defined as a
remuneration for services given.36 Evidence of this fact, in the
instant case, was the cash voucher issued in favor of
petitioner where it was stated therein that the amount of
P20,000.00 was given as petitioner's allowance for the month
of December 2004, although it appears from the pay slip that
the said amount was his salary for the same period.
Additional evidence of the fact that petitioner was hired as a
consultant and not as an employee of respondent corporation
are affidavits to this effect which were executed by Roy
Oliveres37 and Aurea Luz Esteva,38 who are Medical Records
Custodian and Administrative Officer, respectively, of
respondent corporation. Petitioner insists in its objection of
the use of these affidavits on the ground that they are,
essentially, hearsay. However, this Court has ruled that
although the affiants had not been presented to affirm the
contents of their affidavits and be cross-examined, their
affidavits may be given evidentiary value; the argument that
such affidavits were hearsay was not persuasive.39Likewise,
this Court ruled that it was not necessary for the affiants to
appear and testify and be cross-examined by counsel for the
adverse party.40 To require otherwise would be to negate the
rationale and purpose of the summary nature of the
proceedings mandated by the Rules and to make mandatory
the application of the technical rules of evidence.41
These affidavits are corroborated by evidence, as discussed
above, showing that petitioner has no definite working hours
and is not subject to the control of respondents.
Lastly, the Court does not agree with petitioner's insistence
that his being hired as respondent corporation's administrator
and his designation as such in intra-company correspondence
proves that he is an employee of the corporation. The fact
alone that petitioner was designated as an administrator does
not necessarily mean that he is an employee of respondents.
Mere title or designation in a corporation will not, by itself,
determine the existence of an employer-employee
relationship.42 In this regard, even the identification card
which was issued to petitioner is not an adequate proof of

petitioner's claim that he is respondents' employee. In
addition, petitioner's designation as an administrator neither
disproves respondents' contention that he was engaged only
as a consultant.
As a final point, it bears to reiterate that while the Constitution
is committed to the policy of social justice and the protection
of the working class, it should not be supposed that every
labor dispute will be automatically decided in favor of
labor.43 Management also has its rights which are entitled to
respect and enforcement in the interest of simple fair
play.44 Out of its concern for the less privileged in life, the
Court has inclined, more often than not, toward the worker
and upheld his cause in his conflicts with the employer.45 Such
favoritism, however, has not blinded the Court to the rule that
justice is in every case for the deserving, to be dispensed in
the light of the established facts and the applicable law and
doctrine.46
WHEREFORE, the instant petition is DENIED. The Decision
and Resolution of the Court of Appeals, dated April 20, 2009
and August 25, 2009, respectively, in CA-G.R. SPNo. 104261,
are AFFIRMED.
SO ORDERED.
G.R. No. 147816

May 9, 2003

EFREN P. PAGUIO, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
METROMEDIA TIMES CORPORATION, ROBINA Y.
GOKONGWEI, LIBERATO GOMEZ, JR., YOLANDA E.
ARAGON, FREDERICK D. GO and ALDA
IGLESIA,respondents.
VITUG, J.:
On 22 June 1992, respondent Metromedia Times Corporation
entered, for the fifth time, into an agreement with petitioner
Efren P. Paguio, appointing the latter to be an account
executive of the firm.1 Again, petitioner was to solicit
advertisements for "The Manila Times," a newspaper of
general circulation, published by respondent company.
Petitioner, for his efforts, was to receive compensation
consisting of a 15% commission on direct advertisements less
withholding tax and a 10% commission on agency
advertisements based on gross revenues less agency
commission and the corresponding withholding tax. The
commissions, released every fifteen days of each month, were
to be given to petitioner only after the clients would have paid
for the advertisements. Apart from commissions, petitioner
was also entitled to a monthly allowance of P2,000.00 as long
as he met the P30,000.00-monthly quota. Basically, the
contentious points raised by the parties had something to do
with the following stipulations of the agreement; viz:
"12. You are not an employee of the Metromedia
Times Corporation nor does the company have any
obligations towards anyone you may employ, nor any
responsibility for your operating expenses or for any
liability you may incur. The only rights and
obligations between us are those set forth in this
agreement. This agreement cannot be amended or
modified in any way except with the duly authorized
consent in writing of both parties.
"13. Either party may terminate this agreement at
any time by giving written notice to the other, thirty
(30) days prior to effectivity of termination." 2
On 15 August 1992, barely two months after the
renewal of his contract, petitioner received the
following notice from respondent firm "Dear Mr. Paguio,
"Please be advised of our decision to terminate your
services as Account Executive of Manila Times
effective September 30, 1992.

3

"This is in accordance with our contract signed last
July 1, 1992."3
Apart from vague allegations of misconduct on which he was
not given the opportunity to defend himself, i.e., pirating
clients from his co-executives and failing to produce results,
no definite cause for petitioner's termination was given.
Aggrieved, petitioner filed a case before the labor arbiter,
asking that his dismissal be declared unlawful and that his
reinstatement, with entitlement to backwages without loss of
seniority rights, be ordered. Petitioner also prayed that
respondent company officials be held accountable for acts of
unfair labor practice, for P500,000.00 moral damages and for
P200,000.00 exemplary damages.
In their defense, respondent Metromedia Times Corporation
asserted that it did not enter into any agreement with
petitioner outside of the contract of services under Articles
1642 and 1644 of the Civil Code of the Philippines. 4Asserting
their right to terminate the contract with petitioner,
respondents pointed to the last provision thereof stating that
both parties could opt to end the contract provided that either
party would serve, thirty days prior to the intended date of
termination, the corresponding notice to the other.
The labor arbiter found for petitioner and declared his
dismissal illegal. The arbiter ordered respondent Metromedia
Times Corporation and its officers to reinstate petitioner to his
former position, without loss of seniority rights, and to pay
him his commissions and other remuneration accruing from
the date of dismissal on 15 August 1992 up until his
reinstatement. He likewise adjudged that Liberato I. Gomez,
general manager of respondent corporation, be held liable to
petitioner for moral damages in the amount of P20,000.00.
On appeal, the National Labor Relations Commission (NLRC)
reversed the ruling of the labor arbiter and declared the
contractual relationship between the parties as being for a
fixed-term employment. The NLRC declared a fixed-term
employment to be lawful as long as "it was agreed upon
knowingly and voluntarily by the parties, without any force,
duress or improper pressure being brought to bear upon the
worker and absent any other circumstances vitiating his
consent."5 The finding of the NLRC was primarily hinged on
the assumption that petitioner, on account of his educated
stature, having indeed personally prepared his pleadings
without the aid of counsel, was an unlikely victim of a lopsided
contract. Rejecting the assertion of petitioner that he was a
regular employee, the NLRC held: "The decisive determinant
would not be the activities that the employee (was) called
upon to perform but rather, the day certain agreed upon by
the parties for the commencement and termination of their
employment relationship, a day certain being understood to
be that which (would) necessarily come, although it (might)
not be known when."6
Petitioner appealed the ruling of the NLRC before the Court of
Appeals which upheld in toto the findings of the commission.
In his petition for review on certiorari, petitioner raised the
following issues for resolution:
"WHETHER OR NOT PETITIONER'S CONTRACT WITH
PRIVATE RESPONDENT'S COMPANY IS FOR A FIXED
PERIOD.
"WHETHER OR NOT PETITIONER'S DISMISSAL IS
LEGAL.
"WHETHER OR NOT PETITIONER IS ENTITLED TO
BACKWAGES AND MORAL DAMAGES."7
The crux of the matter would entail the determination of the
nature of contractual relationship between petitioner and
respondent company - was it or was it not one of regular
employment?
A "regular employment," whether it is one or not, is aptly
gauged from the concurrence, or the non-concurrence, of the
following factors - a) the manner of selection and engagement

of the putative employee, b) the mode of payment of wages,
c) the presence or absence of the power of dismissal; and d)
the presence or absence of the power to control the conduct
of the putative employee or the power to control the
employee with respect to the means or methods by which his
work is to be accomplished.8 The "control test" assumes
primacy in the overall consideration. Under this test, an
employment relation obtains where work is performed or
services are rendered under the control and supervision of the
party contracting for the service, not only as to the result of
the work but also as to the manner and details of the
performance desired.9
An indicum of regular employment, rightly taken into account
by the labor arbiter, was the reservation by respondent
Metromedia Times Corporation not only of the right to control
the results to be achieved but likewise the manner and the
means used in reaching that end.10 Metromedia Times
Corporation exercised such control by requiring petitioner,
among other things, to submit a daily sales activity report and
also a monthly sales report as well. Various solicitation letters
would indeed show that Robina Gokongwei, company
president, Alda Iglesia, the advertising manager, and
Frederick Go, the advertising director, directed and monitored
the sales activities of petitioner.
The Labor Code, in Article 280 thereof, provides:
"ART. 280. Regular and Casual Employment. – The
provisions of written agreement to the contrary
notwithstanding and regardless of the oral
agreement of the parties, an employment shall be
deemed to be regular where the employee has been
engaged to perform activities which are usually
necessary or desirable in the usual business or trade
of the employer, except where the employment has
been fixed for a specific project or undertaking the
completion or termination of which has been
determined at the time of the engagement of the
employee or where the work or services to be
performed is seasonal in nature and the employment
is for the duration of the season.
"An employment shall be deemed to be casual if it is
not covered by the proceeding paragraph: Provided,
That, any employee who has rendered at least one
year of service, whether such service is continuous or
broken, shall be considered a regular employee with
respect to the activity in which he is employed and
his employment shall continue while such activity
exists."
Thus defined, a regular employee is one who is engaged to
perform activities which are necessary and desirable in the
usual business or trade of the employer as against those
which are undertaken for a specific project or are seasonal.
Even in these latter cases, where such person has rendered at
least one year of service, regardless of the nature of the
activity performed or of whether it is continuous or
intermittent, the employment is considered regular as long as
the activity exists, it not being indispensable that he be first
issued a regular appointment or be formally declared as such
before acquiring a regular status.11
That petitioner performed activities which were necessary and
desirable to the business of the employer, and that the same
went on for more than a year, could hardly be denied.
Petitioner was an account executive in soliciting
advertisements, clearly necessary and desirable, for the
survival and continued operation of the business of
respondent corporation. Robina Gokongwei, its President,
herself admitted that the income generated from paid
advertisements was the lifeblood of the newspaper's
existence. Implicitly, respondent corporation recognized
petitioner's invaluable contribution to the business when it
renewed, not just once but five times, its contract with
petitioner.
Respondent company cannot seek refuge under the terms of
the agreement it has entered into with petitioner. The law, in

4

defining their contractual relationship, does so, not
necessarily or exclusively upon the terms of their written or
oral contract, but also on the basis of the nature of the work
petitioner has been called upon to perform.12 The law affords
protection to an employee, and it will not countenance any
attempt to subvert its spirit and intent. A stipulation in an
agreement can be ignored as and when it is utilized to deprive
the employee of his security of tenure.13 The sheer inequality
that characterizes employer-employee relations, where the
scales generally tip against the employee, often scarcely
provides him real and better options.
The real question that should thus be posed is whether or not
petitioner has been justly dismissed from service. A lawful
dismissal must meet both substantive and procedural
requirements; in fine, the dismissal must be for a just or
authorized cause and must comply with the rudimentary due
process of notice and hearing. It is not shown that respondent
company has fully bothered itself with either of these
requirements in terminating the services of petitioner. The
notice of termination recites no valid or just cause for the
dismissal of petitioner nor does it appear that he has been
given an opportunity to be heard in his defense.
The evidence, however, found by the appellate court is
wanting that would indicate bad faith or malice on the part of
respondents, particularly by respondent Liberato I. Gomez,
and the award of moral damages must thus be deleted.
WHEREFORE, the instant petition is GRANTED. The decision
of the Court of Appeals in C.A. G.R. SP No. 527773 and that of
the National Labor Relations Commission are hereby SET
ASIDE and that of the Labor Arbiter is REINSTATED except with
respect to the P20,000.00 moral damages adjudged against
respondent Liberato I. Gomez which award is deleted.
SO ORDERED.
Davide, Jr., C.J., Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.
G.R. No. 129315

October 2, 2000

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL
CAPARAS, ELPIDIO LACAP, SIMPLICIO PEDELOS,
PATRICIA NAS, and TERESITA FLORES, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION, LAO
ENTENG COMPANY, INC. and/or TRINIDAD LAO
ONG,respondents.
DECISION
QUISUMBING, J.:
This special civil action for certiorari seeks the review of the
Resolution dated October 17, 1996 of public respondent
National Labor Relations Commission (First Division),1 in NLRC
NCR Case No. 00-04-03163-95, and the Resolution dated
March 5, 1997 denying the motion for reconsideration. The
aforecited October 17th Resolution affirmed the Decision
dated September 28, 1996 of Labor Arbiter Potenciano S.
Cañizares dismissing the petitioners' complaint for illegal
dismissal and declaring that petitioners are not regular
employees of private respondent Lao Enteng Company, Inc..
The records of the case show that the five male petitioners,
namely, Osias I. Corporal, Sr., Pedro Tolentino, Manuel
Caparas, Elpidio Lacap, and Simplicio Pedelos worked as
barbers, while the two female petitioners, Teresita Flores and
Patricia Nas worked as manicurists in New Look Barber Shop
located at 651 P. Paterno Street, Quiapo, Manila owned by
private respondent Lao Enteng Co. Inc.. Petitioner Nas alleged
that she also worked as watcher and marketer of private
respondent.
Petitioners claim that at the start of their employment with
the New Look Barber Shop, it was a single proprietorship

owned and managed by Mr. Vicente Lao. In or about January
1982, the children of Vicente Lao organized a corporation
which was registered with the Securities and Exchange
Commission as Lao Enteng Co. Inc. with Trinidad Ong as
President of the said corporation. Upon its incorporation, the
respondent company took over the assets, equipment, and
properties of the New Look Barber Shop and continued the
business. All the petitioners were allowed to continue working
with the new company until April 15, 1995 when respondent
Trinidad Ong informed them that the building wherein the New
Look Barber Shop was located had been sold and that their
services were no longer needed.2
On April 28, 1995, petitioners filed with the Arbitration Branch
of the NLRC, a complaint for illegal dismissal, illegal
deduction, separation pay, non-payment of 13th month pay,
and salary differentials. Only petitioner Nas asked for payment
of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The
petitioners also sought the refund of the P1.00 that the
respondent company collected from each of them daily as
salary of the sweeper of the barber shop.
Private respondent in its position paper averred that the
petitioners were joint venture partners and were receiving
fifty percent commission of the amount charged to customers.
Thus, there was no employer-employee relationship between
them and petitioners. And assuming arguendo, that there was
an employer-employee relationship, still petitioners are not
entitled to separation pay because the cessation of operations
of the barber shop was due to serious business losses.
Respondent Trinidad Lao Ong, President of respondent Lao
Enteng Co. Inc., specifically stated in her affidavit dated
September 06, 1995 that Lao Enteng Company, Inc. did not
take over the management of the New Look Barber Shop, that
after the death Lao Enteng petitioner were verbally informed
time and again that the partnership may fold up anytime
because nobody in the family had the time to be at the barber
shop to look after their interest; that New Look Barber Shop
had always been a joint venture partnership and the operation
and management of the barber shop was left entirely to
petitioners; that her father's contribution to the joint venture
included the place of business, payment for utilities including
electricity, water, etc. while petitioners as industrial partners,
supplied the labor; and that the barber shop was allowed to
remain open up to April 1995 by the children because they
wanted to give the partners a chance at making it work.
Eventually, they were forced to close the barber shop because
they continued to lose money while petitioners earned from it.
Trinidad also added that private respondents had no control
over petitioners who were free to come and go as they
wished. Admittedly too by petitioners they received fifty
percent to sixty percent of the gross paid by customers.
Trinidad explained that some of the petitioners were allowed
to register with the Social Security System as employees of
Lao Enteng Company, Inc. only as an act of accommodation.
All the SSS contributions were made by petitioners. Moreover,
Osias Corporal, Elpidio Lacap and Teresita Flores were not
among those registered with the Social Security System.
Lastly, Trinidad avers that without any employee-employer
relationship petitioners claim for 13th month pay and
separation pay have no basis in fact and in law.3
In a Decision dated September 28, 1995, Labor Arbiter
Potenciano S. Cañizares, Jr. ordered the dismissal of the
complaint on the basis of his findings that the complainants
and the respondents were engaged in a joint venture and that
there existed no employer-employee relation between them.
The Labor Arbiter also found that the barber shop was closed
due to serious business losses or financial reverses and
consequently declared that the law does not compel the
establishment to pay separation pay to whoever were its
employees.4
On appeal, NLRC affirmed the said findings of the Labor
Arbiter and dismissed the complaint for want of merit,
ratiocinating thus:
Indeed, complainants failed to show the existence of
employer-employee relationship under the fourway test

5

established by the Supreme Court. It is a common practice in
the Barber Shop industry that barbers supply their own
scissors and razors and they split their earnings with the
owner of the barber shop. The only capital of the owner is the
place of work whereas the barbers provide the skill and
expertise in servicing customers. The only control exercised
by the owner of the barber shop is to ascertain the number of
customers serviced by the barber in order to determine the
sharing of profits. The barbers maybe characterized as
independent contractors because they are under the control
of the barber shop owner only with respect to the result of the
work, but not with respect to the details or manner of
performance. The barbers are engaged in an independent
calling requiring special skills available to the public at large.5
Its motion for reconsideration denied in the Resolution 6 dated
March 5, 1997, petitioners filed the instant petition assigning
that the NLRC committed grave abuse of discretion in:
I. ARBITRARILY DISREGARDING SUBSTANTIAL
EVIDENCE PROVING THAT PETITIONERS WERE
EMPLOYEES OF RESPONDENT COMPANY IN RULING
THAT PETITIONERS WERE INDEPENDENT
CONTRACTORS.
II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY
DISMISSED AND IN NOT AWARDING THEIR MONEY
CLAIMS.7
Petitioners principally argue that public respondent NLRC
gravely erred in declaring that the petitioners were
independent contractors. They contend that they were
employees of the respondent company and cannot be
considered as independent contractors because they did not
carry on an independent business. They did not cut hair,
manicure, and do their work in their own manner and method.
They insist they were not free from the control and direction
of private respondents in all matters, and their services were
engaged by the respondent company to attend to its
customers in its barber shop. Petitioners also stated that,
individually or collectively, they do not have substantial
capital nor investments in tools, equipments, work premises
and other materials necessary in the conduct of the barber
shop. What the barbers owned were merely combs, scissors,
and razors, while the manicurists owned only nail cutters, nail
polishes, nippers and cuticle removers. By no standard can
these be considered "substantial capital" necessary to operate
a barbers shop.
Finally, petitioners fault the NLRC for arbitrarily disregarding
substantial evidence on record showing that petitioners Pedro
Tolentino, Manuel Caparas, Simplicio Pedelos, and Patricia Nas
were registered with the Social Security System as regular
employees of the respondent company. The SSS employment
records in common show that the employer's ID No. of Vicente
Lao/Barber and Pawn Shop was 03-0606200-1 and that of the
respondent company was 03-8740074-7. All the foregoing
entries in the SSS employment records were painstakingly
detailed by the petitioners in their position paper and in their
memorandum appeal but were arbitrarily ignored first by the
Labor Arbiter and then by the respondent NLRC which did not
even mention said employment records in its questioned
decision.
We found petition is impressed with merit.
In our view, this case is an exception to the general rule that
findings of facts of the NLRC are to be accorded respect and
finality on appeal. We have long settled that this Court will not
uphold erroneous conclusions unsupported by substantial
evidence.8 We must also stress that where the findings of the
NLRC contradict those of the labor arbiter, the Court, in the
exercise of its equity jurisdiction, may look into the records of
the case and reexamine the questioned findings.9
The issues raised by petitioners boil down to whether or not
an employer-employee relationship existed between
petitioners and private respondent Lao Enteng Company, Inc.
The Labor Arbiter has concluded that the petitioners and
respondent company were engaged in a joint venture. The

NLRC concluded that the petitioners were independent
contractors.
The Labor Arbiter's findings that the parties were engaged in
a joint venture is unsupported by any documentary evidence.
It should be noted that aside from the self-serving affidavit of
Trinidad Lao Ong, there were no other evidentiary documents,
nor written partnership agreements presented. We have ruled
that even the sharing of proceeds for every job of petitioners
in the barber shop does not mean they were not employees of
the respondent company.10
Petitioner aver that NLRC was wrong when it concluded that
petitioners were independent contractors simply because they
supplied their own working implements, shared in the
earnings of the barber shop with the owner and chose the
manner of performing their work. They stressed that as far as
the result of their work was concerned the barber shop owner
controlled them.
An independent contractor is one who undertakes "job
contracting", i.e., a person who (a) carries on an independent
business and undertakes the contract work on his own
account under his own responsibility according to his own
manner and method, free from the control and direction of his
employer or principal in all matters connected with the
performance of the work except as to the results thereof, and
(b) has substantial capital or investment in the form of tools,
equipment, machineries, work premises, and other materials
which are necessary in the conduct of the business. 11
Juxtaposing this provision vis-à-vis the facts of this case, we
are convinced that petitioners are not "independent
contractors". They did not carry on an independent business.
Neither did they undertake cutting hair and manicuring nails,
on their own as their responsibility, and in their own manner
and method. The services of the petitioners were engaged by
the respondent company to attend to the needs of its
customers in its barber shop. More importantly, the
petitioners, individually or collectively, did not have a
substantial capital or investment in the form of tools,
equipment, work premises and other materials which are
necessary in the conduct of the business of the respondent
company. What the petitioners owned were only combs,
scissors, razors, nail cutters, nail polishes, the nippers nothing else. By no standard can these be considered
substantial capital necessary to operate a barber shop. From
the records, it can be gleaned that petitioners were not given
work assignments in any place other than at the work
premises of the New Look Barber Shop owned by the
respondent company. Also, petitioners were required to
observe rules and regulations of the respondent company
pertaining, among other things, observance of daily
attendance, job performance, and regularity of job output. The
nature of work performed by were clearly directly related to
private respondent's business of operating barber shops.
Respondent company did not dispute that it owned and
operated three (3) barber shops. Hence, petitioners were not
independent contractors.
Did an employee-employer relationship exist between
petitioners and private respondent? The following elements
must be present for an employer-employee relationship to
exist: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever
means; and (4) the power to control the worker's conduct,
with the latter assuming primacy in the overall consideration.
Records of the case show that the late Vicente Lao engaged
the services of the petitioners to work as barbers and
manicurists in the New Look Barber Shop, then a single
proprietorship owned by him; that in January 1982, his
children organized a corporation which they registered with
the Securities and Exchange Commission as Lao Enteng
Company, Inc.; that upon its incorporation, it took over the
assets, equipment, and properties of the New Look Barber
Shop and continued the business; that the respondent
company retained the services of all the petitioners and
continuously paid their wages. Clearly, all three elements
exist in petitioners' and private respondent's working
arrangements.

6

Private respondent claims it had no control over
petitioners.1âwphi1 The power to control refers to the
existence of the power and not necessarily to the actual
exercise thereof, nor is it essential for the employer to
actually supervise the performance of duties of the employee.
It is enough that the employer has the right to wield that
power.12 As to the "control test", the following facts
indubitably reveal that respondent company wielded control
over the work performance of petitioners, in that: (1) they
worked in the barber shop owned and operated by the
respondents; (2) they were required to report daily and
observe definite hours of work; (3) they were not free to
accept other employment elsewhere but devoted their full
time working in the New Look Barber Shop for all the fifteen
(15) years they have worked until April 15, 1995; (4) that
some have worked with respondents as early as in the 1960's;
(5) that petitioner Patricia Nas was instructed by the
respondents to watch the other six (6) petitioners in their
daily task. Certainly, respondent company was clothed with
the power to dismiss any or all of them for just and valid
cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent
company.

dated March 05, 1997 are SET ASIDE. Private respondents are
hereby ordered to pay, severally and jointly, the seven (7)
petitioners their (1) 13th month pay and (2) separation pay
equivalent to one month pay for every year of service, to be
computed at the then prevailing minimum wage at the time of
their actual termination which was April 15, 1995.
Costs against private respondents.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Buena, and De Leon, Jr., JJ.,
concur.
G.R. No. 165881

April 19, 2006

OSCAR VILLAMARIA, JR. Petitioner,
vs.
COURT OF APPEALS and JERRY V.
BUSTAMANTE, Respondents
DECISION

While it is no longer true that membership to SSS is
predicated on the existence of an employee-employer
relationship since the policy is now to encourage even the
self-employed dressmakers, manicurists and jeepney drivers
to become SSS members, we could not agree with private
respondents that petitioners were registered with the Social
Security System as their employees only as an
accommodation. As we have earlier mentioned private
respondent showed no proof to their claim that petitioners
were the ones who solely paid all SSS contributions. It is
unlikely that respondents would report certain persons as
their workers, pay their SSS premium as well as their wages if
it were not true that they were indeed their employees. 13
Finally, we agree with the labor arbiter that there was
sufficient evidence that the barber shop was closed due to
serious business losses and respondent company closed its
barber shop because the building where the barber shop was
located was sold. An employer may adopt policies or changes
or adjustments in its operations to insure profit to itself or
protect investment of its stockholders. In the exercise of such
management prerogative, the employer may merge or
consolidate its business with another, or sell or dispose all or
substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the
process.14
Prescinding from the above, we hold that the seven
petitioners are employees of the private respondent company;
as such, they are to be accorded the benefits provided under
the Labor Code, specifically Article 283 which mandates the
grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay
for every year of service.15 Likewise, they are entitled to the
protection of minimum wage statutes. Hence, the separation
pay due them may be computed on the basis of the minimum
wage prevailing at the time their services were terminated by
the respondent company. The same is true with respect to the
13th month pay. The Revised Guidelines on the
Implementation of the 13th Month Pay Law states that "all
rank and file employees are now entitled to a 13th month pay
regardless of the amount of basic salary that they receive in a
month. Such employees are entitled to the benefit regardless
of their designation or employment status, and irrespective of
the method by which their wages are paid, provided that they
have worked for at least one (1) month during a calendar
year" and so all the seven (7) petitioners who were not paid
their 13th month pay must be paid accordingly.16
Anent the other claims of the petitioners, such as the
P10,000.00 as penalty for non-compliance with procedural
process; P10,000.00 as moral damages; refund of P1.00 per
day paid to the sweeper; salary differentials for petitioner Nas;
attorney's fees), we find them without basis.
IN VIEW WHEREOF, the petition is GRANTED. The public
respondent's Decision dated October 17, 1996 and Resolution

CALLEJO, SR., J.:
Before us is a Petition for Review on Certiorari under Rule 65
of the Revised Rules of Court assailing the Decision 1 and
Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No.
78720 which set aside the Resolution3of the National Labor
Relations Commission (NLRC) in NCR-30-08-03247-00, which
in turn affirmed the Decision4of the Labor Arbiter dismissing
the complaint filed by respondent Jerry V. Bustamante.
Petitioner Oscar Villamaria, Jr. was the owner of Villamaria
Motors, a sole proprietorship engaged in assembling
passenger jeepneys with a public utility franchise to operate
along the Baclaran-Sucat route. By 1995, Villamaria stopped
assembling jeepneys and retained only nine, four of which he
operated by employing drivers on a "boundary basis." One of
those drivers was respondent Bustamante who drove the
jeepney with Plate No. PVU-660. Bustamante remitted
P450.00 a day to Villamaria as boundary and kept the residue
of his daily earnings as compensation for driving the vehicle.
In August 1997, Villamaria verbally agreed to sell the jeepney
to Bustamante under the "boundary-hulog scheme," where
Bustamante would remit to Villarama P550.00 a day for a
period of four years; Bustamante would then become the
owner of the vehicle and continue to drive the same under
Villamaria’s franchise. It was also agreed that Bustamante
would make a downpayment of P10,000.00.
On August 7, 1997, Villamaria executed a contract entitled
"Kasunduan ng Bilihan ng Sasakyan sa Pamamagitan ng
Boundary-Hulog"5 over the passenger jeepney with Plate No.
PVU-660, Chassis No. EVER95-38168-C and Motor No. SL26647. The parties agreed that if Bustamante failed to pay the
boundary-hulog for three days, Villamaria Motors would hold
on to the vehicle until Bustamante paid his arrears, including
a penalty of P50.00 a day; in case Bustamante failed to remit
the daily boundary-hulog for a period of one week, the
Kasunduan would cease to have legal effect and Bustamante
would have to return the vehicle to Villamaria Motors.
Under the Kasunduan, Bustamante was prohibited from
driving the vehicle without prior authority from Villamaria
Motors. Thus, Bustamante was authorized to operate the
vehicle to transport passengers only and not for other
purposes. He was also required to display an identification
card in front of the windshield of the vehicle; in case of failure
to do so, any fine that may be imposed by government
authorities would be charged against his account. Bustamante
further obliged himself to pay for the cost of replacing any
parts of the vehicle that would be lost or damaged due to his
negligence. In case the vehicle sustained serious damage,
Bustamante was obliged to notify Villamaria Motors before
commencing repairs. Bustamante was not allowed to wear
slippers, short pants or undershirts while driving. He was
required to be polite and respectful towards the passengers.
He was also obliged to notify Villamaria Motors in case the

7

vehicle was leased for two or more days and was required to
attend any meetings which may be called from time to time.
Aside from the boundary-hulog, Bustamante was also obliged
to pay for the annual registration fees of the vehicle and the
premium for the vehicle’s comprehensive insurance.
Bustamante promised to strictly comply with the rules and
regulations imposed by Villamaria for the upkeep and
maintenance of the jeepney.
Bustamante continued driving the jeepney under the
supervision and control of Villamaria. As agreed upon, he
made daily remittances of P550.00 in payment of the
purchase price of the vehicle. Bustamante failed to pay for the
annual registration fees of the vehicle, but Villamaria allowed
him to continue driving the jeepney.
In 1999, Bustamante and other drivers who also had the same
arrangement with Villamaria Motors failed to pay their
respective boundary-hulog. This prompted Villamaria to serve
a "Paalala,"6 reminding them that under the Kasunduan,
failure to pay the daily boundary-hulog for one week, would
mean their respective jeepneys would be returned to him
without any complaints. He warned the drivers that the
Kasunduan would henceforth be strictly enforced and urged
them to comply with their obligation to avoid litigation.
On July 24, 2000, Villamaria took back the jeepney driven by
Bustamante and barred the latter from driving the vehicle.
On August 15, 2000, Bustamante filed a Complaint7 for Illegal
Dismissal against Villamaria and his wife Teresita. In his
Position Paper,8 Bustamante alleged that he was employed by
Villamaria in July 1996 under the boundary system, where he
was required to remit P450.00 a day. After one year of
continuously working for them, the spouses Villamaria
presented the Kasunduan for his signature, with the assurance
that he (Bustamante) would own the jeepney by March 2001
after paying P550.00 in daily installments and that he would
thereafter continue driving the vehicle along the same route
under the same franchise. He further narrated that in July
2000, he informed the Villamaria spouses that the surplus
engine of the jeepney needed to be replaced, and was
assured that it would be done. However, he was later arrested
and his driver’s license was confiscated because apparently,
the replacement engine that was installed was taken from a
stolen vehicle. Due to negotiations with the apprehending
authorities, the jeepney was not impounded. The Villamaria
spouses took the jeepney from him on July 24, 2000, and he
was no longer allowed to drive the vehicle since then unless
he paid them P70,000.00.
Bustamante prayed that judgment be rendered in his favor,
thus:
WHEREFORE, in the light of the foregoing, it is most
respectfully prayed that judgment be rendered ordering the
respondents, jointly and severally, the following:
1. Reinstate complainant to his former position
without loss of seniority rights and execute a Deed of
Sale in favor of the complainant relative to the PUJ
with Plate No. PVU-660;
2. Ordering the respondents to pay backwages in the
amount of P400.00 a day and other benefits
computed from July 24, 2000 up to the time of his
actual reinstatement;
3. Ordering respondents to return the amount of
P10,000.00 and P180,000.00 for the expenses
incurred by the complainant in the repair and
maintenance of the subject jeep;
4. Ordering the respondents to refund the amount of
One Hundred (P100.00) Pesos per day counted from
August 7, 1997 up to June 2000 or a total of
P91,200.00;

5. To pay moral and exemplary damages of not less
than P200,000.00;
6. Attorney’s fee[s] of not less than 10% of the
monetary award.
Other just and equitable reliefs under the premises are also
being prayed for.9
In their Position Paper,10 the spouses Villamaria admitted the
existence of the Kasunduan, but alleged that Bustamante
failed to pay the P10,000.00 downpayment and the vehicle’s
annual registration fees. They further alleged that Bustamante
eventually failed to remit the requisite boundary-hulog of
P550.00 a day, which prompted them to issue the Paalaala.
Instead of complying with his obligations, Bustamante
stopped making his remittances despite his daily trips and
even brought the jeepney to the province without permission.
Worse, the jeepney figured in an accident and its license plate
was confiscated; Bustamante even abandoned the vehicle in a
gasoline station in Sucat, Parañaque City for two weeks. When
the security guard at the gasoline station requested that the
vehicle be retrieved and Teresita Villamaria asked Bustamante
for the keys, Bustamante told her: "Di kunin ninyo." When the
vehicle was finally retrieved, the tires were worn, the
alternator was gone, and the battery was no longer working.
Citing the cases of Cathedral School of Technology v.
NLRC11 and Canlubang Security Agency Corporation v.
NLRC,12 the spouses Villamaria argued that Bustamante was
not illegally dismissed since the Kasunduan executed on
August 7, 1997 transformed the employer-employee
relationship into that of vendor-vendee. Hence, the spouses
concluded, there was no legal basis to hold them liable for
illegal dismissal. They prayed that the case be dismissed for
lack of jurisdiction and patent lack of merit.
In his Reply,13 Bustamante claimed that Villamaria exercised
control and supervision over the conduct of his employment.
He maintained that the rulings of the Court in National Labor
Union v. Dinglasan,14 Magboo v. Bernardo,15 and Citizen's
League of Free Workers v. Abbas16 are germane to the issue as
they define the nature of the owner/operator-driver
relationship under the boundary system. He further reiterated
that it was the Villamaria spouses who presented the
Kasunduan to him and that he conformed thereto only upon
their representation that he would own the vehicle after four
years. Moreover, it appeared that the Paalala was duly
received by him, as he, together with other drivers, was made
to affix his signature on a blank piece of paper purporting to
be an "attendance sheet."
On March 15, 2002, the Labor Arbiter rendered judgment 17 in
favor of the spouses Villamaria and ordered the complaint
dismissed on the following ratiocination:
Respondents presented the contract of Boundary-Hulog, as
well as the PAALALA, to prove their claim that complainant
violated the terms of their contract and afterwards abandoned
the vehicle assigned to him. As against the foregoing, [the]
complaint’s (sic) mere allegations to the contrary cannot
prevail.
Not having been illegally dismissed, complainant is not
entitled to damages and attorney's fees.18
Bustamante appealed the decision to the NLRC,19 insisting
that the Kasunduan did not extinguish the employer-employee
relationship between him and Villamaria. While he did not
receive fixed wages, he kept only the excess of the boundaryhulog which he was required to remit daily to Villamaria under
the agreement. Bustamante maintained that he remained an
employee because he was engaged to perform activities
which were necessary or desirable to Villamaria’s trade or
business.
The NLRC rendered judgment20 dismissing the appeal for lack
of merit, thus:

8

WHEREFORE, premises considered, complainant's appeal is
hereby DISMISSED for reasons not stated in the Labor
Arbiter's decision but mainly on a jurisdictional issue, there
being none over the subject matter of the controversy. 21
The NLRC ruled that under the Kasunduan, the juridical
relationship between Bustamante and Villamaria was that of
vendor and vendee, hence, the Labor Arbiter had no
jurisdiction over the complaint. Bustamante filed a Motion for
Reconsideration, which the NLRC resolved to deny on May 30,
2003.22
Bustamante elevated the matter to the CA via Petition for
Certiorari, alleging that the NLRC erred

1. Sentencing private respondent Oscar Villamaria, Jr.
to pay petitioner Jerry Bustamante separation pay
computed from the time of his employment up to the
time of termination based on the prevailing minimum
wage at the time of termination; and,
2. Condemning private respondent Oscar Villamaria,
Jr. to pay petitioner Jerry Bustamante back wages
computed from the time of his dismissal up to March
2001 based on the prevailing minimum wage at the
time of his dismissal.
Without Costs.
SO ORDERED.26

I
IN DISMISSING PETITIONER’S APPEAL "FOR REASON NOT
STATED IN THE LABOR ARBITER’S DECISION, BUT MAINLY ON
JURISDICTIONAL ISSUE;"
II
IN DISREGARDING THE LAW AND PREVAILING JURISPRUDENCE
WHEN IT DECLARED THAT THE RELATIONSHIP WHICH WAS
ESTABLISHED BETWEEN PETITIONER AND THE PRIVATE
RESPONDENT WAS DEFINITELY A MATTER WHICH IS BEYOND
THE PROTECTIVE MANTLE OF OUR LABOR LAWS.23
Bustamante insisted that despite the Kasunduan, the
relationship between him and Villamaria continued to be that
of employer-employee and as such, the Labor Arbiter had
jurisdiction over his complaint. He further alleged that it is
common knowledge that operators of passenger jeepneys
(including taxis) pay their drivers not on a regular monthly
basis but on commission or boundary basis, or even the
boundary-hulog system. Bustamante asserted that he was
dismissed from employment without any lawful or just cause
and without due notice.
For his part, Villamaria averred that Bustamante failed to
adduce proof of their employer-employee relationship. He
further pointed out that the Dinglasan case pertains to the
boundary system and not the boundary-hulog system, hence
inapplicable in the instant case. He argued that upon the
execution of the Kasunduan, the juridical tie between him and
Bustamante was transformed into a vendor-vendee
relationship. Noting that he was engaged in the manufacture
and sale of jeepneys and not in the business of transporting
passengers for consideration, Villamaria contended that the
daily fees which Bustmante paid were actually periodic
installments for the the vehicle and were not the same fees as
understood in the boundary system. He added that the
boundary-hulog plan was basically a scheme to help the
driver-buyer earn money and eventually pay for the unit in
full, and for the owner to profit not from the daily earnings of
the driver-buyer but from the purchase price of the unit sold.
Villamaria further asserted that the apparently restrictive
conditions in the Kasunduan did not mean that the means and
method of driver-buyer’s conduct was controlled, but were
mere ways to preserve the vehicle for the benefit of both
parties: Villamaria would be able to collect the agreed
purchase price, while Bustamante would be assured that the
vehicle would still be in good running condition even after four
years. Moreover, the right of vendor to impose certain
conditions on the buyer should be respected until full
ownership of the property is vested on the latter. Villamaria
insisted that the parallel circumstances obtaining in Singer
Sewing Machine Company v. Drilon24 has analogous
application to the instant issue.
In its Decision25 dated August 30, 2004, the CA reversed and
set aside the NLRC decision. The fallo of the decision reads:
UPON THE VIEW WE TAKE IN THIS CASE, THUS, the impugned
resolutions of the NLRC must be, as they are hereby are,
REVERSED AND SET ASIDE, and judgment entered in favor of
petitioner:

The appellate court ruled that the Labor Arbiter had
jurisdiction over Bustamante’s complaint. Under the
Kasunduan, the relationship between him and Villamaria was
dual: that of vendor-vendee and employer-employee. The CA
ratiocinated that Villamaria’s exercise of control over
Bustamante’s conduct in operating the jeepney is inconsistent
with the former’s claim that he was not engaged in the
transportation business. There was no evidence that
petitioner was allowed to let some other person drive the
jeepney.
The CA further held that, while the power to dismiss was not
mentioned in the Kasunduan, it did not mean that Villamaria
could not exercise it. It explained that the existence of an
employment relationship did not depend on how the worker
was paid but on the presence or absence of control over the
means and method of the employee’s work. In this case,
Villamaria’s directives (to drive carefully, wear an
identification card, don decent attire, park the vehicle in his
garage, and to inform him about provincial trips, etc.) was a
means to control the way in which Bustamante was to go
about his work. In view of Villamaria’s supervision and control
as employer, the fact that the "boundary" represented
installment payments of the purchase price on the jeepney
did not remove the parties’ employer-employee relationship.
While the appellate court recognized that a week’s default in
paying the boundary-hulog constituted an additional cause for
terminating Bustamante’s employment, it held that the latter
was illegally dismissed. According to the CA, assuming that
Bustamante failed to make the required payments as claimed
by Villamaria, the latter nevertheless failed to take steps to
recover the unit and waited for Bustamante to abandon it. It
also pointed out that Villamaria neither submitted any police
report to support his claim that the vehicle figured in a mishap
nor presented the affidavit of the gas station guard to
substantiate the claim that Bustamante abandoned the unit.
Villamaria received a copy of the decision on September 8,
2004, and filed, on September 17, 2004, a motion for
reconsideration thereof. The CA denied the motion in a
Resolution27 dated November 2, 2004, and Villamaria received
a copy thereof on November 8, 2004.
Villamaria, now petitioner, seeks relief from this Court via
petition for review on certiorari under Rule 65 of the Rules of
Court, alleging that the CA committed grave abuse of its
discretion amounting to excess or lack of jurisdiction in
reversing the decision of the Labor Arbiter and the NLRC. He
claims that the CA erred in ruling that the juridical relationship
between him and respondent under the Kasunduan was a
combination of employer-employee and vendor-vendee
relationships. The terms and conditions of the Kasunduan
clearly state that he and respondent Bustamante had entered
into a conditional deed of sale over the jeepney; as such, their
employer-employee relationship had been transformed into
that of vendor-vendee. Petitioner insists that he had the right
to reserve his title on the jeepney until after the purchase
price thereof had been paid in full.
In his Comment on the petition, respondent avers that the
appropriate remedy of petitioner was an appeal via a petition
for review on certiorari under Rule 45 of the Rules of Court

9

and not a special civil action of certiorari under Rule 65. He
argues that petitioner failed to establish that the CA
committed grave abuse of its discretion amounting to excess
or lack of jurisdiction in its decision, as the said ruling is in
accord with law and the evidence on record.
Respondent further asserts that the Kasunduan presented to
him by petitioner which provides for a boundary-hulog scheme
was a devious circumvention of the Labor Code of the
Philippines. Respondent insists that his juridical relationship
with petitioner is that of employer-employee because he was
engaged to perform activities which were necessary or
desirable in the usual business of petitioner, his employer.
In his Reply, petitioner avers that the Rules of Procedure
should be liberally construed in his favor; hence, it behooves
the Court to resolve the merits of his petition.
We agree with respondent’s contention that the remedy of
petitioner from the CA decision was to file a petition for review
on certiorari under Rule 45 of the Rules of Court and not the
independent action of certiorari under Rule 65. Petitioner had
15 days from receipt of the CA resolution denying his motion
for the reconsideration within which to file the petition under
Rule 45.28 But instead of doing so, he filed a petition for
certiorari under Rule 65 on November 22, 2004, which did not,
however, suspend the running of the 15-day reglementary
period; consequently, the CA decision became final and
executory upon the lapse of the reglementary period for
appeal. Thus, on this procedural lapse, the instant petition
stands to be dismissed.29
It must be stressed that the recourse to a special civil action
under Rule 65 of the Rules of Court is proscribed by the
remedy of appeal under Rule 45. As the Court elaborated in
Tomas Claudio Memorial College, Inc. v. Court of Appeals: 30

of Court, and where valid and compelling circumstances
warrant that the petition be resolved on its merits. 32 In this
case, the petition was filed within the reglementary period
and petitioner has raised an issue of substance: whether the
existence of a boundary-hulog agreement negates the
employer-employee relationship between the vendor and
vendee, and, as a corollary, whether the Labor Arbiter has
jurisdiction over a complaint for illegal dismissal in such case.
We resolve these issues in the affirmative.
The rule is that, the nature of an action and the subject matter
thereof, as well as, which court or agency of the government
has jurisdiction over the same, are determined by the material
allegations of the complaint in relation to the law involved and
the character of the reliefs prayed for, whether or not the
complainant/plaintiff is entitled to any or all of such reliefs.33 A
prayer or demand for relief is not part of the petition of the
cause of action; nor does it enlarge the cause of action stated
or change the legal effect of what is alleged. 34 In determining
which body has jurisdiction over a case, the better policy is to
consider not only the status or relationship of the parties but
also the nature of the action that is the subject of their
controversy.35
Article 217 of the Labor Code, as amended, vests on the Labor
Arbiter exclusive original jurisdiction only over the following:
x x x (a) Except as otherwise provided under this Code, the
Labor Arbiters shall have original and exclusive jurisdiction to
hear and decide, within thirty (30) calendar days after the
submission of the case by the parties for decision without
extension, even in the absence of stenographic notes, the
following cases involving all workers, whether agricultural or
non-agricultural:
1. Unfair labor practice cases;

We agree that the remedy of the aggrieved party from a
decision or final resolution of the CA is to file a petition for
review on certiorari under Rule 45 of the Rules of Court, as
amended, on questions of facts or issues of law within fifteen
days from notice of the said resolution. Otherwise, the
decision of the CA shall become final and executory. The
remedy under Rule 45 of the Rules of Court is a mode of
appeal to this Court from the decision of the CA. It is a
continuation of the appellate process over the original case. A
review is not a matter of right but is a matter of judicial
discretion. The aggrieved party may, however, assail the
decision of the CA via a petition for certiorari under Rule 65 of
the Rules of Court within sixty days from notice of the decision
of the CA or its resolution denying the motion for
reconsideration of the same. This is based on the premise that
in issuing the assailed decision and resolution, the CA acted
with grave abuse of discretion, amounting to excess or lack of
jurisdiction and there is no plain, speedy and adequate
remedy in the ordinary course of law. A remedy is considered
plain, speedy and adequate if it will promptly relieve the
petitioner from the injurious effect of the judgment and the
acts of the lower court.
The aggrieved party is proscribed from filing a petition for
certiorari if appeal is available, for the remedies of appeal and
certiorari are mutually exclusive and not alternative or
successive. The aggrieved party is, likewise, barred from filing
a petition for certiorari if the remedy of appeal is lost through
his negligence. A petition for certiorari is an original action
and does not interrupt the course of the principal case unless
a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from
further proceeding. A petition for certiorari must be based on
jurisdictional grounds because, as long as the respondent
court acted within its jurisdiction, any error committed by it
will amount to nothing more than an error of judgment which
may be corrected or reviewed only by appeal. 31
However, we have also ruled that a petition for certiorari
under Rule 65 may be considered as filed under Rule 45,
conformably with the principle that rules of procedure are to
be construed liberally, provided that the petition is filed within
the reglementary period under Section 2, Rule 45 of the Rules

2. Termination disputes;
3. If accompanied with a claim for reinstatement,
those cases that workers may file involving wage,
rates of pay, hours of work, and other terms and
conditions of employment;
4. Claims for actual, moral, exemplary and other
forms of damages arising from the employeremployee relations;
5. Cases arising from violation of Article 264 of this
Code, including questions involving the legality of
strikes and lockouts; and
6. Except claims for Employees Compensation, Social
Security, Medicare and maternity benefits, all other
claims, arising from employer-employee relationship,
including those of persons in domestic or household
service, involving an amount exceeding five
thousand pesos (P5,000.00) regardless of whether
accompanied with a claim for reinstatement.
(b) The Commission shall have exclusive
appellate jurisdiction over all cases decided
by Labor Arbiters.
(c) Cases arising from the interpretation or
implementation of collective bargaining
agreements, and those arising from the
interpretation or enforcement of company
personnel policies shall be disposed of by
the Labor Arbiter by referring the same to
the grievance machinery and voluntary
arbitration as may be provided in said
agreements.
In the foregoing cases, an employer-employee relationship is
an indispensable jurisdictional requisite.36 The jurisdiction of
Labor Arbiters and the NLRC under Article 217 of the Labor

10

Code is limited to disputes arising from an employer-employee
relationship which can only be resolved by reference to the
Labor Code, other labor statutes or their collective bargaining
agreement.37 Not every dispute between an employer and
employee involves matters that only the Labor Arbiter and the
NLRC can resolve in the exercise of their adjudicatory or
quasi-judicial powers. Actions between employers and
employees where the employer-employee relationship is
merely incidental is within the exclusive original jurisdiction of
the regular courts.38 When the principal relief is to be granted
under labor legislation or a collective bargaining agreement,
the case falls within the exclusive jurisdiction of the Labor
Arbiter and the NLRC even though a claim for damages might
be asserted as an incident to such claim. 39
We agree with the ruling of the CA that, under the boundaryhulog scheme incorporated in the Kasunduan, a dual juridical
relationship was created between petitioner and respondent:
that of employer-employee and vendor-vendee. The
Kasunduan did not extinguish the employer-employee
relationship of the parties extant before the execution of said
deed.
As early as 1956, the Court ruled in National Labor Union v.
Dinglasan40 that the jeepney owner/operator-driver
relationship under the boundary system is that of employeremployee and not lessor-lessee. This doctrine was affirmed,
under similar factual settings, in Magboo v. Bernardo41 and
Lantaco, Sr. v. Llamas,42 and was analogously applied to
govern the relationships between auto-calesa owner/operator
and driver,43 bus owner/operator and conductor,44 and taxi
owner/operator and driver.45
The boundary system is a scheme by an owner/operator
engaged in transporting passengers as a common carrier to
primarily govern the compensation of the driver, that is, the
latter’s daily earnings are remitted to the owner/operator less
the excess of the boundary which represents the driver’s
compensation. Under this system, the owner/operator
exercises control and supervision over the driver. It is unlike in
lease of chattels where the lessor loses complete control over
the chattel leased but the lessee is still ultimately responsible
for the consequences of its use. The management of the
business is still in the hands of the owner/operator, who, being
the holder of the certificate of public convenience, must see
to it that the driver follows the route prescribed by the
franchising and regulatory authority, and the rules
promulgated with regard to the business operations. The fact
that the driver does not receive fixed wages but only the
excess of the "boundary" given to the owner/operator is not
sufficient to change the relationship between them.
Indubitably, the driver performs activities which are usually
necessary or desirable in the usual business or trade of the
owner/operator.46
Under the Kasunduan, respondent was required to remit
P550.00 daily to petitioner, an amount which represented the
boundary of petitioner as well as respondent’s partial
payment (hulog) of the purchase price of the jeepney.
Respondent was entitled to keep the excess of his daily
earnings as his daily wage. Thus, the daily remittances also
had a dual purpose: that of petitioner’s boundary and
respondent’s partial payment (hulog) for the vehicle. This dual
purpose was expressly stated in the Kasunduan. The wellsettled rule is that an obligation is not novated by an
instrument that expressly recognizes the old one, changes
only the terms of payment, and adds other obligations not
incompatible with the old provisions or where the new
contract merely supplements the previous one. 47 The two
obligations of the respondent to remit to petitioner the
boundary-hulog can stand together.
In resolving an issue based on contract, this Court must first
examine the contract itself, keeping in mind that when the
terms of the agreement are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its
stipulations shall prevail.48 The intention of the contracting
parties should be ascertained by looking at the words used to
project their intention, that is, all the words, not just a
particular word or two or more words standing alone. The

various stipulations of a contract shall be interpreted
together, attributing to the doubtful ones that sense which
may result from all of them taken jointly.49 The parts and
clauses must be interpreted in relation to one another to give
effect to the whole. The legal effect of a contract is to be
determined from the whole read together.50
Under the Kasunduan, petitioner retained supervision and
control over the conduct of the respondent as driver of the
jeepney, thus:
Ang mga patakaran, kaugnay ng bilihang ito sa pamamagitan
ng boundary hulog ay ang mga sumusunod:
1. Pangangalagaan at pag-iingatan ng TAUHAN NG
IKALAWANG PANIG ang sasakyan ipinagkatiwala sa
kanya ng TAUHAN NG UNANG PANIG.
2. Na ang sasakyan nabanggit ay gagamitin lamang
ng TAUHAN NG IKALAWANG PANIG sa
paghahanapbuhay bilang pampasada o
pangangalakal sa malinis at maayos na
pamamaraan.
3. Na ang sasakyan nabanggit ay hindi gagamitin ng
TAUHAN NG IKALAWANG PANIG sa mga bagay na
makapagdudulot ng kahihiyan, kasiraan o
pananagutan sa TAUHAN NG UNANG PANIG.
4. Na hindi ito mamanehohin ng hindi awtorisado ng
opisina ng UNANG PANIG.
5. Na ang TAUHAN NG IKALAWANG PANIG ay
kinakailangang maglagay ng ID Card sa harap ng
windshield upang sa pamamagitan nito ay madaliang
malaman kung ang nagmamaneho ay awtorisado ng
VILLAMARIA MOTORS o hindi.
6. Na sasagutin ng TAUHAN NG IKALAWANG PANIG
ang [halaga ng] multa kung sakaling mahuli ang
sasakyang ito na hindi nakakabit ang ID card sa
wastong lugar o anuman kasalanan o kapabayaan.
7. Na sasagutin din ng TAUHAN NG IKALAWANG
PANIG ang materyales o piyesa na papalitan ng
nasira o nawala ito dahil sa kanyang kapabayaan.
8. Kailangan sa VILLAMARIA MOTORS pa rin ang
garahe habang hinuhulugan pa rin ng TAUHAN NG
IKALAWANG PANIG ang nasabing sasakyan.
9. Na kung magkaroon ng mabigat na kasiraan ang
sasakyang ipinagkaloob ng TAUHAN NG UNANG
PANIG, ang TAUHAN NG IKALAWANG PANIG ay
obligadong itawag ito muna sa VILLAMARIA MOTORS
bago ipagawa sa alin mang Motor Shop na
awtorisado ng VILLAMARIA MOTORS.
10. Na hindi pahihintulutan ng TAUHAN NG
IKALAWANG PANIG sa panahon ng pamamasada na
ang nagmamaneho ay naka-tsinelas, naka short
pants at nakasando lamang. Dapat ang
nagmamaneho ay laging nasa maayos ang kasuotan
upang igalang ng mga pasahero.
11. Na ang TAUHAN NG IKALAWANG PANIG o ang
awtorisado niyang driver ay magpapakita ng
magandang asal sa mga pasaheros at hindi dapat
magsasalita ng masama kung sakali man may
pasaherong pilosopo upang maiwasan ang anumang
kaguluhan na maaaring kasangkutan.
12. Na kung sakaling hindi makapagbigay ng
BOUNDARY HULOG ang TAUHAN NG IKALAWANG
PANIG sa loob ng tatlong (3) araw ay ang opisina ng
VILLAMARIA MOTORS ang may karapatang
mangasiwa ng nasabing sasakyan hanggang

11

matugunan ang lahat ng responsibilidad. Ang
halagang dapat bayaran sa opisina ay may
karagdagang multa ng P50.00 sa araw-araw na ito ay
nasa pangangasiwa ng VILLAMARIA MOTORS.
13. Na kung ang TAUHAN NG IKALAWANG PANIG ay
hindi makapagbigay ng BOUNDARY HULOG sa loob
ng isang linggo ay nangangahulugan na ang
kasunduang ito ay wala ng bisa at kusang ibabalik ng
TAUHAN NG IKALAWANG PANIG ang nasabing
sasakyan sa TAUHAN NG UNANG PANIG.
14. Sasagutin ng TAUHAN NG IKALAWANG PANIG ang
bayad sa rehistro, comprehensive insurance taontaon at kahit anong uri ng aksidente habang ito ay
hinuhulugan pa sa TAUHAN NG UNANG PANIG.
15. Na ang TAUHAN NG IKALAWANG PANIG ay
obligadong dumalo sa pangkalahatang pagpupulong
ng VILLAMARIA MOTORS sa tuwing tatawag ang mga
tagapangasiwa nito upang maipaabot ang anumang
mungkahi sa ikasusulong ng samahan.
16. Na ang TAUHAN NG IKALAWANG PANIG ay
makikiisa sa lahat ng mga patakaran na
magkakaroon ng pagbabago o karagdagan sa mga
darating na panahon at hindi magiging hadlang sa
lahat ng mga balakin ng VILLAMARIA MOTORS sa lalo
pang ipagtatagumpay at ikakatibay ng Samahan.
17. Na ang TAUHAN NG IKALAWANG PANIG ay hindi
magiging buwaya sa pasahero upang hindi kainisan
ng kapwa driver at maiwasan ang pagkakasangkot sa
anumang gulo.
18. Ang nasabing sasakyan ay hindi kalilimutang
siyasatin ang kalagayan lalo na sa umaga bago
pumasada, at sa hapon o gabi naman ay sisikapin
mapanatili ang kalinisan nito.
19. Na kung sakaling ang nasabing sasakyan ay
maaarkila at aabutin ng dalawa o higit pang araw sa
lalawigan ay dapat lamang na ipagbigay alam muna
ito sa VILLAMARIA MOTORS upang maiwasan ang
mga anumang suliranin.
20. Na ang TAUHAN NG IKALAWANG PANIG ay iiwasan
ang pakikipag-unahan sa kaninumang sasakyan
upang maiwasan ang aksidente.
21. Na kung ang TAUHAN NG IKALAWANG PANIG ay
mayroon sasabihin sa VILLAMARIA MOTORS mabuti
man or masama ay iparating agad ito sa kinauukulan
at iwasan na iparating ito kung [kani-kanino] lamang
upang maiwasan ang anumang usapin. Magsadya
agad sa opisina ng VILLAMARIA MOTORS.
22. Ang mga nasasaad sa KASUNDUAN ito ay buong
galang at puso kong sinasang-ayunan at buong sikap
na pangangalagaan ng TAUHAN NG IKALAWANG
PANIG ang nasabing sasakyan at gagamitin lamang
ito sa paghahanapbuhay at wala nang iba pa.51
The parties expressly agreed that petitioner, as vendor, and
respondent, as vendee, entered into a contract to sell the
jeepney on a daily installment basis of P550.00 payable in
four years and that petitioner would thereafter become its
owner. A contract is one of conditional sale, oftentimes
referred to as contract to sell, if the ownership or title over the
property sold is retained by the vendor, and is not passed to
the vendee unless and until there is full payment of the
purchase price and/or upon faithful compliance with the other
terms and conditions that may lawfully be stipulated.52 Such
payment or satisfaction of other preconditions, as the case
may be, is a positive suspensive condition, the failure of which
is not a breach of contract, casual or serious, but simply an
event that would prevent the obligation of the vendor to

convey title from acquiring binding force.53 Stated differently,
the efficacy or obligatory force of the vendor's obligation to
transfer title is subordinated to the happening of a future and
uncertain event so that if the suspensive condition does not
take place, the parties would stand as if the conditional
obligation had never existed.54 The vendor may extrajudicially
terminate the operation of the contract, refuse conveyance,
and retain the sums or installments already received, where
such rights are expressly provided for.55
Under the boundary-hulog scheme, petitioner retained
ownership of the jeepney although its material possession was
vested in respondent as its driver. In case respondent failed to
make his P550.00 daily installment payment for a week, the
agreement would be of no force and effect and respondent
would have to return the jeepney to petitioner; the employeremployee relationship would likewise be terminated unless
petitioner would allow respondent to continue driving the
jeepney on a boundary basis of P550.00 daily despite the
termination of their vendor-vendee relationship.
The juridical relationship of employer-employee between
petitioner and respondent was not negated by the foregoing
stipulation in the Kasunduan, considering that petitioner
retained control of respondent’s conduct as driver of the
vehicle. As correctly ruled by the CA:
The exercise of control by private respondent over petitioner’s
conduct in operating the jeepney he was driving is
inconsistent with private respondent’s claim that he is, or was,
not engaged in the transportation business; that, even if
petitioner was allowed to let some other person drive the unit,
it was not shown that he did so; that the existence of an
employment relation is not dependent on how the worker is
paid but on the presence or absence of control over the
means and method of the work; that the amount earned in
excess of the "boundary hulog" is equivalent to wages; and
that the fact that the power of dismissal was not mentioned in
the Kasunduan did not mean that private respondent never
exercised such power, or could not exercise such power.
Moreover, requiring petitioner to drive the unit for commercial
use, or to wear an identification card, or to don a decent
attire, or to park the vehicle in Villamaria Motors garage, or to
inform Villamaria Motors about the fact that the unit would be
going out to the province for two days of more, or to drive the
unit carefully, etc. necessarily related to control over the
means by which the petitioner was to go about his work; that
the ruling applicable here is not Singer Sewing Machine but
National Labor Union since the latter case involved jeepney
owners/operators and jeepney drivers, and that the fact that
the "boundary" here represented installment payment of the
purchase price on the jeepney did not withdraw the
relationship from that of employer-employee, in view of the
overt presence of supervision and control by the employer.56
Neither is such juridical relationship negated by petitioner’s
claim that the terms and conditions in the Kasunduan relative
to respondent’s behavior and deportment as driver was for his
and respondent’s benefit: to insure that respondent would be
able to pay the requisite daily installment of P550.00, and that
the vehicle would still be in good condition despite the lapse
of four years. What is primordial is that petitioner retained
control over the conduct of the respondent as driver of the
jeepney.
Indeed, petitioner, as the owner of the vehicle and the holder
of the franchise, is entitled to exercise supervision and control
over the respondent, by seeing to it that the route provided in
his franchise, and the rules and regulations of the Land
Transportation Regulatory Board are duly complied with.
Moreover, in a business establishment, an identification card
is usually provided not just as a security measure but to
mainly identify the holder thereof as a bona fide employee of
the firm who issues it.57
As respondent’s employer, it was the burden of petitioner to
prove that respondent’s termination from employment was for
a lawful or just cause, or, at the very least, that respondent
failed to make his daily remittances of P550.00 as boundary.

12

However, petitioner failed to do so. As correctly ruled by the
appellate court:
It is basic of course that termination of employment must be
effected in accordance with law. The just and authorized
causes for termination of employment are enumerated under
Articles 282, 283 and 284 of the Labor Code.
Parenthetically, given the peculiarity of the situation of the
parties here, the default in the remittance of the boundary
hulog for one week or longer may be considered an additional
cause for termination of employment. The reason is because
the Kasunduan would be of no force and effect in the event
that the purchaser failed to remit the boundary hulog for one
week. The Kasunduan in this case pertinently stipulates:
13. Na kung ang TAUHAN NG IKALAWANG PANIG ay hindi
makapagbigay ng BOUNDARY HULOG sa loob ng isang linggo
ay NANGANGAHULUGAN na ang kasunduang ito ay wala ng
bisa at kusang ibabalik ng TAUHAN NG IKALAWANG PANIG ang
nasabing sasakyan sa TAUHAN NG UNANG PANIG na wala ng
paghahabol pa.
Moreover, well-settled is the rule that, the employer has the
burden of proving that the dismissal of an employee is for a
just cause. The failure of the employer to discharge this
burden means that the dismissal is not justified and that the
employee is entitled to reinstatement and back wages.

OSCAR VILLAMARIA, JR."
If it were true that petitioner did not remit the boundary hulog
for one week or more, why did private respondent not
forthwith take steps to recover the unit, and why did he have
to wait for petitioner to abandon it?1avvphil.net
On another point, private respondent did not submit any
police report to support his claim that petitioner really figured
in a vehicular mishap. Neither did he present the affidavit of
the guard from the gas station to substantiate his claim that
petitioner abandoned the unit there.58
Petitioner’s claim that he opted not to terminate the
employment of respondent because of magnanimity is
negated by his (petitioner’s) own evidence that he took the
jeepney from the respondent only on July 24, 2000.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The
decision of the Court of Appeals in CA-G.R. SP No. 78720 is
AFFIRMED. Costs against petitioner.
SO ORDERED.
ROMEO J. CALLEJO, SR.
Associate Justice
WE CONCUR:

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

G.R. No. 119268

February 23, 2000

ANGEL JARDIN, DEMETRIO CALAGOS, URBANO MARCOS,
ROSENDO MARCOS, LUIS DE LOS ANGELES, JOEL
ORDENIZA and AMADO CENTENO, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION (NLRC) and
GOODMAN TAXI (PHILJAMA INTERNATIONAL,
INC.) respondents.
QUISUMBING, J.:
This special civil action for certiorari seeks to annul the
decision1 of public respondent promulgated on October 28,
1994, in NLRC NCR CA No. 003883-92, and its
resolution2 dated December 13, 1994 which denied petitioners
motion for reconsideration.

"Sa lahat ng mga kumukuha ng sasakyan
"Sa pamamagitan ng ‘BOUNDARY HULOG’
"Nais ko pong ipaalala sa inyo ang Kasunduan na inyong
pinirmahan particular na ang paragrapo 13 na nagsasaad na
kung hindi kayo makapagbigay ng Boundary Hulog sa loob ng
isang linggo ay kusa ninyong ibabalik and nasabing sasakyan
na inyong hinuhulugan ng wala ng paghahabol pa.
"Mula po sa araw ng inyong pagkatanggap ng Paalala na ito
ay akin na pong ipatutupad ang nasabing Kasunduan kaya’t
aking pinaaalala sa inyong lahat na tuparin natin ang
nakalagay sa kasunduan upang maiwasan natin ito.
"Hinihiling ko na sumunod kayo sa hinihingi ng paalalang ito
upang hindi na tayo makaabot pa sa korte kung sakaling hindi
ninyo isasauli ang inyong sasakyan na hinuhulugan na ang
mga magagastos ay kayo pa ang magbabayad sapagkat ang
hindi ninyo pagtupad sa kasunduan ang naging dahilan ng
pagsampa ng kaso.

Petitioners were drivers of private respondent, Philjama
International Inc., a domestic corporation engaged in the
operation of "Goodman Taxi." Petitioners used to drive private
respondent's taxicabs every other day on a 24-hour work
schedule under the boundary system. Under this
arrangement, the petitioners earned an average of P400.00
daily. Nevertheless, private respondent admittedly regularly
deducts from petitioners, daily earnings the amount of P30.00
supposedly for the washing of the taxi units. Believing that
the deduction is illegal, petitioners decided to form a labor
union to protect their rights and interests.
Upon learning about the plan of petitioners, private
respondent refused to let petitioners drive their taxicabs when
they reported for work on August 6, 1991, and on succeeding
days. Petitioners suspected that they were singled out
because they were the leaders and active members of the
proposed union. Aggrieved, petitioners filed with the labor
arbiter a complaint against private respondent for unfair labor
practice, illegal dismissal and illegal deduction of washing
fees. In a decision3 dated August 31, 1992, the labor arbiter
dismissed said complaint for lack of merit.

"Sumasainyo
"Attendance: 8/27/99
"(The Signatures appearing herein

On appeal, the NLRC (public respondent herein), in a decision
dated April 28, 1994, reversed and set aside the judgment of
the labor arbiter. The labor tribunal declared that petitioners
are employees of private respondent, and, as such, their
dismissal must be for just cause and after due process. It
disposed of the case as follows:

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

13

WHEREFORE, in view of all the foregoing
considerations, the decision of the Labor Arbiter
appealed from is hereby SET ASIDE and another one
entered:
1. Declaring the respondent company guilty of illegal
dismissal and accordingly it is directed to reinstate
the complainants, namely, Alberto A. Gonzales, Joel
T. Morato, Gavino Panahon, Demetrio L. Calagos,
Sonny M. Lustado, Romeo Q. Clariza, Luis de los
Angeles, Amado Centino, Angel Jardin, Rosendo
Marcos, Urbano Marcos, Jr., and Joel Ordeniza, to their
former positions without loss of seniority and other
privileges appertaining thereto; to pay the
complainants full backwages and other benefits, less
earnings elsewhere, and to reimburse the drivers the
amount paid as washing charges; and
2. Dismissing the charge of unfair [labor] practice for
insufficiency of evidence.
SO ORDERED.4
Private respondent's first motion for reconsideration was
denied. Remaining hopeful, private respondent filed another
motion for reconsideration. This time, public respondent, in its
decision5 dated October 28, 1994, granted aforesaid second
motion for reconsideration. It ruled that it lacks jurisdiction
over the case as petitioners and private respondent have no
employer-employee relationship. It held that the relationship
of the parties is leasehold which is covered by the Civil Code
rather than the Labor Code, and disposed of the case as
follows:
VIEWED IN THE LIGHT OF ALL THE FOREGOING, the
Motion under reconsideration is hereby given due
course.
Accordingly, the Resolution of August 10, 1994, and
the Decision of April 28, 1994 are hereby SET ASIDE.
The Decision of the Labor Arbiter subject of the
appeal is likewise SET ASIDE and a NEW ONE
ENTERED dismissing the complaint for lack of
jurisdiction.
No costs.
SO ORDERED.6
Expectedly, petitioners sought reconsideration of the labor
tribunal's latest decision which was denied. Hence, the instant
petition.
In this recourse, petitioners allege that public respondent
acted without or in excess of jurisdiction, or with grave abuse
of discretion in rendering the assailed decision, arguing that:
I
THE NLRC HAS NO JURISDICTION TO ENTERTAIN
RESPONDENT'S SECOND MOTION FOR RECONSIDERATION
WHICH IS ADMITTEDLY A PLEADING PROHIBITED UNDER THE
NLRC RULES, AND TO GRANT THE SAME ON GROUNDS NOT
EVEN INVOKED THEREIN.
II
THE EXISTENCE OF AN EMPLOYER-EMPLOYEE RELATIONSHIP
BETWEEN THE PARTIES IS ALREADY A SETTLED ISSUE
CONSTITUTING RES JUDICATA, WHICH THE NLRC HAS NO
MORE JURISDICTION TO REVERSE, ALTER OR MODIFY.
III
IN ANY CASE, EXISTING JURISPRUDENCE ON THE MATTER
SUPPORTS THE VIEW THAT PETITIONERS-TAXI DRIVERS ARE
EMPLOYEES OF RESPONDENT TAXI COMPANY.7

The petition is impressed with merit.
The phrase "grave abuse of discretion amounting to lack or
excess of jurisdiction" has settled meaning in the
jurisprudence of procedure. It means such capricious and
whimsical exercise of judgment by the tribunal exercising
judicial or quasi-judicial power as to amount to lack of
power.8 In labor cases, this Court has declared in several
instances that disregarding rules it is bound to observe
constitutes grave abuse of discretion on the part of labor
tribunal.
In Garcia vs. NLRC,9 private respondent therein, after
receiving a copy of the labor arbiter's decision, wrote the
labor arbiter who rendered the decision and expressed dismay
over the judgment. Neither notice of appeal was filed nor cash
or surety bond was posted by private respondent.
Nevertheless, the labor tribunal took cognizance of the letter
from private respondent and treated said letter as private
respondent's appeal. In a certiorari action before this Court,
we ruled that the labor tribunal acted with grave abuse of
discretion in treating a mere letter from private respondent as
private respondent's appeal in clear violation of the rules on
appeal prescribed under Section 3(a), Rule VI of the New Rules
of Procedure of NLRC.
In Philippine Airlines Inc. vs. NLRC,10 we held that the labor
arbiter committed grave abuse of discretion when he failed to
resolve immediately by written order a motion to dismiss on
the ground of lack of jurisdiction and the supplemental motion
to dismiss as mandated by Section 15 of Rule V of the New
Rules of Procedure of the NLRC.
In Unicane Workers Union-CLUP vs. NLRC,11 we held that the
NLRC gravely abused its discretion by allowing and deciding
an appeal without an appeal bond having been filed as
required under Article 223 of the Labor Code.
In Mañebo vs. NLRC,12 we declared that the labor arbiter
gravely abused its discretion in disregarding the rule
governing position papers. In this case, the parties have
already filed their position papers and even agreed to
consider the case submitted for decision, yet the labor arbiter
still admitted a supplemental position paper and
memorandum, and by taking into consideration, as basis for
his decision, the alleged facts adduced therein and the
documents attached thereto.
In Gesulgon vs. NLRC,13 we held that public respondent
gravely abused its discretion in treating the motion to set
aside judgment and writ of execution as a petition for relief of
judgment. In doing so, public respondent had, without
sufficient basis, extended the reglementary period for filing
petition for relief from judgment contrary to prevailing rule
and case law.
In this case before us, private respondent exhausted
administrative remedy available to it by seeking
reconsideration of public respondent's decision dated April 28,
1994, which public respondent denied. With this motion for
reconsideration, the labor tribunal had ample opportunity to
rectify errors or mistakes it may have committed before resort
to courts of justice can be had.14 Thus, when private
respondent filed a second motion for reconsideration, public
respondent should have forthwith denied it in accordance with
Rule 7, Section 14 of its New Rules of Procedure which allows
only one motion for reconsideration from the same party,
thus:
Sec. 14. Motions for Reconsideration. — Motions for
reconsideration of any order, resolution or decision of
the Commission shall not be entertained except
when based on palpable or patent errors, provided
that the motion is under oath and filed within ten
(10) calendar days from receipt of the order,
resolution or decision with proof of service that a
copy of the same has been furnished within the
reglementary period the adverse party and provided
further, that only one such motion from the same
party shall be entertained. [Emphasis supplied]

14

The rationale for allowing only one motion for reconsideration
from the same party is to assist the parties in obtaining an
expeditious and inexpensive settlement of labor cases. For
obvious reasons, delays cannot be countenanced in the
resolution of labor disputes. The dispute may involve no less
than the livelihood of an employee and that of his loved ones
who are dependent upon him for food, shelter, clothing,
medicine, and education. It may as well involve the survival of
a business or an industry.15
As correctly pointed out by petitioner, the second motion for
reconsideration filed by private respondent is indubitably a
prohibited pleading16 which should have not been entertained
at all. Public respondent cannot just disregard its own rules on
the pretext of "satisfying the ends of justice",17 especially
when its disposition of a legal controversy ran afoul with a
clear and long standing jurisprudence in this jurisdiction as
elucidated in the subsequent discussion. Clearly, disregarding
a settled legal doctrine enunciated by this Court is not a way
of rectifying an error or mistake. In our view, public
respondent gravely abused its discretion in taking cognizance
and granting private respondent's second motion for
reconsideration as it wrecks the orderly procedure in seeking
reliefs in labor cases.
But, there is another compelling reason why we cannot leave
untouched the flip-flopping decisions of the public respondent.
As mentioned earlier, its October 28, 1994 judgment is not in
accord with the applicable decisions of this Court. The labor
tribunal reasoned out as follows:
On the issue of whether or not employer-employee
relationship exists, admitted is the fact that
complainants are taxi drivers purely on the
"boundary system". Under this system the driver
takes out his unit and pays the owner/operator a fee
commonly called "boundary" for the use of the unit.
Now, in the determination the existence of employeremployee relationship, the Supreme Court in the
case of Sara, et al., vs. Agarrado, et al. (G.R. No.
73199, 26 October 1988) has applied the following
four-fold test: "(1) the selection and engagement of
the employee; (2) the payment of wages; (3) the
power of dismissal; and (4) the power of control the
employees conduct."
"Among the four (4) requisites", the Supreme Court
stresses that "control is deemed the most important
that the other requisites may even be disregarded".
Under the control test, an employer-employee
relationship exists if the "employer" has reserved the
right to control the "employee" not only as to the
result of the work done but also as to the means and
methods by which the same is to be accomplished.
Otherwise, no such relationship exists. (Ibid.)
Applying the foregoing parameters to the case herein
obtaining, it is clear that the respondent does not
pay the drivers, the complainants herein, their
wages. Instead, the drivers pay a certain fee for the
use of the vehicle. On the matter of control, the
drivers, once they are out plying their trade, are free
to choose whatever manner they conduct their trade
and are beyond the physical control of the
owner/operator; they themselves determine the
amount of revenue they would want to earn in a
day's driving; and, more significantly aside from the
fact that they pay for the gasoline they consume,
they likewise shoulder the cost of repairs on
damages sustained by the vehicles they are driving.
Verily, all the foregoing attributes signify that the
relationship of the parties is more of a leasehold or
one that is covered by a charter agreement under
the Civil Code rather than the Labor Code.18
The foregoing ratiocination goes against prevailing
jurisprudence.

In a number of cases decided by this Court, 19 we ruled that
the relationship between jeepney owners/operators on one
hand and jeepney drivers on the other under the boundary
system is that of employer-employee and not of lessor-lessee.
We explained that in the lease of chattels, the lessor loses
complete control over the chattel leased although the lessee
cannot be reckless in the use thereof, otherwise he would be
responsible for the damages to the lessor. In the case of
jeepney owners/operators and jeepney drivers, the former
exercise supervision and control over the latter. The
management of the business is in the owner's hands. The
owner as holder of the certificate of public convenience must
see to it that the driver follows the route prescribed by the
franchising authority and the rules promulgated as regards its
operation. Now, the fact that the drivers do not receive fixed
wages but get only that in excess of the so-called "boundary"
they pay to the owner/operator is not sufficient to withdraw
the relationship between them from that of employer and
employee. We have applied by analogy the abovestated
doctrine to the relationships between bus owner/operator and
bus conductor,20 auto-calesa owner/operator and driver,21 and
recently between taxi owners/operators and taxi
drivers.22 Hence, petitioners are undoubtedly employees of
private respondent because as taxi drivers they perform
activities which are usually necessary or desirable in the usual
business or trade of their employer.
As consistently held by this Court, termination of employment
must be effected in accordance with law. The just and
authorized causes for termination of employment are
enumerated under Articles 282, 283 and 284 of the Labor
Code. The requirement of notice and hearing is set-out in
Article 277 (b) of the said Code. Hence, petitioners, being
employees of private respondent, can be dismissed only for
just and authorized cause, and after affording them notice and
hearing prior to termination. In the instant case, private
respondent had no valid cause to terminate the employment
of petitioners. Neither were there two (2) written notices sent
by private respondent informing each of the petitioners that
they had been dismissed from work. These lack of valid cause
and failure on the part of private respondent to comply with
the twin-notice requirement underscored the illegality
surrounding petitioners' dismissal.
Under the law, 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.23 It must be emphasized, though, that
recent judicial pronouncements24 distinguish between
employees illegally dismissed prior to the effectivity of
Republic Act No. 6715 on March 21, 1989, and those whose
illegal dismissals were effected after such date. Thus,
employees illegally dismissed prior to March 21, 1989, are
entitled to backwages up to three (3) years without deduction
or qualification, while those illegally dismissed after that date
are granted full backwages inclusive of allowances and other
benefits or their monetary equivalent from the time their
actual compensation was withheld from them up to the time
of their actual reinstatement. The legislative policy behind
Republic Act No. 6715 points to "full backwages" as meaning
exactly that, i.e., without deducting from backwages the
earnings derived elsewhere by the concerned employee
during the period of his illegal dismissal. Considering that
petitioners were terminated from work on August 1, 1991,
they are entitled to full backwages on the basis of their last
daily earnings.
With regard to the amount deducted daily by private
respondent from petitioners for washing of the taxi units, we
view the same as not illegal in the context of the law. We note
that after a tour of duty, it is incumbent upon the driver to
restore the unit he has driven to the same clean condition
when he took it out. Car washing after a tour of duty is indeed
a practice in the taxi industry and is in fact dictated by fair
play.25 Hence, the drivers are not entitled to reimbursement of
washing charges.1âwphi1.nêt

15

WHEREFORE, the instant petition is GRANTED. The assailed
DECISION of public respondent dated October 28, 1994, is
hereby SET ASIDE. The DECISION of public respondent dated
April 28, 1994, and its RESOLUTION dated December 13,
1994, are hereby REINSTATED subject to MODIFICATION.
Private respondent is directed to reinstate petitioners to their
positions held at the time of the complained dismissal. Private
respondent is likewise ordered to pay petitioners their full
backwages, to be computed from the date of dismissal until
their actual reinstatement. However, the order of public
respondent that petitioners be reimbursed the amount paid as
washing charges is deleted. Costs against private
respondents.
SO ORDERED.
Bellosillo, Mendoza and De Leon, Jr., JJ., concur.
Buena, on official leave.
G.R. No. 117495 May 29, 1997
NELLY ACTA MARTINEZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
DOMINADOR CORRO, PASTOR CORRO, CELESTINO
CORRO, LUIS CORRO, EREBERTO CORRO, JAIME CRUZ,
WENCESLAO, DELVO, GREGORIO DELVO, HERMEJIAS
COLIBAO, JOSE OGANA and ALONSO
ALBAO, respondents.

BELLOSILLO, J.:
RAUL MARTINEZ was operator of two (2) taxicab units under
the business name PAMA TX and two (2) additional units
under the name P. J. TIGER TX. Private respondents Dominador
Corro, Pastor Corro, Celestino Corro, Luis Corro, Ereberto
Corro, Jaime Cruz, Wenceslao Delve, Gregorio Delvo,
Hermejias Colibao, Jose Ogana and Alonso Albao worked for
him as drivers. On 18 March 1992 Raul Martinez died leaving
behind his mother, petitioner Nelly Acta Martinez, as his sole
heir.
On 14 July 1992 private respondents lodged a complaint
against Raul Martinez and petitioner Nelly Acta Martinez
before the Labor Arbiter for violation of P. D. 851 1 and illegal
dismissal. They alleged that they have been regular drivers of
Raul Martinez since 20 October 1989 earning no less than
P400.00 per day driving twenty-four (24) hours every other
day. For the duration of employment, not once did they
receive a 13th month pay. After the death of Raul Martinez,
petitioner took over the management and operation of the
business. On or about 22 June 1992 she informed them that
because of difficulty in maintaining the business, she was
selling the units together with the corresponding franchises.
However, petitioner did not proceed with her plan; instead,
she assigned the units to other drivers.
Petitioner traversed the claim for 13th month pay by
contending that it was personal and therefore did not survive
the death of her son. Besides, private respondents were not
entitled thereto as Sec. 3, par. (e), of the Rules and
Regulations Implementing P. D. 851 is explicit that employers
of those who are paid on purely boundary basis are not
covered therein. The relationship between her son and private
respondents was not that of employer-employee but of lessorlessee. The operation of the business ceased upon the death
of her son and that she did not continue the business because
she did not know how to run it.
On 30 August 1993 the Labor Arbiter dismissed the complaint
on the following grounds: (a) private respondents' claims
being personal were extinguished upon the death of Raul
Martinez; (b) petitioner was a mere housewife who did not
possess the required competence to manage the business;
and, (c) private respondents were not entitled to 13th month
pay because the existence of employer-employee relationship

was doubtful on account of the boundary system adopted by
the parties. 2
However, respondent National Labor Relations Commission
viewed the case differently. According to NLRC, (a) private
respondents were regular drivers because payment of wages,
which is one of the essential requisites for the existence of
employment relation, may either be fixed, on commission,
boundary, piece-rate or task basis; (b) the management of the
business passed on to petitioner who even replaced private
respondents with a new set of drivers; and, (c) the claims of
private respondents survived the death of Raul Martinez
considering that the business did not cease operation outright
but continued presumably, in the absence of proof of sale, up
to the moment. As regards the claim for 13th month pay,
NLRC upheld the stand of petitioner based on the express
provision of P. D. 851 as reiterated in the revised guidelines on
the implementation thereof. On 28 January 1994 respondent
NLRC thus set aside the appealed decision, and as alternative
to reinstatement, ordered petitioner to grant respondents
separation pay equivalent to one (1) month salary for every
year of service a fraction of six (6) months being considered
as one (1) whole year. 3 On 30 September 1994 the motion for
reconsideration was denied. 4Hence, this recourse of
petitioner.
On 11 October 1995 the Court issued a temporary restraining
order enjoining the execution of the assailed decision of
respondent NLRC. Petitioner imputes grave abuse of discretion
on respondent NLRC in reversing the decision of the Labor
Arbiter.
Petitioner argues that respondent NLRC acted as a probate
court when it assumed jurisdiction over the estate of a
deceased person, pronounced her legally entitled to succeed
the deceased and ordered her to pay the money claim of
private respondents. Moreover, petitioner argues that the
claims of private respondents were personal to her son and
thus were abated by his death.
Petitioner's arguments are well-taken. The claim for 13th
month pay pertains to the personal obligation of Raul Martinez
which did not survive his death. The rule is settled that unless
expressly assumed, labor contracts are not enforceable
against the transferee of an enterprise. In the present case,
petitioner does not only disavow that she continued the
operation of the business of her son but also disputes the
existence of labor contracts between her son and private
respondents. The reason for the rule is that labor contracts
are in personam, 5 and that claims for backwages earned from
the former employer cannot be filed against the new owners
of an enterprise. 6 Nor is the new operator of a business liable
for claims for retirement pay of employees. 7 Thus the claim of
private respondents should have been filed instead in the
intestate proceedings involving the estate of Raul Martinez in
accordance with Sec. 5, Rule 86, of the Rules of Court which
provides in part —
Sec. 5. Claims which must be filed under the
notice. If not filed, barred; exceptions. — All
claims for money against the decedent,
arising from contract, express or implied,
whether the same be due, not due, or
contingent, all claims for funeral expenses
and expenses for the last sickness of the
decedent, and judgment for money against
the decedent, must be filed within the time
limited in the notice; otherwise they are
barred forever, except that they may be set
forth as counterclaims in any action that the
executor or administrator may bring against
the claimants . . .
Under this rule, upon the death of the defendant, a
testate or intestate proceeding shall be instituted in
the proper court wherein all his creditors must
appear and file their claims which shall be paid
proportionately out of the property left by the
deceased. The objective is to avoid duplicity of
procedures. Hence, the ordinary actions must be
taken out from the ordinary courts. Conformably with

16

Art. 110 of the Labor Code, money claims of laborers
enjoy preference over claims of other creditors in
case of bankruptcy or liquidation of the employer's
business. 8
Petitioner also insists on the absence of employer-employee
relationship between her son and private respondents
because there is no evidence that her son paid a single
centavo by way of wages to private respondents; rather, they
were governed by the boundary system. Neither is there such
relationship between her and private respondents because
she did not continue the operation of the business which
ceased upon the death of her son.
As early as 3 March 1956, in National Labor Union
v. Dinglasan, 9 this Court ruled that the relationship between
jeepney owners/operators on one hand and jeepney drivers on
the other under the boundary system is that of employeremployee and not of lessor-lessee. Therein we explained that
in the lease of chattels the lessor loses complete control over
the chattel leased although the lessee cannot be reckless in
the use thereof, otherwise he would be responsible for the
damages to the lessor. In the case of jeepney
owners/operators and jeepney drivers, the former exercise
supervision and control over the latter. The fact that the
drivers do not receive fixed wages but get only that in excess
of the so-called "boundary" they pay to the owner/operator is
not sufficient to withdraw the relationship between them from
that of employer and employee. The doctrine is applicable by
analogy to the present case. Thus, private respondents were
employees of Raul Martinez because they had been engaged
to perform activities which were usually necessary or
desirable in the usual business or trade of the
employer. 10 The records show that private respondents had
been employed since 20 October 1989 except for Ogana, the
Delvos, Albao and Colibao who were employed on later
dates. 11
Hence, these questions arise: Do private respondents, being
then employees of Raul Martinez, necessarily continue to be
employees of the petitioner as the new operator of the
business? In the affirmative, were they illegally dismissed?
The factual findings of quasi-judicial agencies such as
respondent NLRC, which have acquired expertise in the
matters entrusted to their jurisdiction, are accorded by this
Court not only respect but also finality if they are supported
by substantial evidence, or that amount of relevant evidence
which a reasonable mind might accept as adequate to justify
a conclusion. 12 As respondent NLRC found —
The facts of the case will readily show that
before respondent taxi owner Raul Martinez
died, he became bedridden and the
management of his taxi business passed on
to his mother who was his only surviving
heir. It will also be noted that despite the
information given by the mother that she
will sell the business and extend separation
benefits to complainants, no such thing
occurred. Instead, she replaced
complainants with a new set of drivers (See
Complainants' Position paper, p. 25,
Record). 13
The above findings, however, were culled from mere
allegations in private respondents' position paper.
But mere allegation is not evidence. 14 It is a basic
rule in evidence that each party must prove his
affirmative allegation. 15 In Opulencia Ice Plant and
Storage v. NLRC 16 we ruled that no particular form of
evidence is required to prove the existence of an
employer-employee relationship. Any competent and
relevant evidence to prove the relationship may be
admitted. In that case, the relationship was
sufficiently proved by testimonial evidence. In the
present case, however, private respondents simply
assumed the continuance of an employer-employee
relationship between them and petitioner, when she
took over the operation of the business after the
death of her son Raul Martinez, without any

supporting evidence. Consequently, we cannot
sustain for lack of basis the factual finding of
respondent NLRC on the existence of employeremployee relationship between petitioner and
private respondents. Clearly, such finding emanates
from grave abuse of discretion. With this conclusion,
consideration of the issue on illegal dismissal
becomes futile and irrelevant.
WHEREFORE, the petition is GRANTED. The Decision of
respondent National Labor Relations Commission dated 28
January 1994 ordering petitioner Nelly Acta Martinez to grant
respondents separation pay as well as its Order of 30
September 1994 denying reconsideration is SET ASIDE. The
Decision of the Labor Arbiter dated 30 August 1993 dismissing
the complaint is REINSTATED.
The temporary restraining order issued on 11 October 1995 is
made PERMANENT.
SO ORDERED.
Vitug, Kapunan and Hermosisima, Jr., JJ., concur.
Padilla, J., is on leave.
G.R. No. 176484

November 25, 2008

CALAMBA MEDICAL CENTER, INC., petitioner
vs.
NATIONAL LABOR RELATIONS COMMISSION, RONALDO
LANZANAS AND MERCEDITHA*LANZANAS, respondents.
DECISION
CARPIO MORALES, J.:
The Calamba Medical Center (petitioner), a privately-owned
hospital, engaged the services of medical doctors-spouses
Ronaldo Lanzanas (Dr. Lanzanas) and Merceditha Lanzanas
(Dr. Merceditha) in March 1992 and August 1995, respectively,
as part of its team of resident physicians. Reporting at the
hospital twice-a-week on twenty-four-hour shifts, respondents
were paid a monthly "retainer" of P4,800.00 each.1 It appears
that resident physicians were also given a percentage share
out of fees charged for out-patient treatments, operating
room assistance and discharge billings, in addition to their
fixed monthly retainer.2
The work schedules of the members of the team of resident
physicians were fixed by petitioner's medical director Dr. Raul
Desipeda (Dr. Desipeda). And they were issued identification
cards3 by petitioner and were enrolled in the Social Security
System (SSS).4 Income taxes were withheld from them.5
On March 7, 1998, Dr. Meluz Trinidad (Dr. Trinidad), also a
resident physician at the hospital, inadvertently overheard a
telephone conversation of respondent Dr. Lanzanas with a
fellow employee, Diosdado Miscala, through an extension
telephone line. Apparently, Dr. Lanzanas and Miscala were
discussing the low "census" or admission of patients to the
hospital.6
Dr. Desipeda whose attention was called to the above-said
telephone conversation issued to Dr. Lanzanas a
Memorandum of March 7, 1998 reading:
As a Licensed Resident Physician employed in
Calamba Medical Center since several years
ago, the hospital management has committed upon
you utmost confidence in the performance of duties
pursuant thereto. This is the reason why you were
awarded the privilege to practice in the hospital and
were entrusted hospital functions to serve the
interest of both the hospital and our patients using
your capability for independent judgment.

17

Very recently though and unfortunately, you have
committed acts inimical to the interest of the
hospital, the details of which are contained in the
hereto attached affidavit of witness.
You are therefore given 24 hours to explain
why no disciplinary action should be taken
against you.
Pending investigation of your case, you are
hereby placed under 30-days [sic] preventive
suspension effective upon receipt
hereof.7 (Emphasis, italics and underscoring
supplied)
Inexplicably, petitioner did not give respondent Dr.
Merceditha, who was not involved in the said incident, any
work schedule after sending her husband Dr. Lanzanas the
memorandum,8 nor inform her the reason therefor, albeit she
was later informed by the Human Resource Department (HRD)
officer that that was part of petitioner's cost-cutting
measures.9
Responding to the memorandum, Dr. Lanzanas, by letter of
March 9, 1998,10 admitted that he spoke with Miscala over the
phone but that their conversation was taken out of context by
Dr. Trinidad.
On March 14, 1998,11 the rank-and-file employees union of
petitioner went on strike due to unresolved grievances over
terms and conditions of employment.12
On March 20, 1998, Dr. Lanzanas filed a complaint for illegal
suspension13 before the National Labor Relations Commission
(NLRC)-Regional Arbitration Board (RAB) IV. Dr. Merceditha
subsequently filed a complaint for illegal dismissal. 14
In the meantime, then Sec. Cresenciano Trajano of the
Department of Labor and Employment (DOLE) certified the
labor dispute to the NLRC for compulsory arbitration
and issued on April 21, 1998 return-to-work Order to the
striking union officers and employees of petitioner pending
resolution of the labor dispute.15
In a memorandum16 of April 22, 1998, Dr. Desipeda echoed
the April 22, 1998 order of the Secretary of Labor directing all
union officers and members to return-to-work "on or April 23,
1998, except those employees that were already terminated
or are serving disciplinary actions." Dr. Desipeda thus ordered
the officers and members of the union to "report for work as
soon as possible" to the hospital's personnel officer and
administrator for "work scheduling, assignments and/or reassignments."
Petitioner later sent Dr. Lanzanas a notice of termination
which he received on April 25, 1998, indicating as grounds
therefor his failure to report back to work despite the DOLE
order and his supposed role in the striking union, thus:
On April 23, 1998, you still did not report for work
despite memorandum issued by the CMC Medical
Director implementing the Labor Secretary's
ORDER. The same is true on April 24, 1998 and April
25, 1998,--you still did not report for work [sic].
You are likewise aware that you were observed (re:
signatories [sic] to the Saligang Batas of BMCMCUWP) to be unlawfully participating as member in
the rank-and-file union's concerted activities despite
knowledge that your position in the hospital
is managerial in nature (Nurses, Orderlies, and staff
of the Emergency Room carry out your orders using
your independent judgment) which participation is
expressly prohibited by the New Labor Code and
which prohibition was sustained by the MedArbiter's ORDER dated February 24, 1998.
(Emphasis and italics in the original; underscoring
partly in the original and partly supplied)

For these reasons as grounds for termination,
you are hereby terminated for cause from
employment effective today, April 25,
1998, without prejudice to further action for
revocation of your license before the Philippine [sic]
Regulations [sic] Commission.17 (Emphasis and
underscoring supplied)
Dr. Lanzanas thus amended his original complaint to include
illegal dismissal.18 His and Dr. Merceditha's complaints were
consolidated and docketed as NLRC CASE NO. RAB-IV-3-987998-L.
By Decision19 of March 23, 1999, Labor Arbiter Antonio R.
Macam dismissed the spouses' complaints for want of
jurisdiction upon a finding that there was no employeremployee relationship between the parties, the fourth
requisite or the "control test" in the determination of an
employment bond being absent.
On appeal, the NLRC, by Decision20 of May 3,
2002, reversed the Labor Arbiter's findings, disposing as
follows:
WHEREFORE, the assailed decision is set aside. The
respondents are ordered to pay the complainants
their full backwages; separation pay of one month
salary for every year of service in lieu of
reinstatement; moral damages of P500,000.00 each;
exemplary damages ofP250,000.00 each plus ten
percent (10%) of the total award as attorney's fees.
SO ORDERED.21
Petitioner's motion for reconsideration having been denied, it
brought the case to the Court of Appeals on certiorari.
The appellate court, by June 30, 2004 Decision,22 initially
granted petitioner's petition and set aside the NLRC ruling.
However, upon a subsequent motion for reconsideration filed
by respondents, itreinstated the NLRC decision in an Amended
Decision23 dated September 26, 2006 but tempered the award
to each of the spouses of moral and exemplary damages
to P100,000.00 and P50,000.00, respectively and omitted the
award of attorney's fees.
In finding the existence of an employer-employee relationship
between the parties, the appellate court held:
x x x. While it may be true that the respondents are
given the discretion to decide on how to treat the
petitioner's patients, the petitioner has not denied
nor explained why its Medical Director still has the
direct supervision and control over the
respondents. The fact is the petitioner's Medical
Director still has to approve the schedule of
duties of the respondents. The respondents
stressed that the petitioner's Medical Director also
issues instructions or orders to the respondents
relating to the means and methods of
performing their duties,i.e. admission of patients,
manner of characterizing cases, treatment of cases,
etc., and may even overrule, review or revise
the decisions of the resident physicians. This
was not controverted by the petitioner. The foregoing
factors taken together are sufficient to constitute the
fourth element, i.e. control test, hence, the existence
of the employer-employee relationship. In denying
that it had control over the respondents, the
petitioner alleged that the respondents were free to
put up their own clinics or to accept other
retainership agreement with the other hospitals. But,
the petitioner failed to substantiate the allegation
with substantial evidence. (Emphasis and
underscoring supplied)24
The appellate court thus declared that respondents were
illegally dismissed.

18

x x x. The petitioner's ground for dismissing
respondent Ronaldo Lanzanas was based on his
alleged participation in union activities, specifically in
joining the strike and failing to observe the return-towork order issued by the Secretary of Labor. Yet,
the petitioner did not adduce any piece of evidence
to show that respondent Ronaldo indeed participated
in the strike. x x x.
In the case of respondent Merceditha Lanzanas, the
petitioner's explanation that "her marriage to
complainant Ronaldo has given rise to the
presumption that her sympat[hies] are likewise with
her husband" as a ground for her dismissal is
unacceptable. Such is not one of the grounds to
justify the termination of her
employment.25 (Underscoring supplied)
The fallo of the appellate court's decision reads:
WHEREFORE, the instant Motion for
Reconsideration is GRANTED, and the Court's
decision dated June 30, 2004, is SET ASIDE. In lieu
thereof, a new judgment is entered, as follows:
WHEREFORE, the petition is DISMISSED. The
assailed decision dated May 3, 2002 and
order dated September 24, 2002 of the
NLRC in NLRC NCR CA No. 019823-99 are
AFFIRMED with the MODIFICATION that
the moral and exemplary damages are
reduced to P100,000.00 each
and P50,000.00 each, respectively.
26

SO ORDERED. (Emphasis and italics in the original;
underscoring supplied)
Preliminarily, the present petition calls for a determination of
whether there exists an employer-employee
relationship27 between petitioner and the spousesrespondents.
Denying the existence of such relationship, petitioner argues
that the appellate court, as well as the NLRC, overlooked its
twice-a-week reporting arrangement with respondents who
are free to practice their profession elsewhere the rest of the
week. And it invites attention to the uncontroverted allegation
that respondents, aside from their monthly retainers, were
entitled to one-half of all suturing, admitting, consultation,
medico-legal and operating room assistance fees. 28 These
circumstances, it stresses, are clear badges of the absence of
any employment relationship between them.
This Court is unimpressed.
Under the "control test," an employment relationship exists
between a physician and a hospital if the hospital controls
both the means and the details of the process by which the
physician is to accomplish his task.29
Where a person who works for another does so more or less at
his own pleasure and is not subject to definite hours or
conditions of work, and is compensated according to the
result of his efforts and not the amount thereof, the element
of control is absent.30
As priorly stated, private respondents maintained specific
work-schedules, as determined by petitioner through its
medical director, which consisted of 24-hour shifts totaling
forty-eight hours each week and which were strictly to be
observed under pain of administrative sanctions.
That petitioner exercised control over respondents gains light
from the undisputed fact that in the emergency room, the
operating room, or any department or ward for that matter,
respondents' work is monitored through its nursing
supervisors, charge nurses and orderlies. Without the
approval or consent of petitioner or its medical director, no

operations can be undertaken in those areas. For control test
to apply, it is not essential for the employer to actually
supervise the performance of duties of the employee, it being
enough that it has the right to wield the power.31
With respect to respondents' sharing in some hospital fees,
this scheme does not sever the employment tie between
them and petitioner as this merely mirrors additional form or
another form of compensation or incentive similar to what
commission-based employees receive as contemplated in
Article 97 (f) of the Labor Code, thus:
"Wage" paid to any employee shall mean the
remuneration or earning, 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 and includes the fair and reasonable value,
as determined by the Secretary of Labor, of board,
lodging, or other facilities customarily furnished by
the employer to the employee. x x x (Emphasis and
underscoring supplied),
Respondents were in fact made subject to petitioner-hospital's
Code of Ethics,32 the provisions of which cover administrative
and disciplinary measures on negligence of duties, personnel
conduct and behavior, and offenses against persons, property
and the hospital's interest.
More importantly, petitioner itself provided incontrovertible
proof of the employment status of respondents, namely, the
identification cards it issued them, the payslips 33 and BIR W-2
(now 2316) Forms which reflect their status as employees,
and the classification as "salary" of their remuneration.
Moreover, it enrolled respondents in the SSS and Medicare
(Philhealth) program. It bears noting at this juncture that
mandatory coverage under the SSS Law34 is premised on the
existence of an employer-employee relationship,35 except in
cases of compulsory coverage of the self-employed. It would
be preposterous for an employer to report certain persons as
employees and pay their SSS premiums as well as their wages
if they are not its employees.36
And if respondents were not petitioner's employees, how does
it account for its issuance of the earlier-quoted March 7, 1998
memorandum explicitly stating that respondent is "employed"
in it and of the subsequent termination letter indicating
respondent Lanzanas' employment status.
Finally, under Section 15, Rule X of Book III of
the Implementing Rules of the Labor Code, an employeremployee relationship exists between the resident physicians
and the training hospitals, unless there is a training
agreement between them, and the training program is duly
accredited or approved by the appropriate government
agency. In respondents' case, they were not undergoing any
specialization training. They were considered nontraining general practitioners,37 assigned at the emergency
rooms and ward sections.
Turning now to the issue of dismissal, the Court upholds the
appellate court's conclusion that private respondents were
illegally dismissed.
Dr. Lanzanas was neither a managerial nor supervisory
employee but part of the rank-and-file. This is the import of
the Secretary of Labor's Resolution of May 22, 1998 in OS A05-15-98 which reads:
xxxx
In the motion to dismiss it filed before the MedArbiter, the employer (CMC) alleged that 24
members of petitioner are supervisors, namely x x
x Rolando Lanzonas [sic] x x x.

19

A close scrutiny of the job descriptions of the alleged
supervisors narrated by the employer only proves
that except for the contention that these employees
allegedly supervise, they do not however recommend
any managerial action. At most, their job is
merely routinary in nature and consequently,
they cannot be considered supervisory
employees.

Petitioner thus failed to observe the two requirements,before
dismissal can be effected ─ notice and hearing ─ which
constitute essential elements of the statutory process; the
first to apprise the employee of the particular acts or
omissions for which his dismissal is sought, and the second to
inform the employee of the employer's decision to dismiss
him.43 Non-observance of these requirements runs afoul of the
procedural mandate.44

They are not therefore barred from membership
in the union of rank[-]and[-]file, which the
petitioner [the union] is seeking to represent in the
instant case.38 (Emphasis and underscoring supplied)

The termination notice sent to and received by Dr. Lanzanas
on April 25, 1998 was the first and only time that he was
apprised of the reason for his dismissal. He was not afforded,
however, even the slightest opportunity to explain his side.
His was a "termination upon receipt" situation. While he was
priorly made to explain on his telephone conversation with
Miscala,45 he was not with respect to his supposed
participation in the strike and failure to heed the return-towork order.

xxxx
Admittedly, Dr. Lanzanas was a union member in the hospital,
which is considered indispensable to the national interest. In
labor disputes adversely affecting the continued operation of
a hospital, Article 263(g) of the Labor Code provides:
ART. 263. STRIKES, PICKETING, AND LOCKOUTS.–
xxxx
(g) x x x x
x x x x. In labor disputes adversely affecting the
continued operation of such hospitals, clinics
or medical institutions, it shall be the duty of the
striking union or locking-out employer to provide and
maintain an effective skeletal workforce of medical
and other health personnel, whose movement and
services shall be unhampered and unrestricted, as
are necessary to insure the proper and adequate
protection of the life and health of its patients, most
especially emergency cases, for the duration of the
strike or lockout. In such cases, the Secretary of
Labor and Employment is mandated to immediately
assume, within twenty-four hours from knowledge of
the occurrence of such strike or lockout, jurisdiction
over the same or certify to the Commission for
compulsory arbitration. For this purpose, the
contending parties are strictly enjoined to
comply with such orders, prohibitions and/or
injunctions as are issued by the Secretary of
Labor and Employment or the Commission,
under pain of immediate disciplinary action,
including dismissal or loss of employment
status or payment by the locking-out employer
of backwages, damages and other affirmative
relief, even criminal prosecution against either
or both of them.
x x x x (Emphasis and underscoring supplied)
An assumption or certification order of the DOLE Secretary
automatically results in a return-to-work of
all striking workers, whether a corresponding return-to-work
order had been issued.39 The DOLE Secretary in fact issued a
return-to-work Order, failing to comply with which is
punishable by dismissal or loss of employment status. 40
Participation in a strike and intransigence to a return-to-work
order must, however, be duly proved in order to justify
immediate dismissal in a "national interest" case. As the
appellate court as well as the NLRC observed, however, there
is nothing in the records that would bear out Dr. Lanzanas'
actual participation in the strike. And the medical director's
Memorandum41 of April 22, 1998 contains nothing more than a
general directive to all union officers and members to returnto-work. Mere membership in a labor union does not ipso
facto mean participation in a strike.
Dr. Lanzanas' claim that, after his 30-day preventive
suspension ended on or before April 9, 1998, he was never
given any work schedule42 was not refuted by petitioner.
Petitioner in fact never released any findings of its supposed
investigation into Dr. Lanzanas' alleged "inimical acts."

As for the case of Dr. Merceditha, her dismissal was worse, it
having been effected without any just or authorized cause and
without observance of due process. In fact, petitioner never
proferred any valid cause for her dismissal except its view
that "her marriage to [Dr. Lanzanas] has given rise to the
presumption that her sympath[y] [is] with her husband; [and
that when [Dr. Lanzanas] declared that he was going to
boycott the scheduling of their workload by the medical
doctor, he was presumed to be speaking for himself [and] for
his wife Merceditha."46
Petitioner's contention that Dr. Merceditha was a member of
the union or was a participant in the strike remained just that.
Its termination of her employment on the basis of her conjugal
relationship is not analogous to
any of the causes enumerated in Article 28247 of the Labor
Code. Mere suspicion or belief, no matter how strong, cannot
substitute for factual findings carefully established through
orderly procedure.48
The Court even notes that after the proceedings at the NLRC,
petitioner never even mentioned Dr. Merceditha's case. There
is thus no gainsaying that her dismissal was both
substantively and procedurally infirm.
Adding insult to injury was the circulation by petitioner of a
"watchlist" or "watch out list"49 including therein the names of
respondents. Consider the following portions of Dr.
Merceditha's Memorandum of Appeal:
3. Moreover, to top it all, respondents have circulated
a so called "Watch List" to other hospitals, one of
which [was] procured from Foothills Hospital in Sto.
Tomas, Batangas [that] contains her name. The
object of the said list is precisely to harass
Complainant and malign her good name and
reputation. This is not only unprofessional, but runs
smack of oppression as CMC is trying permanently
deprived [sic] Complainant of her livelihood by
ensuring that she is barred from practicing in other
hospitals.
4. Other co-professionals and brothers in the
profession are fully aware of these "watch out" lists
and as such, her reputation was not only besmirched,
but was damaged, and she suffered social
humiliation as it is of public knowledge that she was
dismissed from work. Complainant came from a
reputable and respected family, her father being a
retired full Colonel in the Army, Col. Romeo A. Vente,
and her brothers and sisters are all professionals, her
brothers, Arnold and Romeo Jr., being engineers. The
Complainant has a family protection [sic] to protect.
She likewise has a professional reputation to protect,
being a licensed physician. Both her personal and
professional reputation were damaged as a result of
the unlawful acts of the respondents.50

20

While petitioner does not deny the existence of such list, it
pointed to the lack of any board action on its part to initiate
such listing and to circulate the same, viz:
20. x x x. The alleged watchlist or "watch out list," as
termed by complainants, were merely lists obtained
by one Dr. Ernesto Naval of PAMANA Hospital. Said
list was given by a stockholder of respondent
who was at the same time a stockholder of
PAMAN[A] Hospital. The giving of the list was not a
Board action.51 (Emphasis and underscoring supplied)
The circulation of such list containing names of alleged union
members intended to prevent employment of workers for
union activities similarly constitutes unfair labor practice,
thereby giving a right of action for damages by the employees
prejudiced.52
A word on the appellate court's deletion of the award of
attorney's fees. There being no basis advanced in deleting it,
as exemplary damages were correctly awarded,53 the award of
attorney's fees should be reinstated.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
SP No. 75871 is AFFIRMED withMODIFICATION in that the
award by the National Labor Relations Commission of 10% of
the total judgment award as attorney's fees is reinstated. In
all other aspects, the decision of the appellate court is
affirmed.

The Compulsory Arbitration Proceedings
The Parties’ Positions
The respondents alleged before the labor arbiter that they
were SIP employees, who were illegally dismissed sometime
in February and March 2004. SIP did not implement Wage
Order Nos. 5 to 11 for the years 1997 to 2004. They did not
receive overtime pay although they worked from 6:30 in the
morning until 5:30 in the afternoon, or other employee
benefits such as service incentive leave, and maternity
benefit (for their co-employee Flordeliza Matias). Their
employee contributions were also not remitted to the Social
Security System.
To avoid liability, SIP argued that it operated the canteen in
behalf of GMPC since it had no authority by itself to do so. The
respondents were not its employees, but GMPC’s, as shown by
their identification cards. It claimed that GMPC terminated its
concession and prevented it from having access to the
canteen premises as GSIS personnel locked the place; GMPC
then operated the canteen on its own, absorbing the
respondents for the purpose and assigning them to the same
positions they held with SIP. It maintained that the
respondents were not dismissed, but were merely prevented
by GMPC from performing their functions. For this reason, SIP
posited that the legal obligations that would arise under the
circumstances have to be shouldered by GMPC.
The Labor Arbiter’s Decision

SO ORDERED.
G.R. No. 192473

October 11, 2010

S.I.P. FOOD HOUSE and MR. and MRS. ALEJANDRO
PABLO, Petitioners,
vs.
RESTITUTO BATOLINA, ALMER CALUMPISAN, ARIES
MALGAPO, ARMANDO MALGAPO, FLORDELIZA MATIAS,
PERCIVAL MATIAS, ARWIN MIRANDA, LOPE MATIAS,
RAMIL MATIAS, ALLAN STA. INES,Respondents.
DECISION
BRION, J.:
We resolve the present petition for review on certiorari1 which
seeks to nullify the decision2 and resolution3 of the Court of
Appeals (CA), promulgated on November 27, 2009 and May
31, 2010, respectively, in CA-G.R. SP No. 101651.4
The Antecedents
The facts are laid out in the assailed CA Decision and are
summarized below.
The GSIS Multi-Purpose Cooperative (GMPC) is an entity
organized by the employees of the Government Service
Insurance System (GSIS). Incidental to its purpose, GMPC
wanted to operate a canteen in the new GSIS Building, but
had no capability and expertise in this area. Thus, it engaged
the services of the petitioner S.I.P. Food House (SIP), owned by
the spouses Alejandro and Esther Pablo, as concessionaire.
The respondents Restituto Batolina and nine (9) others (the
respondents) worked as waiters and waitresses in the
canteen.
In February 2004, GMPC terminated SIP’s "contract as GMPC
concessionaire," because of GMPC’s decision "to take direct
investment in and management of the GMPC canteen;" SIP’s
continued refusal to heed GMPC’s directives for service
improvement; and the alleged interference of the Pablos’ two
sons with the operation of the canteen.5 The termination of
the concession contract caused the termination of the
respondents’ employment, prompting them to file a complaint
for illegal dismissal, with money claims, against SIP and the
spouses Pablo.

Labor Arbiter Francisco A. Robles rendered a Decision on June
30, 2005 dismissing the complaint for lack of merit.6 He found
that the respondents were GMPC’s employees, and not SIP’s,
as there existed a labor-only contracting relationship between
the two entities. The labor arbiter, however, opined that even
if respondents were considered as SIP’s employees, their
dismissal would still not be illegal because the termination of
its contract to operate the canteen came as a surprise and
was against its will, rendering the canteen’s closure
involuntary.
Arbiter Robles likewise denied the employees’ money claims.
He ruled that SIP is not liable for unpaid salaries because it
had complied with the minimum statutory requirement and
had extended better benefits than GMPC; although they were
paid only P160.00 to PP220.00 daily, the employees were
provided with free board and lodging seven (7) days a week.
Neither were the respondents entitled to overtime pay as it
was highly improbable that they regularly worked beyond
eight (8) hours every day for a canteen that closes after 5:30
p.m.
The respondents brought their case, on appeal, to the
National Labor Relations Commission (NLRC).
The NLRC Ruling
In its Decision of August 30, 2007,7 the NLRC found that SIP
was the respondents’ employer, but it sustained the labor
arbiter’s ruling that the employees were not illegally
dismissed as the termination of SIP’s concession to operate
the canteen constituted an authorized cause for the
severance of employer-employee relations. Furthermore, the
respondents’ admission that they applied with GMPC when it
terminated SIP’s concession is an indication that they were
employees of SIP and that they were terminating their
employment relationship with it. As the labor arbiter did, the
NLRC regarded the closure of SIP’s canteen operations
involuntary, thus, negating the employees’ entitlement to
separation pay.8
For failure of SIP to present proof of compliance with the law
on the minimum wage, 13th month pay, and service incentive
leave, the NLRC awarded the respondents a total
of P952,865.53 in salary and 13th month pay differentials and
service incentive leave pay.9 The NLRC, however, denied the
employees’ claim for overtime pay, holding that the

21

respondents failed to present evidence that they rendered two
hours overtime work every day of their employment with SIP.
SIP moved for, but failed to secure, a reconsideration of the
NLRC decision. It then elevated the case to the CA through a
petition for certiorari charging the NLRC with grave abuse of
discretion in rendering the assailed decision. Essentially, SIP
argued that the NLRC erred in declaring that it was the
respondents’ employer who is liable for their money claims
despite its being a labor-only contractor of GMPC.

We first resolve the alleged impropriety of the petition.13 While
it is the general rule that the Court may not review factual
findings of the CA, we deem it proper to depart from the rule
and examine the facts of the case in view of the conflicting
factual findings of the labor arbiter, on one hand, and the
NLRC and the CA, on the other.14 We, therefore, hold the
respondents’ position on this point unmeritorious.
We now consider the merits of the case.
The employer-employee relationship issue

The CA Decision
In its Decision promulgated on November 27, 2009,10 the CA
granted the petition in part. While it affirmed the award, it
found merit in SIP’s objection to the NLRC computation and
assumption that a month had twenty-six (26) working days,
instead of twenty (20) working days. The CA recognized that
in a government agency such as the GSIS, there are only 20
official business days in a month. It noted that the
respondents presented no evidence that the employees
worked even outside official business days and hours. It
accordingly remanded the case for a recomputation of the
award.
Finding substantial evidence in the records supporting the
NLRC conclusions, the CA brushed aside SIP’s argument that it
could not have been the employer of the respondents
because it was a mere labor-only contractor of GMPC. It
sustained the NLRC’s findings that SIP was the respondents’
employer.
SIP moved for reconsideration, but the CA denied the motion
on May 31, 2010.11 Hence, the present petition.
The Petition
SIP seeks a reversal of the appellate court’s ruling that it was
the employer of the respondents, claiming that it was merely
a labor-only contractor of GMPC.
It insists that it could not be the respondents’ employer as it
was not allowed to operate a canteen in the GSIS building. It
was the GMPC who had the authority to undertake the
operation. GMPC only engaged SIP’s services because GMPC
had no capability or competence in the area. SIP points out
that GMPC assumed responsibility for its acts in operating the
canteen; all businesses it transacted were under GMPC’s
name, as well as the business registration and other permits
of the canteen, sales receipts and vouchers for food
purchased from the canteen; the employees were issued
individual ID cards by GMPC. In sum, SIP contends that its
arrangement with GMPC was one of contractor/subcontractor
governed by Article 106 of the Labor Code. Lastly, it submits
that it was not registered with the Department of Labor and
Employment as an independent contractor and, therefore, it is
presumed to be a labor-only contractor.
The Respondents’ Comment
Without being required by the Court, the respondents
filed their comment to SIP’s petition on August 3,
2010.12 They question the propriety of the petition for review
on certiorari raising only questions of fact and not of law as
required by Rule 45 of the Rules of Court. This
notwithstanding, they submit that the CA committed no error
in upholding the NLRC’s findings of facts which established
that SIP was the real employer of Batolina and the other
complainants. Thus, SIP was liable to them for their statutory
benefits, although it was not made to answer for their lost
employment due to the involuntary nature of the canteen’s
closure.
The respondents pray that the petition be dismissed for lack
of merit.
The Court’s Ruling

We affirm the CA ruling that SIP was the respondents’
employer. The NLRC decision, which the CA affirmed, states:
Respondents have been the concessionaire of GMPC canteen
for nine (9) years (Annex "A" of Complainants’ SurRejoinder…., Records, 302). During this period, complainants
were employed at the said canteen (Sinumpaang Salaysay of
complainants, Records, p. 156). On February 29, 2004,
respondents’ concession with GMPC was terminated (Annex
"C" of Respondents’ Answer and Position Paper, Records, p.
77). When respondents were prevented from entering the
premises as a result of the termination of their concession,
they sent a protest letter dated April 14, 2004 to GMPC thru
their counsel. Pertinent portion of the letter:
We write this letter in behalf of our client Mr. & Mrs. Alejandro
C. Pablo, the concessionaires who used to occupy and/or rent
the area for a cafeteria/canteen at the 2nd Floor of the GSIS
Building for the past several years.
Last March 12, 2004, without any court writ or order, and with
the aid of your armed agents, you physically barredour clients
& their employees/helpers from entering the said premises
and from performing their usual duties of serving the food
requirements of GSIS personnel and others.
Clearly, no less than respondents, thru their counsel, admitted
that complainants herein were their employees.
That complainants were employees of respondents is further
bolstered by the fact that respondents do not deny that they
were the ones who paid complainants salary. When
complainants charged them of underpayment, respondents
even interposed the defense of file (sic) board and lodging
given to complainants.
Furthermore, these IDs issued to complainants bear the
signature of respondent Alejandro C. Pablo (Annexes "J", "K",
"M" to "M-2" of complainant’s Reply. . ., Records, pp. 285 to
290). Likewise, the memoranda issued to complainants
regarding their absences without leave were signed by
respondent Alejandro C. Pablo (Annexes A, C, E, & G, Ibid.,
Records, pp. 274, 276, 279, 282). All these pieces of evidence
clearly show that respondents are the employer of
complainants. (Rollo, pp. 87-88.)
xxxx
The CA ruled out SIP’s claim that it was a labor-only contractor
or a mere agent of GMPC. We agree with the CA; SIP and its
proprietors could not be considered as mere agents of GMPC
because they exercised the essential elements of an
employment relationship with the respondents such as hiring,
payment of wages and the power of control, not to mention
that SIP operated the canteen on its own account as it paid a
fee for the use of the building and for the privilege of running
the canteen. The fact that the respondents applied with GMPC
in February 2004 when it terminated its contract with SIP, is
another clear indication that the two entities were separate
and distinct from each other. We thus see no reason to
disturb the CA’s findings.
The respondents’s money claims
We likewise affirm the CA ruling on the monetary award to
Batolina and the other complainants.1avvp++i1 The free

22

board and lodging SIP furnished the employees cannot
operate as a set-off for the underpayment of their wages. We
held in Mabeza v. National Labor Relations Commission15 that
the employer cannot simply deduct from the employee’s
wages the value of the board and lodging without satisfying
the following requirements: (1) proof that such facilities are
customarily furnished by the trade; (2) voluntary acceptance
in writing by the employees of the deductible facilities; and
(3) proof of the fair and reasonable value of the facilities
charged. As the CA aptly noted, it is clear from the records
that SIP failed to comply with these requirements.
On the collateral issue of the proper computation of the
monetary award, we also find the CA ruling to be in order.
Indeed, in the absence of evidence that the employees
worked for 26 days a month, no need exists to recompute the
award for the respondents who were "explicitly claiming for
their salaries and benefits for the services rendered from
Monday to Friday or 5 days a week or a total of 20 days a
month."16
In light of the foregoing, we find no merit in the petition.

4) Respondent has not paid the wage increases
required by Wage Order No. 5 to its employees who
qualify thereunder.
5) Respondent has not followed the formula
prescribed by DECS Memorandum Circular No. 2
dated March 10, 1989 in the computation of the
compensation per unit of excess load or overload of
faculty members. This has resulted in the diminution
of the compensation of faculty members.
6) The salary increases due the non-academic
personnel as a result of job grading has not been
given. Job grading has been an annual practice of the
school since 1980; the same is done for the purpose
of increasing the salaries of non-academic personnel
and as the counterpart of the ranking systems of
faculty members.
7) Respondent has not paid to its employees the
balances of seventy (70%) percent of the tuition fee
increases for the years 1990, 1991 and 1992.

WHEREFORE, premises considered, we hereby DISMISS the
petition for lack of merit. The assailed decision and resolution
of the Court of Appeals in CA-G.R. SP No. 101651,
are AFFIRMED.

8) Respondent has not also paid its employees the
holiday pay for the ten (10) regular holidays as
provided for in Article 94 of the Labor Code.

SO ORDERED.

9) Respondent has refused without justifiable reasons
and despite repeated demands to pay its obligations
mentioned in paragraphs 3 to 7 hereof.

ARTURO D. BRION
Associate Justice

x x x x4

G.R. NO. 156225

January 29, 2008

LETRAN CALAMBA FACULTY and EMPLOYEES
ASSOCIATION, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and
COLEGIO DE SANJUAN DE LETRAN CALAMBA,
INC.,respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Assailed in the present Petition for Review on Certiorari under
Rule 45 of the Rules of Court is the Decision1 of the Court of
Appeals (CA) promulgated on May 14, 2002 in CA-G.R. SP No.
61552 dismissing the special civil action for certiorari filed
before it; and the Resolution2 dated November 28, 2002,
denying petitioner's Motion for Reconsideration.
The facts of the case are as follows:
On October 8, 1992, the Letran Calamba Faculty and
Employees Association (petitioner) filed with Regional
Arbitration Branch No. IV of the National Labor Relations
Commission (NLRC) a Complaint3 against Colegio de San Juan
de Letran, Calamba, Inc. (respondent) for collection of various
monetary claims due its members. Petitioner alleged in its
Position Paper that:

The complaint was docketed as NLRC Case No. RAB-IV-104560-92-L.
On January 29, 1993, respondent filed its Position Paper
denying all the allegations of petitioner.
On March 10, 1993, petitioner filed its Reply.
Prior to the filing of the above-mentioned complaint, petitioner
filed a separate complaint against the respondent for money
claims with Regional Office No. IV of the Department of Labor
and Employment (DOLE).
On the other hand, pending resolution of NLRC Case No. RABIV-10-4560-92-L, respondent filed with Regional Arbitration
Branch No. IV of the NLRC a petition to declare as illegal a
strike staged by petitioner in January 1994.
Subsequently, these three cases were consolidated. The case
for money claims originally filed by petitioner with the DOLE
was later docketed as NLRC Case No. RAB-IV-11-4624-92-L,
while the petition to declare the subject strike illegal filed by
respondent was docketed as NLRC Case No. RAB-IV-3-655594-L.
On September 28, 1998, the Labor Arbiter (LA) handling the
consolidated cases rendered a Decision with the following
dispositive portion:

xxxx

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

2) [It] has filed this complaint in behalf of its
members whose names and positions appear in the
list hereto attached as Annex "A".

1. The money claims cases (RAB-IV-10-4560-92-L and
RAB-IV-11-4624-92-L) are hereby dismissed for lack
of merit;

3) In the computation of the thirteenth month pay of
its academic personnel, respondent does not include
as basis therefor their compensation for overloads. It
only takes into account the pay the faculty members
receive for their teaching loads not exceeding
eighteen (18) units. The teaching overloads are
rendered within eight (8) hours a day.

2. The petition to declare strike illegal (NLRC Case
No. RAB-IV-3-6555-94-L) is hereby dismissed, but the
officers of the Union, particularly its President, Mr.
Edmundo F. Marifosque, Sr., are hereby reprimanded
and sternly warned that future conduct similar to
what was displayed in this case will warrant a more
severe sanction from this Office.

23

SO ORDERED.5
Both parties appealed to the NLRC.
On July 28, 1999, the NLRC promulgated its
Decision6 dismissing both appeals. Petitioner filed a Motion for
Reconsideration7 but the same was denied by the NLRC in its
Resolution8 dated June 21, 2000.
Petitioner then filed a special civil action for certiorari with the
CA assailing the above-mentioned NLRC Decision and
Resolution.
On May 14, 2002, the CA rendered the presently assailed
judgment dismissing the petition.
Petitioner filed a Motion for Reconsideration but the CA denied
it in its Resolution promulgated on November 28, 2002.
Hence, herein petition for review based on the following
assignment of errors:
I
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT THE FACTUAL FINDINGS OF THE NATIONAL
LABOR RELATIONS COMMISSION CANNOT BE
REVIEWED IN CERTIORARI PROCEEDINGS.
II
THE COURT OF APPEALS GRAVELY ERRED IN
REFUSING TO RULE SQUARELY ON THE ISSUE OF
WHETHER OR NOT THE PAY OF FACULTY MEMBERS
FOR TEACHING OVERLOADS SHOULD BE INCLUDED
AS BASIS IN THE COMPUTATION OF THEIR
THIRTEENTH MONTH PAY.
III
THE COURT OF APPEALS GRAVELY ERRED IN HOLDING
THAT THE DECISION OF THE NATIONAL LABOR
RELATIONS COMMISSION IS SUPPORTED BY
SUBSTANTIAL EVIDENCE AND IN NOT GRANTING
PETITIONER'S MONETARY CLAIMS.9
Citing Agustilo v. Court of Appeals,10 petitioner contends that
in a special civil action for certiorari brought before the CA,
the appellate court can review the factual findings and the
legal conclusions of the NLRC.
As to the inclusion of the overloads of respondent's faculty
members in the computation of their 13th-month pay,
petitioner argues that under the Revised Guidelines on the
Implementation of the 13th-Month Pay Law, promulgated by
the Secretary of Labor on November 16, 1987, the basic pay
of an employee includes remunerations or earnings paid by
his employer for services rendered, and that excluded
therefrom are the cash equivalents of unused vacation and
sick leave credits, overtime, premium, night differential,
holiday pay and cost-of-living allowances. Petitioner claims
that since the pay for excess loads or overloads does not fall
under any of the enumerated exclusions and considering that
the said overloads are being performed within the normal
working period of eight hours a day, it only follows that the
overloads should be included in the computation of the faculty
members' 13th-month pay.
To support its argument, petitioner cites the opinion of the
Bureau of Working Conditions of the DOLE that payment of
teaching overload performed within eight hours of work a day
shall be considered in the computation of the 13th-month
pay.11

cannot be applied to the instant case because the DOLE Order
was issued long after the commencement of petitioner's
complaints for monetary claims; that the prevailing rule at the
time of the commencement of petitioner's complaints was to
include compensations for overloads in determining a faculty
member's 13th-month pay; that to give retroactive application
to the DOLE Order issued in 1996 is to deprive workers of
benefits which have become vested and is a clear violation of
the constitutional mandate on protection of labor; and that, in
any case, all doubts in the implementation and interpretation
of labor laws, including implementing rules and regulations,
should be resolved in favor of labor.
Lastly, petitioner avers that the CA, in concluding that the
NLRC Decision was supported by substantial evidence, failed
to specify what constituted said evidence. Thus, petitioner
asserts that the CA acted arbitrarily in affirming the Decision
of the NLRC.
In its Comment, respondent contends that the ruling
in Agustilo is an exception rather than the general rule; that
the general rule is that in a petition for certiorari, judicial
review by this Court or by the CA in labor cases does not go so
far as to evaluate the sufficiency of the evidence upon which
the proper labor officer or office based his or its determination
but is limited only to issues of jurisdiction or grave abuse of
discretion amounting to lack of jurisdiction; that before a party
may ask that the CA or this Court review the factual findings
of the NLRC, there must first be a convincing argument that
the NLRC acted in a capricious, whimsical, arbitrary or
despotic manner; and that in its petition for certiorari filed
with the CA, herein petitioner failed to prove that the NLRC
acted without or in excess of jurisdiction or with grave abuse
of discretion.
Respondent argues that Agustilo is not applicable to the
present case because in the former case, the findings of fact
of the LA and the NLRC are at variance with each other; while
in the present case, the findings of fact and conclusions of law
of the LA and the NLRC are the same.
Respondent also avers that in a special civil action
for certiorari, the discretionary power to review factual
findings of the NLRC rests upon the CA; and that absent any
findings by the CA of the need to resolve any unclear or
ambiguous factual findings of the NLRC, the grant of the writ
of certiorari is not warranted.
Further, respondent contends that even granting that the
factual findings of the CA, NLRC and the LA may be reviewed
in the present case, petitioner failed to present valid
arguments to warrant the reversal of the assailed decision.
Respondent avers that the DOLE Order is an administrative
regulation which interprets the 13th-Month Pay Law (P.D. No.
851) and, as such, it is mandatory for the LA to apply the
same to the present case.
Moreover, respondent contends that the Legal Services Office
of the DOLE issued an opinion dated March 4, 1992, 12 that
remunerations for teaching in excess of the regular load,
which includes overload pay for work performed within an
eight-hour work day, may not be included as part of the basic
salary in the computation of the 13th-month pay unless this
has been included by company practice or policy; that
petitioner intentionally omitted any reference to the abovementioned opinion of the Legal Services Office of the DOLE
because it is fatal to its cause; and that the DOLE Order is an
affirmation of the opinion rendered by the said Office of the
DOLE.
Furthermore, respondent claims that, contrary to the
asseveration of petitioner, prior to the issuance of the DOLE
Order, the prevailing rule is to exclude excess teaching load,
which is akin to overtime, in the computation of a teacher's
basic salary and, ultimately, in the computation of his 13thmonth pay.

Petitioner further contends that DOLE-DECS-CHED-TESDA
Order No. 02, Series of 1996 (DOLE Order) which was relied
upon by the LA and the NLRC in their respective Decisions

24

As to respondent's alleged non-payment of petitioner's
consolidated money claims, respondent contends that the
findings of the LA regarding these matters, which were
affirmed by the NLRC and the CA, have clear and convincing
factual and legal bases to stand on.
The Court’s Ruling
The Court finds the petition bereft of merit.
As to the first and third assigned errors, petitioner would have
this Court review the factual findings of the LA as affirmed by
the NLRC and the CA, to wit.
With respect to the alleged non-payment of benefits
under Wage Order No. 5, this Office is convinced that
after the lapse of the one-year period of exemption
from compliance with Wage Order No. 5 (Exhibit "1B), which exemption was granted by then Labor
Minister Blas Ople, the School settled its obligations
to its employees, conformably with the agreement
reached during the management-employees meeting
of June 26, 1985 (Exhibits "4-B" up to "4-D", also
Exhibit "6-x-1"). The Union has presented no
evidence that the settlement reached during the June
26, 1985 meeting was the result of coercion. Indeed,
what is significant is that the agreement of June 26,
1985 was signed by Mr. Porferio Ferrer, then Faculty
President and an officer of the complaining Union.
Moreover, the samples from the payroll journal of the
School, identified and offered in evidence in these
cases (Exhibits "1-C" and 1-D"), shows that the
School paid its employees the benefits under Wage
Order No. 5 (and even Wage Order No. 6) beginning
June 16, 1985.
Under the circumstances, therefore, the claim of the
Union on this point must likewise fail.
The claim of the Union for salary differentials due to
the improper computation of compensation per unit
of excess load cannot hold water for the simple
reason that during the Schoolyears in point there
were no classes from June 1-14 and October 17-31.
This fact was not refuted by the Union. Since extra
load should be paid only when actually performed by
the employees, no salary differentials are due the
Union members.
The non-academic members of the Union cannot
legally insist on wage increases due to "Job Grading".
From the records it appears that "Job Grading" is a
system adopted by the School by which positions are
classified and evaluated according to the prescribed
qualifications therefor. It is akin to a merit system
whereby salary increases are made dependent upon
the classification, evaluation and grading of the
position held by an employee.
The system of Job Grading was initiated by the
School in Schoolyear 1989-1990. In 1992, just before
the first of the two money claims was filed, a new Job
Grading process was initiated by the School.
Under the circumstances obtaining, it cannot be
argued that there were repeated grants of salary
increases due to Job Grading to warrant the
conclusion that some benefit was granted in favor of
the non-academic personnel that could no longer be
eliminated or banished under Article 100 of the Labor
Code. Since the Job Grading exercises of the School
were neither consistent nor for a considerable period
of time, the monetary claims attendant to an
increase in job grade are non-existent.
The claim of the Union that its members were not
given their full share in the tuition fee increases for
the Schoolyears 1989-1990, 1990-1991 and 19911992 is belied by the evidence presented by the

School which consists of the unrefuted testimony of
its Accounting Coordinator, Ms. Rosario Manlapaz,
and the reports extrapolated from the journals and
general ledgers of the School (Exhibits "2", "2-A" up
to "2-G"). The evidence indubitably shows that in
Schoolyear 1989-1990, the School incurred a deficit
ofP445,942.25, while in Schoolyears 1990-1991 and
1991-1992, the School paid out, 91% and 77%,
respectively, of the increments in the tuition fees
collected.
As regards the issue of non-payment of holiday pay,
the individual pay records of the School's employees,
a sample of which was identified and explained by
Ms. Rosario Manlapaz (Exhibit "3"), shows that said
School employees are paid for all days worked in the
year. Stated differently, the factor used in computing
the salaries of the employees is 365, which indicates
that their regular monthly salary includes payment of
wages during all legal holidays.13
This Court held in Odango v. National Labor Relations
Commission14 that:
The appellate court’s jurisdiction to review a decision
of the NLRC in a petition for certiorari is confined to
issues of jurisdiction or grave abuse of discretion. An
extraordinary remedy, a petition for certiorari is
available only and restrictively in truly exceptional
cases. The sole office of the writ of certiorari is the
correction of errors of jurisdiction including the
commission of grave abuse of discretion amounting
to lack or excess of jurisdiction. It does not include
correction of the NLRC’s evaluation of the evidence
or of its factual findings. Such findings are generally
accorded not only respect but also finality. A party
assailing such findings bears the burden of showing
that the tribunal acted capriciously and whimsically
or in total disregard of evidence material to the
controversy, in order that the extraordinary writ of
certiorari will lie.15
In the instant case, the Court finds no error in the ruling of the
CA that since nowhere in the petition is there any acceptable
demonstration that the LA or the NLRC acted either with grave
abuse of discretion or without or in excess of its jurisdiction,
the appellate court has no reason to look into the correctness
of the evaluation of evidence which supports the labor
tribunals' findings of fact.
Settled is the rule that the findings of the LA, when affirmed
by the NLRC and the CA, are binding on the Supreme Court,
unless patently erroneous.16 It is not the function of the
Supreme Court to analyze or weigh all over again the
evidence already considered in the proceedings below. 17 In a
petition for review on certiorari, this Court’s jurisdiction is
limited to reviewing errors of law in the absence of any
showing that the factual findings complained of are devoid of
support in the records or are glaringly erroneous.18 Firm is the
doctrine that this Court is not a trier of facts, and this applies
with greater force in labor cases.19 Findings of fact of
administrative agencies and quasi-judicial bodies, which have
acquired expertise because their jurisdiction is confined to
specific matters, are generally accorded not only great
respect but even finality.20 They are binding upon this Court
unless there is a showing of grave abuse of discretion or
where it is clearly shown that they were arrived at arbitrarily
or in utter disregard of the evidence on record.21 We find none
of these exceptions in the present case.
In petitions for review on certiorari like the instant case, the
Court invariably sustains the unanimous factual findings of the
LA, the NLRC and the CA, specially when such findings are
supported by substantial evidence and there is no cogent
basis to reverse the same, as in this case.22
The second assigned error properly raises a question of law as
it involves the determination of whether or not a teacher's
overload pay should be considered in the computation of his
or her 13th-month pay. In resolving this issue, the Court is

25

confronted with conflicting interpretations by different
government agencies.
On one hand is the opinion of the Bureau of Working
Conditions of the DOLE dated December 9, 1991, February 28,
1992 and November 19, 1992 to the effect that if overload is
performed within a teacher's normal eight-hour work per day,
the remuneration that the teacher will get from the additional
teaching load will form part of the basic wage. 23
This opinion is affirmed by the Explanatory Bulletin on the
Inclusion of Teachers' Overload Pay in the 13th-Month Pay
Determination issued by the DOLE on December 3, 1993
under then Acting DOLE Secretary Cresenciano B. Trajano.
Pertinent portions of the said Bulletin read as follows:
1. Basis of the 13th-month pay computation
The Revised Implementing Guidelines of the 13thMonth Pay Law (P.D. 851, as amended) provides that
an employee shall be entitled to not less than 1/12 of
the total basic salary earned within a calendar year
for the purpose of computing such entitlement. The
basic wage of an employee shall include:
"x x x all remunerations or earnings paid by his
employer for services rendered but do not include
allowances or monetary benefits which are not
considered or integrated as part of the regular
or basic salary, such as the cash equivalent of
unused vacation and sick leave credits, overtime,
premium, night differential and holiday pay, and
cost-of-living allowances. However, these salaryrelated benefits should be included as part of
the basic salary in the computation of the 13th
month pay if by individual or collective agreement,
company practice or policy, the same are treated as
part of the basic salary of the employees."
Basic wage is defined by the Implementing Rules of
RA 6727 as follows:
"Basic Wage" means all remuneration or earnings
paid by an employer to a worker for services
rendered on normal working days and hours but does
not include cost of living allowances, 13th-month pay
or other monetary benefits which are not considered
as part of or integrated into the regular salary of the
workers xxx.
The foregoing definition was based on Article 83 of
the Labor Code which provides that
"the normal hours of work of any employee shall not
exceed eight (8) hours a day." This means that the
basic salary of an employee for the purpose of
computing the 13th-month pay shall include all
remunerations or earnings paid by an employer for
services rendered during normal working hours.
2. Overload work/pay
Overload on the other hand means "the load in
excess of the normal load of private school teachers
as prescribed by the Department of Education,
Culture and Sports (DECS) or the policies, rules and
standards of particular private schools." In
recognition of the peculiarities of the teaching
profession, existing DECS and School Policies and
Regulations for different levels of instructions
prescribe a regular teaching load, the total actual
teaching or classroom hours of which a teacher can
generally perform in less than eight (8) hours per
working day. This is because teaching may also
require the teacher to do additional work such as
handling an advisory class, preparation of lesson
plans and teaching aids, evaluation of students and
other related activities. Where, however a teacher is
engaged to undertake actual additional teaching
work after completing his/her regular teaching load,

such additional work is generally referred to
as overload. In short, additional work in excess of the
regular teaching load is overload work. Regular
teaching load and overload work, if any, may
constitute a teacher's working day.
Where a teacher is required to perform such
overload within the eight (8) hours normal
working day, such overload compensation shall
be considered part of the basic pay for the
purpose of computing the teacher's 13thmonth pay. "Overload work" is sometimes
misunderstood as synonymous to "overtime work" as
this term is used and understood in the Labor Code.
These two terms are not the same because overtime
work is work rendered in excess of normal working
hours of eight in a day (Art. 87, Labor Code).
Considering that overload work may be performed
either within or outside eight hours in a day, overload
work may or may not be overtime work.
3. Concluding Statement
In the light of the foregoing discussions, it is the
position of this Department that all basic salary/wage
representing payments earned for actual work
performed during or within the eight hours in a day,
including payments for overload work within eight
hours, form part of basic wage and therefore are to
be included in the computation of 13th-month pay
mandated by PD 851, as amended.24 (Underscoring
supplied)
On the other hand, the Legal Services Department of the
DOLE holds in its opinion of March 4, 1992 that remunerations
for teaching in excess of the regular load shall be excluded in
the computation of the 13th-month pay unless, by school
policy, the same are considered as part of the basic salary of
the qualified teachers.25
This opinion is later affirmed by the DOLE Order, pertinent
portions of which are quoted below:
xxxx
2. In accordance with Article 83 of the Labor Code of
the Philippines, as amended, the normal hours of
work of school academic personnel shall not exceed
eight (8) hours a day. Any work done in addition
to the eight (8) hours daily work shall
constitute overtime work.
3. The normal hours of work of teaching or academic
personnel shall be based on their normal or regular
teaching loads. Such normal or regular teaching
loads shall be in accordance with the policies, rules
and standards prescribed by the Department of
Education, Culture and Sports, the Commission on
Higher Education and the Technical Education and
Skills Development Authority. Any teaching load in
excess of the normal or regular teaching load
shall be considered as overload. Overload
partakes of the nature of temporary extra
assignment and compensation therefore shall be
considered as an overload honorarium if performed
within the 8-hour work period and does not form
part of the regular or basic pay. Overload
performed beyond the eight-hour daily work is
overtime work.26 (Emphasis supplied)
It was the above-quoted DOLE Order which was used by the
LA as basis for ruling against herein petitioner.
The petitioner’s claim that the DOLE Order should not be
made to apply to the present case because said Order was
issued only in 1996, approximately four years after the
present case was initiated before the Regional Arbitration
Branch of the NLRC, is not without basis. The general rule is

26

that administrative rulings and circulars shall not be given
retroactive effect.27
Nevertheless, it is a settled rule that when an
administrative or executive agency renders an opinion
or issues a statement of policy, it merely interprets a
pre-existing law and the administrative interpretation
is at best advisory for it is the courts that finally
determine what the law means.28
In the present case, while the DOLE Order may not be
applicable, the Court finds that overload pay should be
excluded from the computation of the 13th-month pay of
petitioner's members.
In resolving the issue of the inclusion or exclusion of overload
pay in the computation of a teacher's 13th-month pay, it is
decisive to determine what "basic salary" includes and
excludes.
In this respect, the Court's disquisition in San Miguel
Corporation v. Inciong29 is instructive, to wit:
Under Presidential Decree 851 and its implementing
rules, the basic salary of an employee is used as the
basis in the determination of his 13th month pay. Any
compensations or remunerations which are deemed
not part of the basic pay is excluded as basis in the
computation of the mandatory bonus.
Under the Rules and Regulations Implementing
Presidential Decree 851, the following compensations
are deemed not part of the basic salary:
a) Cost-of-living allowances granted pursuant to
Presidential Decree 525 and Letter of Instruction No.
174;
b) Profit sharing payments;

definition of basic salary earnings and other
remunerations paid by employer to an employee. A
cursory perusal of the two sets of Rules indicates that
what has hitherto been the subject of a broad
inclusion is now a subject of broad exclusion. The
Supplementary Rules and Regulations cure the
seeming tendency of the former rules to include all
remunerations and earnings within the definition of
basic salary.
The all-embracing phrase "earnings and other
remunerations" which are deemed not part of the
basic salary includes within its meaning payments for
sick, vacation, or maternity leaves, premium for
works performed on rest days and special holidays,
pay for regular holidays and night differentials. As
such they are deemed not part of the basic salary
and shall not be considered in the computation of the
13th-month pay. If they were not so excluded, it is
hard to find any "earnings and other remunerations"
expressly excluded in the computation of the 13thmonth pay. Then the exclusionary provision would
prove to be idle and with no purpose.
This conclusion finds strong support under the Labor
Code of the Philippines. To cite a few provisions:
"Art. 87 – Overtime work. Work may be performed
beyond eight (8) hours a day provided that the
employee is paid for the overtime work, additional
compensation equivalent to his regular wage plus at
least twenty-five (25%) percent thereof."
It is clear that overtime pay is an additional
compensation other than and added to the regular
wage or basic salary, for reason of which such is
categorically excluded from the definition of basic
salary under the Supplementary Rules and
Regulations Implementing Presidential Decree 851.
In Article 93 of the same Code, paragraph

c) All allowances and monetary benefits which are
not considered or integrated as part of the regular
basic salary of the employee at the time of the
promulgation of the Decree on December 16, 1975.

"c.) work performed on any special holiday shall be
paid an additional compensation of at least thirty
percent (30%) of the regular wage of the employee."

Under a later set of Supplementary Rules and
Regulations Implementing Presidential Decree 851
issued by the then Labor Secretary Blas Ople,
overtime pay, earnings and other remunerations are
excluded as part of the basic salary and in the
computation of the 13th-month pay.

It is likewise clear that premium for special holiday
which is at least 30% of the regular wage is
an additional compensation other than and added to
the regular wage or basic salary. For similar reason it
shall not be considered in the computation of the
13th -month pay.30

The exclusion of cost-of-living allowances under
Presidential Decree 525 and Letter of Instruction No.
174 and profit sharing payments indicate the
intention to strip basic salary of other payments
which are properly considered as "fringe" benefits.
Likewise, the catch-all exclusionary phrase "all
allowances and monetary benefits which are not
considered or integrated as part of the basic salary"
shows also the intention to strip basic salary of any
and all additions which may be in the form of
allowances or "fringe" benefits.
Moreover, the Supplementary Rules and Regulations
Implementing Presidential Decree 851 is even more
emphatic in declaring that earnings and other
remunerations which are not part of the basic salary
shall not be included in the computation of the 13thmonth pay.
While doubt may have been created by the prior
Rules and Regulations Implementing Presidential
Decree 851 which defines basic salary to include all
remunerations or earnings paid by an employer to an
employee, this cloud is dissipated in the later and
more controlling Supplementary Rules and
Regulations which categorically, exclude from the

In the same manner that payment for overtime work and work
performed during special holidays is considered as additional
compensation apart and distinct from an employee's regular
wage or basic salary, an overload pay, owing to its very
nature and definition, may not be considered as part of a
teacher's regular or basic salary, because it is being paid for
additional work performed in excess of the regular teaching
load.
The peculiarity of an overload lies in the fact that it may be
performed within the normal eight-hour working day. This is
the only reason why the DOLE, in its explanatory bulletin,
finds it proper to include a teacher's overload pay in the
determination of his or her 13th-month pay. However, the
DOLE loses sight of the fact that even if it is performed within
the normal eight-hour working day, an overload is still an
additional or extra teaching work which is performed after the
regular teaching load has been completed. Hence, any pay
given as compensation for such additional work should be
considered as extra and not deemed as part of the regular or
basic salary.
Moreover, petitioner failed to refute private respondent's
contention that excess teaching load is paid by the hour, while
the regular teaching load is being paid on a monthly basis;
and that the assignment of overload is subject to the

27

availability of teaching loads. This only goes to show that
overload pay is not integrated with a teacher's basic salary for
his or her regular teaching load. In addition, overload varies
from one semester to another, as it is dependent upon the
availability of extra teaching loads. As such, it is not legally
feasible to consider payments for such overload as part of a
teacher's regular or basic salary. Verily, overload pay may not
be included as basis for determining a teacher's 13th-month
pay.

The offenses you’ve committed are just causes for
termination of employment as provided by the Labor
Code. You were given verbal warnings before, but
there had been no improvement on your conduct.
Further investigation of this matter is required,
therefore, you are summoned to a hearing at 4:00
p.m. today. The hearing wills determine your
employment status with this company.

WHEREFORE, the instant petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals are
AFFIRMED.

On February 24, 1999, respondent was terminated from
employment. The employer, through petitioner Escobia, gave
him his two-day salary and a termination letter, which reads:

SO ORDERED.
G.R. No. 153510

(SGD) ANNALENE REYES-ESCOBIA
Manager1

February 13, 2008
February 24, 1999

R.B. MICHAEL PRESS and ANNALENE REYES
ESCOBIA, petitioners,
vs.
NICASIO C. GALIT, respondent.
DECISION

Dear Mr. Nicasio Galit,
I am sorry to inform you that your employment with
this company has been terminated effective today,
February 24, 1999. This decision was not made
without a thorough and complete investigation.

VELASCO, JR., J.:
The Case
Year in, year out, a copious number of illegal dismissal cases
reach the Court of Appeals (CA) and eventually end up with
this Court. This petition for review under Rule 45 registered by
petitioners R.B. Michael Press and Annalene Reyes Escobia
against their former machine operator, respondent Nicasio C.
Galit, is among them. It assails the November 14, 2001
Decision of the CA in CA-G.R. SP No. 62959, finding the
dismissal of respondent illegal. Likewise challenged is the May
7, 2002 Resolution denying reconsideration.
The Facts
On May 1, 1997, respondent was employed by petitioner R.B.
Michael Press as an offset machine operator, whose work
schedule was from 8:00 a.m. to 5:00 p.m., Mondays to
Saturdays, and he was paid PhP 230 a day. During his
employment, Galit was tardy for a total of 190 times, totaling
to 6,117 minutes, and was absent without leave for a total of
nine and a half days.
On February 22, 1999, respondent was ordered to render
overtime service in order to comply with a job order deadline,
but he refused to do so. The following day, February 23, 1999,
respondent reported for work but petitioner Escobia told him
not to work, and to return later in the afternoon for a hearing.
When he returned, a copy of an Office Memorandum was
served on him, as follows:
To : Mr. Nicasio Galit
From : ANNALENE REYES-ESCOBIA
Re : WARNING FOR DISMISSAL; NOTICE OF HEARING

You were given an office memo dated February 23,
1999 warning you of a possible dismissal. You were
given a chance to defend yourself on a hearing that
was held in the afternoon of the said date.
During the hearing, Mrs. Rebecca Velasquez and Mr.
Dennis Reyes, were present in their capacity as
Production Manager and Supervisor, respectively.
Your admission to your offenses against the company
and the testimonies from Mrs. Velasquez and Mr.
Reyes justified your dismissal from this company,
Please contact Ms. Marly Buita to discuss 13th-Month
Pay disbursements.
Cordially,
(SGD) Mrs. Annalene Reyes-Escobia2
Respondent subsequently filed a complaint for illegal
dismissal and money claims before the National Labor
Relations Commission (NLRC) Regional Arbitration Branch No.
IV, which was docketed as NLRC Case No. RAB IV-2-10806-99C. On October 29, 1999, the labor arbiter rendered a Decision,
WHEREFORE, premises considered, there being a
finding that complainant was illegally dismissed,
respondent RB MICHAEL PRESS/Annalene ReyesEscobia is hereby ordered to reinstate complainant to
his former position without loss of seniority rights
and other benefits, and be paid his full backwages
computed from the time he was illegally dismissed
up to the time of his actual reimbursement.

This warning for dismissal is being issued for the
following offenses:

All other claims are DISMISSED for lack of evidence.

(1) habitual and excessive tardiness

SO ORDERED.3

(2) committing acts of discourtesy, disrespect in
addressing superiors
(3) failure to work overtime after having been
instructed to do so
(4) Insubordination - willfully disobeying, defying or
disregarding company authority

On January 3, 2000, petitioners elevated the case to the NLRC
and their appeal was docketed as NLRC NCR CA No. 02243300. In the April 28, 2000 Decision, the NLRC dismissed the
appeal for lack of merit.
Not satisfied with the ruling of the NLRC, petitioners filed a
Petition for Certiorari with the CA. On November 14, 2001, the
CA rendered its judgment affirming with modification the
NLRC’s Decision, thus:

28

WHEREFORE, the petition is DISMISSED for lack of
merit. The Decision of public respondent is
accordingly modified in that the basis of the
computation of the backwages, 13th month pay and
incentive pay should be respondent’s daily wage of
P230.00; however, backwages should be computed
from February 22, 1999 up to the finality of this
decision, plus the 13th month and service incentive
leave pay.4
The CA found that it was not the tardiness and absences
committed by respondent, but his refusal to render overtime
work on February 22, 1999 which caused the termination of
his employment. It ruled that the time frame in which
respondent was afforded procedural due process is dubitable;
he could not have been afforded ample opportunity to explain
his side and to adduce evidence on his behalf. It further ruled
that the basis for computing his backwages should be his
daily salary at the time of his dismissal which was PhP 230,
and that his backwages should be computed from the time of
his dismissal up to the finality of the CA’s decision.
On December 3, 2001, petitioners asked for
reconsideration5 but was denied in the CA’s May 7, 2002
Resolution.
Persistent, petitioners instituted the instant petition raising
numerous issues which can be summarized, as follows: first,
whether there was just cause to terminate the employment of
respondent, and whether due process was observed in the
dismissal process; and second, whether respondent is entitled
to backwages and other benefits despite his refusal to be
reinstated.
The Court’s Ruling
It is well settled that findings of fact of quasi-judicial agencies,
like the NLRC, are accorded not only respect but even finality
if the findings are supported by substantial evidence. This is
especially so when such findings of the labor arbiter were
affirmed by the CA.6 However, this is not an iron-clad rule.
Though the findings of fact by the labor arbiter may have
been affirmed and adopted by the NLRC and the CA as in this
case, it cannot divest the Court of its authority to review the
findings of fact of the lower courts or quasi-judicial agencies
when it sees that justice has not been served, more so when
the lower courts or quasi-judicial agencies’ findings are
contrary to the evidence on record or fail to appreciate
relevant and substantial evidence presented before it.7
Petitioners aver that Galit was dismissed due to the following
offenses: (1) habitual and excessive tardiness; (2) commission
of discourteous acts and disrespectful conduct when
addressing superiors; (3) failure to render overtime work
despite instruction to do so; and (4) insubordination, that is,
willful disobedience of, defiance to, or disregard of company
authority.8 The foregoing charges may be condensed into: (1)
tardiness constituting neglect of duty; (2) serious misconduct;
and (3) insubordination or willful disobedience.
Respondent’s tardiness cannot be considered
condoned by petitioners
Habitual tardiness is a form of neglect of duty. Lack of
initiative, diligence, and discipline to come to work on time
everyday exhibit the employee’s deportment towards work.
Habitual and excessive tardiness is inimical to the general
productivity and business of the employer. This is especially
true when the tardiness and/or absenteeism occurred
frequently and repeatedly within an extensive period of time.
In resolving the issue on tardiness, the labor arbiter ruled that
petitioners cannot use respondent’s habitual tardiness and
unauthorized absences to justify his dismissal since they had
already deducted the corresponding amounts from his salary.
Furthermore, the labor arbiter explained that since respondent
was not subjected to any admonition or penalty for tardiness,
petitioners then had condoned the offense or that the
infraction is not serious enough to merit any penalty. The CA

then supported the labor arbiter’s ruling by ratiocinating that
petitioners cannot draw on respondent’s habitual tardiness in
order to dismiss him since there is no evidence which shows
that he had been warned or reprimanded for his excessive
and habitual tardiness.
We find the ruling incorrect.
The mere fact that the numerous infractions of respondent
have not been immediately subjected to sanctions cannot be
interpreted as condonation of the offenses or waiver of the
company to enforce company rules. A waiver is a voluntary
and intentional relinquishment or abandonment of a known
legal right or privilege.9 It has been ruled that "a waiver to be
valid and effective must be couched in clear and unequivocal
terms which leave no doubt as to the intention of a party to
give up a right or benefit which legally pertains to
him."10 Hence, the management prerogative to discipline
employees and impose punishment is a legal right which
cannot, as a general rule, be impliedly waived.
In Cando v. NLRC,11 the employee did not report for work for
almost five months when he was charged for absenteeism.
The employee claimed that such absences due to his handling
of union matters were condoned. The Court held that the
employee did not adduce proof to show condonation coupled
with the fact that the company eventually instituted the
administrative complaint relating to his company violations.
Thus it is incumbent upon the employee to adduce substantial
evidence to demonstrate condonation or waiver on the part of
management to forego the exercise of its right to impose
sanctions for breach of company rules.
In the case at bar, respondent did not adduce any evidence to
show waiver or condonation on the part of petitioners. Thus
the finding of the CA that petitioners cannot use the previous
absences and tardiness because respondent was not
subjected to any penalty is bereft of legal basis. In the case
of Filipio v. The Honorable Minister Blas F. Ople,12 the Court,
quoting then Labor Minister Ople, ruled that past infractions
for which the employee has suffered the corresponding
penalty for each violation cannot be used as a justification for
the employee’s dismissal for that would penalize him twice for
the same offense. At most, it was explained, "these collective
infractions could be used as supporting justification to a
subsequent similar offense." In contrast, the petitioners in the
case at bar did not impose any punishment for the numerous
absences and tardiness of respondent. Thus, said infractions
can be used collectively by petitioners as a ground for
dismissal.
The CA however reasoned out that for respondent’s absences,
deductions from his salary were made and hence to allow
petitioners to use said absences as ground for dismissal would
amount to "double jeopardy."
This postulation is incorrect.
Respondent is admittedly a daily wage earner and hence is
paid based on such arrangement. For said daily paid workers,
the principle of "a day’s pay for a day’s work" is squarely
applicable. Hence it cannot be construed in any wise that such
nonpayment of the daily wage on the days he was absent
constitutes a penalty.
Insubordination or willful disobedience
While the CA is correct that the charge of serious misconduct
was not substantiated, the charge of insubordination however
is meritorious.
For willful disobedience to be a valid cause for dismissal,
these two elements must concur: (1) the employee’s assailed
conduct must have been willful, that is, characterized by a
wrongful and perverse attitude; and (2) the order violated
must have been reasonable, lawful, made known to the
employee, and must pertain to the duties which he had been
engaged to discharge.13

29

In the present case, there is no question that petitioners’
order for respondent to render overtime service to meet a
production deadline complies with the second requisite. Art.
89 of the Labor Code empowers the employer to legally
compel his employees to perform overtime work against their
will to prevent serious loss or damage:
Art. 89. EMERGENCY OVERTIME WORK
Any employee may be required by the employer to
perform overtime work in any of the following cases:
xxxx
(c) When there is urgent work to be performed on
machines, installations, or equipment, in order to
avoid serious loss or damage to the employer or
some other cause of similar nature;
xxxx
In the present case, petitioners’ business is a printing press
whose production schedule is sometimes flexible and varying.
It is only reasonable that workers are sometimes asked to
render overtime work in order to meet production deadlines.
Dennis Reyes, in his Affidavit dated May 3, 1999, stated that
in the morning of February 22, 1999, he approached and
asked respondent to render overtime work so as to meet a
production deadline on a printing job order, but respondent
refused to do so for no apparent reason. Respondent, on the
other hand, claims that the reason why he refused to render
overtime work was because he was not feeling well that day.
The issue now is, whether respondent’s refusal or failure to
render overtime work was willful; that is, whether such refusal
or failure was characterized by a wrongful and perverse
attitude. In Lakpue Drug Inc. v. Belga, willfulness was
described as "characterized by a wrongful and perverse
mental attitude rendering the employee’s act inconsistent
with proper subordination."14 The fact that respondent refused
to provide overtime work despite his knowledge that there is a
production deadline that needs to be met, and that without
him, the offset machine operator, no further printing can be
had, shows his wrongful and perverse mental attitude; thus,
there is willfulness.
Respondent’s excuse that he was not feeling well that day is
unbelievable and obviously an afterthought. He failed to
present any evidence other than his own assertion that he
was sick. Also, if it was true that he was then not feeling well,
he would have taken the day off, or had gone home earlier, on
the contrary, he stayed and continued to work all day, and
even tried to go to work the next day, thus belying his excuse,
which is, at most, a self-serving statement.
After a re-examination of the facts, we rule that respondent
unjustifiably refused to render overtime work despite a valid
order to do so. The totality of his offenses against petitioner
R.B. Michael Press shows that he was a difficult employee. His
refusal to render overtime work was the final straw that broke
the camel’s back, and, with his gross and habitual tardiness
and absences, would merit dismissal from service.
Due process: twin notice and hearing requirement
On the issue of due process, petitioners claim that they had
afforded respondent due process. Petitioners maintain that
they had observed due process when they gave respondent
two notices and that they had even scheduled a hearing
where he could have had explained his side and defended
himself.

Procedurally, (1) if the dismissal is based on a just
cause under Article 282, the employer must give the
employee two written notices and a hearing or
opportunity to be heard if requested by the employee
before terminating the employment: a notice
specifying the grounds for which dismissal is sought
a hearing or an opportunity to be heard and after
hearing or opportunity to be heard, a notice of the
decision to dismiss; and (2) if the dismissal is based
on authorized causes under Articles 283 and 284, the
employer must give the employee and the
Department of Labor and Employment written
notices 30 days prior to the effectivity of his
separation.15
Under the twin notice requirement, the employees must be
given two (2) notices before his employment could be
terminated: (1) a first notice to apprise the employees of their
fault, and (2) a second notice to communicate to the
employees that their employment is being terminated. Not to
be taken lightly of course is the hearing or opportunity for the
employee to defend himself personally or by counsel of his
choice.
In King of Kings Transport v. Mamac,16 we had the occasion to
further elucidate on the procedure relating to the twin notice
and hearing requirement, thus:
(1) The first written notice to be served on the
employees should contain the specific causes or
grounds for termination against them, and a directive
that the employees are given the opportunity to
submit their written explanation within a reasonable
period. "Reasonable opportunity" under the Omnibus
Rules means every kind of assistance that
management must accord to the employees to
enable them to prepare adequately for their defense.
This should be construed as a period of at least five
(5) calendar days from receipt of the notice to give
the employees an opportunity to study the
accusation against them, consult a union official or
lawyer, gather data and evidence, and decide on the
defenses they will raise against the complaint.
Moreover, in order to enable the employees to
intelligently prepare their explanation and defenses,
the notice should contain a detailed narration of the
facts and circumstances that will serve as basis for
the charge against the employees. A general
description of the charge will not suffice. Lastly, the
notice should specifically mention which company
rules, if any, are violated and/or which among the
grounds under Art. 282 is being charged against the
employees.
(2) After serving the first notice, the employers
should schedule and conduct
a hearing or conferencewherein the employees will
be given the opportunity to: (1) explain and clarify
their defenses to the charge against them; (2)
present evidence in support of their defenses; and
(3) rebut the evidence presented against them by
the management. During the hearing or conference,
the employees are given the chance to defend
themselves personally, with the assistance of a
representative or counsel of their choice. Moreover,
this conference or hearing could be used by the
parties as an opportunity to come to an amicable
settlement.
(3) After determining that termination of employment
is justified, the employers shall serve the employees
awritten notice of termination indicating that: (1)
all circumstances involving the charge against the
employees have been considered; and (2) grounds
have been established to justify the severance of
their employment.

We are not persuaded.
We held in Agabon v. NLRC:

In addition, if the continued employment poses a serious and
imminent threat to the life or property of the employers or of
other employees like theft or physical injuries, and there is a
need for preventive suspension,17the employers can

30

immediately suspend the erring employees for a period of not
more than 30 days. Notwithstanding the suspension, the
employers are tasked to comply with the twin notice
requirement under the law. The preventive suspension cannot
replace the required notices.18 Thus, there is still a need to
comply with the twin notice requirement and the requisite
hearing or conference to ensure that the employees are
afforded due process even though they may have been
caught in flagrante or when the evidence of the commission
of the offense is strong.

G.R. No. 173357

On the surface, it would seem that petitioners observed due
process (twin notice and hearing requirement): On February
23, 1999 petitioner notified respondent of the hearing to be
conducted later that day. On the same day before the hearing,
respondent was furnished a copy of an office memorandum
which contained a list of his offenses, and a notice of a
scheduled hearing in the afternoon of the same day. The next
day, February 24, 1999, he was notified that his employment
with petitioner R.B. Michael Press had been terminated.

This is a petition for review on certiorari 1 of the Court of
Appeals' Decision2 dated April 27. 2006 in CA-G.R. SP No.
92202, and its Resolution dated .July 13, 2006, denying
petitioner's motion for reconsideration.

A scrutiny of the disciplinary process undertaken by
petitioners leads us to conclude that they only paid lip service
to the due process requirements.
The undue haste in effecting respondent’s termination shows
that the termination process was a mere simulation—the
required notices were given, a hearing was even scheduled
and held, but respondent was not really given a real
opportunity to defend himself; and it seems that petitioners
had already decided to dismiss respondent from service, even
before the first notice had been given.
Anent the written notice of charges and hearing, it is plain to
see that there was merely a general description of the
claimed offenses of respondent. The hearing was immediately
set in the afternoon of February 23, 1999—the day respondent
received the first notice. Therefore, he was not given any
opportunity at all to consult a union official or lawyer, and,
worse, to prepare for his defense.
Regarding the February 23, 1999 afternoon hearing, it can be
inferred that respondent, without any lawyer or friend to
counsel him, was not given any chance at all to adduce
evidence in his defense. At most, he was asked if he did not
agree to render overtime work on February 22, 1999 and if he
was late for work for 197 days. He was never given any real
opportunity to justify his inability to perform work on those
days. This is the only explanation why petitioners assert that
respondent admitted all the charges.
In the February 24, 1999 notice of dismissal, petitioners
simply justified respondent’s dismissal by citing his admission
of the offenses charged. It did not specify the details
surrounding the offenses and the specific company rule or
Labor Code provision upon which the dismissal was grounded.
In view of the infirmities in the proceedings, we conclude that
termination of respondent was railroaded in serious breach of
his right to due process. And as a consequence of the
violation of his statutory right to due process and
following Agabon, petitioners are liable jointly and solidarily to
pay nominal damages to the respondent in the amount of PhP
30,000.19
WHEREFORE, premises considered, the November 14, 2001
CA Decision in CA-G.R. SP No. 62959, the April 28, 2000
Decision of the NLRC in NLRC NCR CA No. 022433-00, and the
October 29, 1999 Decision of the Labor Arbiter in NLRC Case
No. RAB IV-2-10806-99-C are hereby REVERSED and SET
ASIDE. The Court declares respondent’s dismissal from
employment VALID and LEGAL. Petitioners are, however,
ordered jointly and solidarily to pay respondent nominal
damages in the amount of PhP 30,000 for violation of
respondent’s right to due process.
No costs.
SO ORDERED.

February 13, 2013

ROWENA DE LEON CRUZ, Petitioner,
vs.
BANK OF THE PHILIPPINE ISLANDS, Respondents.
DECISION
PERALTA, J.:

The Court of Appeals affirmed the Decision of the National
Labor Relations Commission (NLRC), dated January 31, 2005,
which reversed and set aside the Decision of the Labor Arbiter
finding the dismissal of petitioner Rowena de Leon Cruz to he
illegal. The NLRC dismissed petitioner’s Complaint for lack of
merit.
The facts are as follows:
Petitioner was hired by Far East Bank and Trust Company
(FEBTC) in 1989. Upon the merger of FEBTC with respondent
Bank of the Philippine Islands (BPI) in April 2000, petitioner
automatically became an employee of respondent. Petitioner
held the position of Assistant Branch Manager of the BPI Ayala
Avenue Branch in Makati City, and she was in charge of the
Trading Section.
On July 12, 2002, after 13 years of continuous service,
respondent terminated petitioner on grounds of gross
negligence and breach of trust. Petitioner's dismissal was
brought about by the fraud perpetrated against three
depositors, namely, Geoffrey L. Uymatiao, Maybel Caluag and
Evelyn G. Avila, in respondent's Ayala Avenue Branch.
The fraud committed against Uymatiao, Caluag and Avila was
narrated by the NLRC and the Court of Appeals as follows:
On June 2, 1997, Geoffrey Uymatiao deposited US$29,592.30
under a U.S. Dollar Certificate of Deposit (USD CD) with
respondent's Ayala Avenue Branch. As shown on the USD CD,
it was supposed to mature a month after its issuance or on
July 2, 1997. Since the USD CD was not presented by
Uymatiao for redemption on July 2, 1997, it was automatically
rolled over on a monthly basis by the bank with a new USD CD
being issued for each rolled-over USD CD, and the rolled-over
USD CD was kept by the bank.
On June 21, 2000, Uymatiao's USD CD, with due date on June
27, 2000, was pre-terminated and the proceeds thereof,
amounting to US$34,358.03, was credited to an account
opened in the name of Uymatiao by means of an Instruction
Sheet. However, it was not Uymatiao who pre-terminated the
last USD CD, as the prior USD CD was still in his possession.
When Uymatiao discovered the fraud, he immediately wrote
respondent a letter complaining that he was not the one who
pre-terminated the account. Upon investigation, it turned out
that Uymatiao's signature was forged and intercalated in the
records of BPI Ayala Avenue Branch. Moreover, it was
petitioner who approved the pre-termination of Uymatiao's
USD CD and the withdrawal of the proceeds thereof.
Uymatiao also had a U.S. Dollar Savings Account. For a time,
his savings account was dormant. However, on June 23, 2003,
the account was reactivated, without Uymatiao's consent,
through an alleged Instruction Sheet bearing the forged
signature of Uymatiao and a spurious passbook. On the same
date that it was reactivated, the amount of US$15,000.00 was
withdrawn. On July 7, 2002, the amount of US$3,500.00 was
again withdrawn from Uymatiao's account.
Uymatiao complained about the illegal withdrawal. An
investigation revealed that the Letter of Instruction, which was
used to reactivate the account, was a forgery. Moreover, it

31

was found that petitioner was the one who approved the
reactivation and withdrawal of money from Uymatiao's
account.
The second defrauded depositor, Maybel Caluag, deposited
US$5,848.30 under a USD CD, which was supposed to mature
on February 11, 2000. The automatic roll-over of Caluag's USD
CD would have continued, but on July 24, 2000, the same was
pre-terminated and the proceeds thereof, amounting to
US$6,006.58, was credited to an account opened in the name
of Caluag by means of an Instruction Sheet. The amount was
subsequently withdrawn.
On July 28, 2000, Caluag discovered the fraud and complained
that she did not pre-terminate her USD CD. She said that she
was in Japan on July 24, 2000 and she did not authorize
anyone to pre-terminate her account. She presented the
original certificate of deposit issued to her to prove that she
did not have her account pre-terminated. Upon investigation,
it was found that petitioner was the one who approved the
pre-termination of Caluag's account.
The third defrauded depositor, Evelyn Avila, had a balance of
US$20,575.12 in her U.S. Dollar Savings Account as of March
31, 2000. On July 27, 2000, it was made to appear that Avila
withdrew the balance from her account. On February 28,
2001, Avila discovered the illegal withdrawal and complained
to respondent about it. She said that she was in Australia on
July 27, 2000 when the withdrawal from her account was
made. An investigation later showed that it was petitioner
who approved the withdrawal from Avila's account.
On April 19, 2002, BPI Vice-President Edwin S. Ragos issued a
memorandum3 directing petitioner to explain within 24 hours
the aforementioned unauthorized preterminations/withdrawals of US dollar deposits at the BPI
Ayala Avenue Branch.
In petitioner's reply,4 she asserted that she followed the bank
procedure/policy on pre-termination of accounts, opening of
transitory accounts and reactivation of dormant accounts. She
explained that upon verifying the authenticity of the
signatures of the depositors involved, she approved the
withdrawals from certain accounts of these clients. With
regard to the pre-termination of Uymatiao's USD CD,
petitioner claimed that the Trader presented to her what she
believed was an original and genuine client copy of the
certificate of deposit, the surrender of which caused the
issuance of a new USD CD.
Moreover, petitioner stated that at the time the alleged
fraudulent transactions took place, she was not yet an
Assistant Manager, but only a Cash II Officer of the branch,
still operating under the FEBTC set-up. As such, she was in
charge of overseeing and supervising all the transactions in
the Trading Section, among other departments. Hence, her
responsibilities required her only to bring out signature card
files from the vault to the Trading Section and to ensure that
these files were returned to the vault at the close of banking
hours.
On May 22, 2002, an administrative hearing was held to give
petitioner an opportunity to explain her side of the
controversy.
On July 10, 2002, a notice of termination5 was issued
informing petitioner of her dismissal effective July 12, 2002 on
grounds of gross negligence and breach of trust for the
following acts: (1) allowing the issuance of USD CDs under the
bank's safekeeping to an impostor without valid consideration;
(2) allowing USD CD pre-terminations based on such
irregularly released certificates; and (3) allowing withdrawals
by third parties from clients' accounts, which resulted in
prejudice to the bank.
Petitioner filed an appeal before BPI President Xavier Loinaz,
but her appeal was denied.

The aforementioned incidents of fraud resulted in the
dismissal of three officers, including petitioner, one trader; the
suspension of two officers and one trader, and the reprimand
of one teller.6
Thereafter, petitioner filed a Complaint for illegal dismissal
against respondent and its officers with the Arbitral Office of
the NLRC.
In her Position Paper, petitioner alleged that her employment
record as an officer and staff had always been beyond par and
was not tainted with any fraud or anomaly. When the incidents
took place, she was barely two months as Service Officer of
the Ayala Avenue Branch's Trading Section, and she was
hardly familiar with any bank client, not to mention the
enormous volume of transactions handled by the said BPI
branch. Being new in her position, she had yet to adjust to the
system in place. Nonetheless, she followed the policies and
procedural control prior to affixing her initials as approving
authority; hence, petitioner asserted that her dismissal was
grossly disproportionate as a penalty.
In respondent's Position Paper, respondent asserted that
petitioner's dismissal is legal; hence, petitioner has no cause
of action against it. Respondent stated that there is no
question that the fraudulent incidents, which affected its three
depositors, namely, Uymatiao, Caluag and Avila, happened in
its Ayala Avenue Branch, and that the fraudulent transactions
were approved by petitioner as borne out by her signature on
the documents allowing the pre-termination of certificates of
dollar deposits and allowing the withdrawal of dollar deposits
from the respective savings account of the affected
depositors. Respondent stated that in giving the
aforementioned unauthorized pre-termination and withdrawal
transactions her seal of approval, petitioner neglected to
perform one, if not the most, basic banking requirement
integral to these transactions, which is to see to it that the
persons who effected the pre-termination and cancellation of
the USD CDs and who made the withdrawals from the U.S.
dollar savings deposits and received the proceeds thereof
were really the depositors themselves, namely, Uymatiao,
Caluag and Avila. According to respondent, as it happened,
respondent never exerted any effort to require such persons
to produce satisfactory identification, which was the reason
the aforementioned incidents of fraud were successfully
carried out. If it had been her own money that was involved,
petitioner would have asked for more than what was expected
of her in this case, which was simply to ask for satisfactory
identification from the respective person effecting the pretermination of the certificate of deposit and making the
withdrawal. Hence, respondent submitted that petitioner's
dismissal on grounds of gross negligence and breach of trust,
resulting in the substantial monetary loss to respondent in the
sum of US$81,492.39, which it reimbursed to the affected
depositors, is legal and valid.
In a Decision7 dated April 1, 2004, the Labor Arbiter held that
the dismissal of petitioner was illegal. The dispositive portion
of the decision reads:
WHEREFORE, decision is hereby rendered declaring the
dismissal of complainant Rowena Cruz illegal such that
respondent Bank of the Philippine Islands is hereby ordered to
reinstate her to her former or substantially equivalent position
without loss of seniority rights and other privileges and to pay
her backwages and attorney's fees in the amount of SIX
HUNDRED THIRTY-NINE THOUSAND ONE HUNDRED EIGHTY-SIX
PESOS AND 16/100 (P639,186.16).8
The Labor Arbiter held that petitioner cannot be considered a
managerial employee, and that her dismissal on grounds of
gross negligence and breach of trust was unjustified.
On appeal, the NLRC reversed and set aside the Decision of
the Labor Arbiter, and it entered a new decision dismissing
petitioner's Complaint for lack of merit.9
The NLRC stated that the evidence showed that the pretermination of the accounts of the depositors involved and the
withdrawal of money from such accounts were with the

32

approval of petitioner. A stamp of approval given by a bank
officer, especially in sensitive transactions like pre-termination
of accounts and withdrawal of money, means that the
corresponding documents are in order and the validity of such
documents had been verified. Otherwise, there would be no
integrity in the approval of these transactions, considering
that approval is the last act that would give effect to the
transactions involved. According to the NLRC, the banking
industry is such a sensitive one that the trust given by a
bank's depositors must be protected at all times even by the
lowest-ranking employee. As petitioner's signature appeared
in the documents showing her approval of the pre-termination
of the accounts of the depositors involved and the withdrawal
of money from their accounts, the NLRC reversed the decision
of the Labor Arbiter and ruled that petitioner's dismissal was
for a valid cause.
Petitioner filed a petition for certiorari with the Court of
Appeals, alleging that the NLRC acted with grave abuse of
discretion amounting to lack or excess of jurisdiction for the
following: (1) Failing to consider with great respect and finality
the factual findings of the Labor Arbiter that petitioner
followed all the policies and procedures in place and, hence, is
not remiss in her duties; (2) concluding that mere approval of
the transactions by petitioner in itself was a valid cause for
dismissal; (3) concluding that petitioner could not be
exculpated from liability by claiming that it is not incumbent
upon her to call the depositors to personally appear before
her and confirm their signatures when such is not required of
petitioner; (4) not holding that the petitioner could not have
committed gross negligence at the time the questioned
transactions occurred, as she was not an Assistant Manager
and her duties were that of a Cash II Officer; (5) not holding
that there was insufficient factual and legal basis to terminate
petitioner's employment; (6) ignoring the fundamental rule
that all doubts must be resolved in favor of labor; (7) not
affirming the award of backwages; and (8) not affirming the
award of attorney's fees.10
On April 27, 2006, the Court of Appeals rendered a
Decision,11 the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition is
hereby DENIED and is accordingly DISMISSED. No costs.12
The Court of Appeals disagreed with petitioner's submission,
in gist, that her termination was grossly disproportionate to
the omission she committed. It stressed that petitioner was
holding a highly confidential position, as Assistant Branch
Manager, in the banking industry, which required
extraordinary diligence among its employees. If petitioner was
still unfamiliar with the terrain of her position, she should not
have accepted it.
The Court of Appeals stated that petitioner is a managerial
employee whose continuous employment is dependent on the
trust and confidence reposed on her by respondent. After the
incident wherein respondent lost thousands of U.S. dollars, it
could not be expected that the trust and confidence petitioner
was previously enjoying could still be extended by
respondent. Hence, the Court of Appeals held that petitioner's
dismissal based on the ground of loss of trust and confidence
was a valid exercise of management prerogative.
Petitioner's motion for reconsideration was denied by the
Court of Appeals in a Resolution13 dated July 13, 2006.
Petitioner filed this petition, and raised in her Memorandum
the following issues:
I
WHETHER OR NOT THE FINDINGS OF FACT OF LABOR
ARBITER LEDA ARE TO BE GIVEN MORE WEIGHT AND
RESPECT GIVEN THE DOCTRINE LAID DOWN THAT
THOSE FINDINGS OF FACT OF THE LABOR ARBITER,
IN THE ABSENCE OF ANY FINDING OF ABUSE OF
DISCRETION, ARE NOT TO BE DISTURBED ON
APPEAL.

II
WHETHER OR NOT THE EVIDENCE SUBMITTED BY
RESPONDENT BANK IS SUBSTANTIAL IN CHARACTER
TO WARRANT THE DISMISSAL OF THE PETITIONER,
GIVEN THE ELEMENTARY RULES IN LABOR THAT
DOUBTS ARE TO BE RESOLVED IN FAVOR OF LABOR
AND THE BURDEN OF PROOF THAT DISMISSAL IS FOR
JUST CAUSE RESTS UPON THE EMPLOYER AND NOT
ON THE WEAKNESS OF THE EVIDENCE FOR THE
EMPLOYEE.
III
WHETHER OR NOT THE PENALTY OF DISMISSAL IS
DISPROPORTIONATE TO OR IS IT COMMENSURATE TO
THE ACTS ATTRIBUTED TO THE [PETITIONER] IN THE
PERFORMANCE OF HER DUTIES.14
Petitioner contends that the factual finding of the Labor
Arbiter is to be respected and given credence on appeal in the
absence of abuse of discretion.
As the decision of the Labor Arbiter has been appealed to the
NLRC, the NLRC has the power to review the factual finding
and resolution of the Labor Arbiter. It is a settled rule that only
errors of law are generally reviewed by this Court in petitions
for review on certiorari of the decisions of the Court of
Appeals.15 However, an exception to this rule is when the
findings of the NLRC, as affirmed by the Court of Appeals,
contradict those of the Labor Arbiter.16 In this case, the Labor
Arbiter found that petitioner was illegally dismissed, while the
NLRC reversed the finding of the Labor Arbiter, which reversal
was affirmed by the Court of Appeals. In view of the
discordance between the findings of the Labor Arbiter, on one
hand, and the NLRC and the Court of Appeals, on the other,
there is a need for the Court, in the exercise of its equity
jurisdiction, to review the factual findings and the conclusions
based on the said findings.17
After a review of the records of the case, the Court agrees
with the findings of the Court of Appeals and the NLRC that
petitioner's dismissal was for a valid cause.
Respondent dismissed petitioner from her employment on
grounds of gross negligence and breach of trust reposed on
her by respondent under Article 282 (b) and (c) of the Labor
Code.1âwphi1
Gross negligence connotes want or absence of or failure to
exercise slight care or diligence, or the entire absence of
care.18 It evinces a thoughtless disregard of consequences
without exerting any effort to avoid them.19 On the other
hand, the basic premise for dismissal on the ground of loss of
confidence is that the employees concerned hold a position of
trust and confidence.20 It is the breach of this trust that results
in the employer's loss of confidence in the employee.21
In this case, respondent avers that petitioner held the position
of Assistant Manager in its Ayala Avenue Branch. However,
petitioner contends that her position was only Cash II Officer.
The test of "supervisory" or "managerial status" depends on
whether a person possesses authority to act in the interest of
his employer and whether such authority is not merely
routinary or clerical in nature, but requires the use of
independent judgment.22
In respondent's Position Paper23 before the NLRC and its
Memorandum,24 respondent stated that the responsibility of
petitioner, among others, were as follows: (1) to maintain the
integrity of the signature card files of certificates of deposits
and/or detect spurious signature cards in the same files; (2) to
ensure that releases of original CDS are done only against
valid considerations and made only to the legitimate
depositors or their duly authorized representatives; (3) to
approve payments or withdrawals of deposits by clients to
ensure that such withdrawals are valid transactions of the

33

bank; and (4) to supervise the performance of certain rankand-file employees of the branch.
Petitioner holds a managerial status since she is tasked to act
in the interest of her employer as she exercises independent
judgment when she approves pre-termination of USD CDs or
the withdrawal of deposits. In fact, petitioner admitted the
exercise of independent judgment when she explained that as
regards the pre-termination of the USD CDs of Uymatiao and
Caluag, the transactions were approved on the basis of her
independent judgment that the signatures in all the
documents presented to her by the traders matched, as
shown in her reply25 dated April 23, 2002 to respondent's
memorandum asking her to explain the unauthorized
preterminations/withdrawals of U.S. dollar deposits in the BPI
Ayala Avenue Branch.
Petitioner contends that respondent failed to submit
substantial evidence to warrant a conclusion that she
committed acts amounting to willful breach of trust and gross
negligence. Petitioner submits that although she approved the
fraudulent pre-termination of the accounts involved as well as
the withdrawal of money from the accounts, before she
affixed her signature on the questioned transactions, she
followed office procedures by requiring the presentation of the
original certificate on file with the branch bearing the client's
signatures as proof that he holds the original in his
possession, withdrawal slips, which when matched by her
(petitioner) with the signature card on file with the branch,
were found to be all the same. Hence, all required signatures
matched before she (petitioner) gave her approval. According
to petitioner, per respondent's policy, the signature card on
file is the most exacting requirement in branch operations;
hence, even when an identification card is required from the
bank's client, the basis of approval would still be the signature
card on file with the branch. Moreover, petitioner reasons that
she was barely two months with the BPI Ayala Avenue Branch
when the questioned transactions occurred. She asserts that
she had no participation in the insertion of spurious signature
cards which was done prior to her designation as Cash II
Officer of the Ayala Avenue Branch.
Respondent counters that investigation disclosed that in
approving the respective pre-termination transactions of
Uymatiao and Caluag, no sincere effort was made by
petitioner to properly identify the person or persons
presenting the certificates of deposit for pre-termination. In
other words, petitioner did not see to it that it was really
Uymatiao or Caluag who was pre-terminating his/her USD CD.
Neither did petitioner require that the original certificates of
time deposit, which were supposed to be in the possession of
Uymatiao and Caluag, be surrendered in exchange for the
rolled-over certificates which were pre-terminated.
The Court notes that petitioner admitted that she did not call
the depositors to appear before her, although she performed
other procedures to determine whether the subject
transactions were with the depositors'
authorization.26 Petitioner did not determine if it was really
Uymatiao and Caluag who were pre-terminating their
respective USD CD, as she based the identification of the said
clients from their matching signatures on the original
certificate on file with the branch, withdrawal slips and
signature cards. Moreover, as stated by respondent, petitioner
did not require that the original certificates of time deposit in
the possession of Uymatiao and Caluag be surrendered to the
bank when the rolled-over certificates were pre-terminated. If
petitioner took the precaution to identify that it was really
Uymatiao and Caluag who were pre-terminating their
respective USD CD, and required that Uymatiao and Calaug
surrender their respective original certificates of time deposit
in their possession upon pre-termination of the rolled-over
certificates, the fraud could have been averted.
In that regard, petitioner was remiss in the performance of her
duty to approve the pre-termination of certificates of deposits
by legitimate depositors or their duly-authorized
representatives, resulting in prejudice to the bank, which
reimbursed the monetary loss suffered by the affected clients.
Hence, respondent was justified in dismissing petitioner on
the ground of breach of trust. As long as there is some basis

for such loss of confidence, such as when the employer has
reasonable ground to believe that the employee concerned is
responsible for the purported misconduct, and the nature of
his participation therein renders him unworthy of the trust and
confidence demanded of his position, a managerial employee
may be dismissed.27
Bristol Myers Squibb (Phils). Inc. v. Baban28 reiterated:
x x x [A]s a general rule. employers are allowed a wider
latitude of discretion in terminating the services of employees
who perform functions by which their nature require the
employer's full trust and confidence. Mere existence of basis
for believing that the employee has breached the trust and
confidence of the employer is sufficient and does not require
proof beyond reasonable doubt. Thus. when an employee has
been guilty of breach of trust or his employer has ample
reason to distrust him. a labor tribunal cannot deny the
employer the authority to dismiss him.29
In fine, the dismissal of petitioner on the ground of breach of
trust or loss of trust and confidence is upheld.
WHEREFORE, the petition is DENIED. The Court of Appeals’
Decision dated April 27, 2006 in CA-G.R. SP No. 92202, and its
Resolution dated July 13, 2006 are hereby AFFIRMED.
No costs.
SO ORDERED.
G.R. No. 184517

October 8, 2013

SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON
and AURELIO VILLAFLOR, JR., Petitioners,
vs.
PEREGRIN T. DE GUZMAN,EDUARDO M. AGUSTIN, JR.,
ELICERIO GASPAR, , RICARDO GASPAR JR., EUFEMIA
ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.
x-----------------------x
G.R. No. 186641
SME BANK INC., ABELARDO P. SAMSON, OLGA SAMSON
and AURELIO VILLAFLOR, JR., Petitioners,
vs.
ELICERIO GASPAR, RICARDO GASPAR, JR., EUFEMIA
ROSETE, FIDEL ESPIRITU, SIMEONESPIRITU, JR., and
LIBERATO MANGOBA, Respondents.
DECISION
SERENO, CJ.:
Security of tenure is a constitutionally guaranteed
right.1 Employees may not be terminated from their regular
employment except for just or authorized causes under the
Labor Code2 and other pertinent laws. A mere change in the
equity composition of a corporation is neither a just nor an
authorized cause that would legally permit the dismissal of
the corporation’s employees en masse.
Before this Court are consolidated Rule 45 Petitions for Review
on Certiorari3 assailing the Decision4 and Resolution5 of the
Court of Appeals(CA) in CA-G.R. SP No. 97510 and its
Decision6 and Resolution7 in CA-G.R. SP No. 97942.
The facts of the case are as follows:
Respondent employees Elicerio Gaspar (Elicerio), Ricardo
Gaspar, Jr.(Ricardo), Eufemia Rosete (Eufemia), Fidel Espiritu
(Fidel), Simeon Espiritu, Jr. (Simeon, Jr.), and Liberato Mangoba
(Liberato) were employees of Small and Medium Enterprise
Bank, Incorporated (SME Bank).Originally, the principal

34

shareholders and corporate directors of the bank were
Eduardo M. Agustin, Jr. (Agustin) and Peregrin de Guzman, Jr.
(De Guzman).
In June 2001, SME Bank experienced financial difficulties. To
remedy the situation, the bank officials proposed its sale to
Abelardo Samson(Samson).8
Accordingly, negotiations ensued, and a formal offer was
made to Samson. Through his attorney-in-fact, Tomas S.
Gomez IV, Samson then sent formal letters (Letter
Agreements) to Agustin and De Guzman, demanding the
following as preconditions for the sale of SME Bank’s shares of
stock:
4. You shall guarantee the peaceful turn over of all assets as
well as the peaceful transition of management of the bank
and shall terminate/retire the employees we mutually agree
upon, upon transfer of shares in favor of our group’s
nominees;

On 27 October 2004, the labor arbiter ruled that the buyer of
an enterprise is not bound to absorb its employees, unless
there is an express stipulation to the contrary. However, he
also found that respondent employees were illegally
dismissed, because they had involuntarily executed their
resignation letters after relying on representations that they
would be given their separation benefits and rehired by the
new management. Accordingly, the labor arbiter decided the
case against Agustin and De Guzman, but dismissed the
Complaint against the Samson Group, as follows:
WHEREFORE, premises considered, judgment is hereby
rendered ordering respondents Eduardo Agustin, Jr. and
Peregrin De Guzman to pay complainants’ separation pay in
the total amount of P339,403.00 detailed as follows:
Elicerio B. Gaspar = P 5,837.00
Ricardo B. Gaspar, Jr. = P11,674.00
Liberato B. Mangoba = P64,207.00

xxxx
Fidel E. Espiritu = P29,185.00
7. All retirement benefits, if any of the above
officers/stockholders/board of directors are hereby waived
upon consummation [sic] of the above sale. The retirement
benefits of the rank and file employees including the
managers shall be honored by the new management in
accordance with B.R. No. 10, S. 1997.9
Agustin and De Guzman accepted the terms and conditions
proposed by Samson and signed the conforme portion of the
Letter Agreements.10

Simeon B. Espiritu, Jr. = P26,000.00
Eufemia E. Rosete = P202,510.00
All other claims including the complaint against Abelardo
Samson, Olga Samson and Aurelio Villaflor are hereby
DISMISSED for want of merit.
SO ORDERED.30

Simeon Espiritu (Espiritu), then the general manager of SME
Bank, held a meeting with all the employees of the head office
and of the Talaveraand Muñoz branches of SME Bank and
persuaded them to tender their resignations,11 with the
promise that they would be rehired upon reapplication. His
directive was allegedly done at the behest of petitioner Olga
Samson.12
Relying on this representation,
Elicerio,13 Ricardo,14 Fidel,15 Simeon, Jr.,16 and
Liberato17 tendered their resignations dated 27 August 2001.
As for Eufemia, the records show that she first tendered a
resignation letter dated27 August 2001,18 and then a
retirement letter dated September 2001.19
Elicerio,20 Ricardo,21 Fidel,22 Simeon, Jr.,23 and
Liberato24 submitted application letters on 11 September
2001. Both the resignation letters and copies of respondent
employees’ application letters were transmitted by Espiritu to
Samson’s representative on 11 September 2001. 25
On 11 September 2001, Agustin and De Guzman signified
their conformity to the Letter Agreements and sold 86.365%
of the shares of stock of SME Bank to spouses Abelardo and
Olga Samson. Spouses Samson then became the principal
shareholders of SME Bank, while Aurelio Villaflor, Jr. was
appointed bank president. As it turned out, respondent
employees, except for Simeon, Jr.,26 were not rehired. After a
month in service, Simeon, Jr. again resigned on October
2001.27
Respondent-employees demanded the payment of their
respective separation pays, but their requests were
denied.1âwphi1
Aggrieved by the loss of their jobs, respondent employees
filed a Complaint before the National Labor Relations
Commission (NLRC)– Regional Arbitration Branch No. III and
sued SME Bank, spouses Abelardo and Olga Samson and
Aurelio Villaflor (the Samson Group) for unfair labor practice;
illegal dismissal; illegal deductions; underpayment; and
nonpayment of allowances, separation pay and 13th month
pay.28 Subsequently, they amended their Complaint to include
Agustin and De Guzman as respondents to the case. 29

Dissatisfied with the Decision of the labor arbiter, respondent
employees, Agustin and De Guzman brought separate appeals
to the NLRC. Respondent employees questioned the labor
arbiter’s failure to award backwages, while Agustin and De
Guzman contended that they should not be held liable for the
payment of the employees’ claims.
The NLRC found that there was only a mere transfer of shares
– and therefore, a mere change of management – from
Agustin and De Guzman to the Samson Group. As the change
of management was not a valid ground to terminate
respondent bank employees, the NLRC ruled that they had
indeed been illegally dismissed. It further ruled that Agustin,
De Guzman and the Samson Group should be held jointly and
severally liable for the employees’ separation pay and
backwages, as follows:
WHEREFORE, premises considered, the Decision appealed
from is hereby MODIFIED. Respondents are hereby Ordered to
jointly and severally pay the complainants backwages from 11
September 2001 until the finality of this Decision, separation
pay at one month pay for every year of service, P10,000.00
and P5,000.00 moral and exemplary damages, and five (5%)
percent attorney’s fees.
Other dispositions are AFFIRMED
SO ORDERED.31
On 28 November 2006, the NLRC denied the Motions for
Reconsideration filed by Agustin, De Guzman and the Samson
Group.32
Agustin and De Guzman filed a Rule 65 Petition for Certiorari
with the CA, docketed as CA-G.R. SP No. 97510. The Samson
Group likewise filed a separate Rule 65 Petition for Certiorari
with the CA, docketed as CA-G.R. SP No. 97942. Motions to
consolidate both cases were not acted upon by the appellate
court.

35

On 13 March 2008, the CA rendered a Decision in CA-G.R. SP
No.97510 affirming that of the NLRC. The fallo of the CA
Decision reads:
WHEREFORE, in view of the foregoing, the petition is DENIED.
Accordingly, the Decision dated May 8, 2006, and Resolution
dated November 28, 2006 of the National Labor Relations
Commission in NLRC NCR CA No. 043236-05 (NLRC RAB III-074542-02) are hereby AFFIRMED.
SO ORDERED.33
Subsequently, CA-G.R. SP No. 97942 was disposed of by the
appellate court in a Decision dated 15 January 2008, which
likewise affirmed that of the NLRC. The dispositive portion of
the CA Decision states:
WHEREFORE, premises considered, the instant Petition for
Certiorari is denied, and the herein assailed May 8, 2006
Decision and November 28, 2006 Resolution of the NLRC are
hereby AFFIRMED.

Here, the records show that Elicerio, Ricardo, Fidel, and
Liberato only tendered resignation letters because they were
led to believe that, upon reapplication, they would be
reemployed by the new management.42 As it turned out,
except for Simeon, Jr., they were not rehired by the new
management. Their reliance on the representation that they
would be reemployed gives credence to their argument that
they merely submitted courtesy resignation letters because it
was demanded of them, and that they had no real intention of
leaving their posts. We therefore conclude that Elicerio,
Ricardo, Fidel, and Liberato did not voluntarily resign from
their work; rather, they were terminated from their
employment.
As to Eufemia, both the CA and the NLRC discussed her case
together with the cases of the rest of respondent-employees.
However, a review of the records shows that, unlike her coemployees, she did not resign; rather, she submitted a letter
indicating that she was retiring from her former position. 43
The fact that Eufemia retired and did not resign, however,
does not change our conclusion that illegal dismissal took
place.

SO ORDERED.34
The appellate court denied the Motions for Reconsideration
filed by the parties in Resolutions dated 1 September
200835 and 19 February 2009.36
The Samson Group then filed two separate Rule 45 Petitions
questioning the CA Decisions and Resolutions in CA-G.R. SP
No. 97510 and CA-G.R. SP No. 97942. On 17 June 2009, this
Court resolved to consolidate both Petitions. 37
THE ISSUES
Succinctly, the parties are asking this Court to determine
whether respondent employees were illegally dismissed and,
if so, which of the parties are liable for the claims of the
employees and the extent of the reliefs that may be awarded
to these employees.
THE COURT’S RULING
The instant Petitions are partly meritorious.
I
Respondent employees were illegally dismissed.
As to Elicerio Gaspar, Ricardo Gaspar, Jr., Fidel Espiritu,
Eufemia Rosete and Liberato Mangoba
The Samson Group contends that Elicerio, Ricardo, Fidel, and
Liberato voluntarily resigned from their posts, while Eufemia
retired from her position. As their resignations and retirements
were voluntary, they were not dismissed from their
employment.38 In support of this argument, it presented
copies of their resignation and retirement letters,39 which were
couched in terms of gratitude.
We disagree. While resignation letters containing words of
gratitude may indicate that the employees were not coerced
into resignation,40 this fact alone is not conclusive proof that
they intelligently, freely and voluntarily resigned. To rule that
resignation letters couched in terms of gratitude are, by
themselves, conclusive proof that the employees intended to
relinquish their posts would open the floodgates to possible
abuse. In order to withstand the test of validity, resignations
must be made voluntarily and with the intention of
relinquishing the office, coupled with an act of
relinquishment.41 Therefore, in order to determine whether the
employees truly intended to resign from their respective
posts, we cannot merely rely on the tenor of the resignation
letters, but must take into consideration the totality of
circumstances in each particular case.

Retirement, like resignation, should be an act completely
voluntary on the part of the employee. If the intent to retire is
not clearly established or if the retirement is involuntary, it is
to be treated as a discharge.44
In this case, the facts show that Eufemia’s retirement was not
of her own volition. The circumstances could not be more
telling. The facts show that Eufemia was likewise given the
option to resign or retire in order to fulfill the precondition in
the Letter Agreements that the seller should "terminate/retire
the employees [mutually agreed upon] upon transfer of
shares" to the buyers.45 Thus, like her other co-employees,
she first submitted a letter of resignation dated 27 August
2001.46 For one reason or another, instead of resigning, she
chose to retire and submitted a retirement letter to that
effect.47 It was this letter that was subsequently transmitted to
the representative of the Samson Group on 11 September
2001.48
In San Miguel Corporation v. NLRC,49 we have explained that
involuntary retirement is tantamount to dismissal, as
employees can only choose the means and methods of
terminating their employment, but are powerless as to the
status of their employment and have no choice but to leave
the company. This rule squarely applies to Eufemia’s case.
Indeed, she could only choose between resignation and
retirement, but was made to understand that she had no
choice but to leave SME Bank. Thus, we conclude that, similar
to her other co-employees, she was illegally dismissed from
employment.
The Samson Group further argues50 that, assuming the
employees were dismissed, the dismissal is legal because
cessation of operations due to serious business losses is one
of the authorized causes of termination under Article 283 of
the Labor Code.51
Again, we disagree.
The law permits an employer to dismiss its employees in the
event of closure of the business establishment. 52However, the
employer is required to serve written notices on the worker
and the Department of Labor at least one month before the
intended date of closure.53 Moreover, the dismissed
employees are entitled to separation pay, except if the closure
was due to serious business losses or financial
reverses.54 However, to be exempt from making such
payment, the employer must justify the closure by presenting
convincing evidence that it actually suffered serious financial
reverses.55
In this case, the records do not support the contention of SME
Bank that it intended to close the business establishment. On
the contrary, the intention of the parties to keep it in
operation is confirmed by the provisions of the Letter

36

Agreements requiring Agustin and De Guzman to guarantee
the "peaceful transition of management of the bank" and to
appoint "a manager of [the Samson Group’s] choice x x x to
oversee bank operations."
Even assuming that the parties intended to close the bank,
the records do not show that the employees and the
Department of Labor were given written notices at least one
month before the dismissal took place. Moreover, aside from
their bare assertions, the parties failed to substantiate their
claim that SME Bank was suffering from serious financial
reverses.
In fine, the argument that the dismissal was due to an
authorized cause holds no water.
Petitioner bank also argues that, there being a transfer of the
business establishment, the innocent transferees no longer
have any obligation to continue employing respondent
employees,56 and that the most that they can do is to give
preference to the qualified separated employees; hence, the
employees were validly dismissed.57
The argument is misleading and unmeritorious. Contrary to
petitioner bank’s argument, there was no transfer of the
business establishment to speak of, but merely a change in
the new majority shareholders of the corporation.
There are two types of corporate acquisitions: asset sales and
stock sales.58 In asset sales, the corporate entity59 sells all or
substantially all of its assets 60 to another entity. In stock sales,
the individual or corporate shareholders61 sell a controlling
block of stock62 to new or existing shareholders.
In asset sales, the rule is that the seller in good faith is
authorized to dismiss the affected employees, but is liable for
the payment of separation pay under the law. 63 The buyer in
good faith, on the other hand, is not obliged to absorb the
employees affected by the sale, nor is it liable for the
payment of their claims.64 The most that it may do, for
reasons of public policy and social justice, is to give
preference to the qualified separated personnel of the selling
firm.65
In contrast with asset sales, in which the assets of the selling
corporation are transferred to another entity, the transaction
in stock sales takes place at the shareholder level. Because
the corporation possesses a personality separate and distinct
from that of its shareholders, a shift in the composition of its
shareholders will not affect its existence and continuity. Thus,
notwithstanding the stock sale, the corporation continues to
be the employer of its people and continues to be liable for
the payment of their just claims. Furthermore, the corporation
or its new majority share holders are not entitled to lawfully
dismiss corporate employees absent a just or authorized
cause.
In the case at bar, the Letter Agreements show that their main
object is the acquisition by the Samson Group of 86.365% of
the shares of stock of SME Bank.66 Hence, this case involves a
stock sale, whereby the transferee acquires the controlling
shares of stock of the corporation. Thus, following the rule in
stock sales, respondent employees may not be dismissed
except for just or authorized causes under the Labor Code.
Petitioner bank argues that, following our ruling in Manlimos v.
NLRC,67 even in cases of stock sales, the new owners are
under no legal duty to absorb the seller’s employees, and that
the most that the new owners may do is to give preference to
the qualified separated employees.68 Thus, petitioner bank
argues that the dismissal was lawful.

employees then re-applied for their jobs and were rehired on a
probationary basis. After about six months, the new
management dismissed two of the employees for having
abandoned their work, and it dismissed the rest for
committing "acts prejudicial to the interest of the new
management."71 Thereafter, the employees sought
reinstatement, arguing that their dismissal was illegal, since
they "remained regular employees of the corporation
regardless of the change of management."72
In disposing of the merits of the case, we upheld the validity
of the second termination, ruling that "the parties are free to
renew the contract or not [upon the expiration of the period
provided for in their probationary contract of
employment]."73 Citing our pronouncements in Central
Azucarera del Danao v. Court of Appeals,74 San Felipe Neri
School of Mandaluyong, Inc. v. NLRC,75 and MDII Supervisors &
Confidential Employees Association v. Presidential Assistant
on Legal Affairs,76 we likewise upheld the validity of the
employees’ first separation from employment, pronouncing as
follows:
A change of ownership in a business concern is not proscribed
bylaw. In Central Azucarera del Danao vs. Court of Appeals,
this Court stated:
There can be no controversy for it is a principle wellrecognized, that it is within the employer’s legitimate sphere
of management control of the business to adopt economic
policies or make some changes or adjustments in their
organization or operations that would insure profit to itself or
protect the investment of its stockholders. As in the exercise
of such management prerogative, the employer may merge or
consolidate its business with another, or sellor dispose all or
substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the
process. Such dismissal or termination should not however be
interpreted in such a manner as to permit the employer to
escape payment of termination pay. For such a situation is not
envisioned in the law. It strikes at the very concept of social
justice.
In a number of cases on this point, the rule has been laid
down that the sale or disposition must be motivated by good
faith as an element of exemption from liability. Indeed, an
innocent transferee of a business establishment has no
liability to the employees of the transfer or to continue
employer them. Nor is the transferee liable for past unfair
labor practices of the previous owner, except, when the
liability therefor is assumed by the new employer under the
contract of sale, or when liability arises because of the new
owner’s participation in thwarting or defeating the rights of
the employees.
Where such transfer of ownership is in good faith, the
transferee is under no legal duty to absorb the transferor’s
employees as there is no law compelling such absorption. The
most that the transferee may do, for reasons of public policy
and social justice, is to give preference to the qualified
separated employees in the filling of vacancies in the facilities
of the purchaser.
Since the petitioners were effectively separated from work
due to a bona fide change of ownership and they were
accordingly paid their separation pay, which they freely and
voluntarily accepted, the private respondent corporation was
under no obligation to employ them; it may, however, give
them preference in the hiring. x x x. (Citations omitted)

We are not persuaded.
Manlimos dealt with a stock sale in which a new owner or
management group acquired complete ownership of the
corporation at the shareholder level.69 The employees of the
corporation were later "considered terminated, with their
conformity"70 by the new majority shareholders. The

37

We take this opportunity to revisit our ruling in Manlimos
insofar as it applied a doctrine on asset sales to a stock sale
case. Central Azucarera del Danao, San Felipe Neri School of
Mandaluyong and MDII Supervisors &Confidential Employees
Association all dealt with asset sales, as they involved a sale
of all or substantially all of the assets of the corporation. The
transactions in those cases were not made at the shareholder
level, but at the corporate level. Thus, applicable to those
cases were the rules in asset sales: the employees may be
separated from their employment, but the seller is liable for
the payment of separation pay; on the other hand, the buyer
in good faith is not required to retain the affected employees
in its service, nor is it liable for the payment of their claims.
The rule should be different in Manlimos, as this case involves
a stock sale. It is error to even discuss transfer of ownership of
the business, as the business did not actually change hands.
The transfer only involved a change in the equity composition
of the corporation. To reiterate, the employees are not
transferred to a new employer, but remain with the original
corporate employer, notwithstanding an equity shift in its
majority shareholders. This being so, the employment status
of the employees should not have been affected by the stock
sale. A change in the equity composition of the corporate
shareholders should not result in the automatic termination of
the employment of the corporation’s employees. Neither
should it give the new majority shareholders the right to
legally dismiss the corporation’s employees, absent a just or
authorized cause.
The right to security of tenure guarantees the right of
employees to continue in their employment absent a just or
authorized cause for termination. This guarantee proscribes a
situation in which the corporation procures the severance of
the employment of its employees – who patently still desire to
work for the corporation – only because new majority
stockholders and a new management have come into the
picture. This situation is a clear circumvention of the
employees’ constitutionally guaranteed right to security of
tenure, an act that cannot be countenanced by this Court.
It is thus erroneous on the part of the corporation to consider
the employees as terminated from their employment when
the sole reason for so doing is a change of management by
reason of the stock sale. The conformity of the employees to
the corporation’s act of considering them as terminated and
their subsequent acceptance of separation pay does not
remove the taint of illegal dismissal. Acceptance of separation
pay does not bar the employees from subsequently contesting
the legality of their dismissal, nor does it estop them from
challenging the legality of their separation from the service.77

Simeon, Jr., on the other hand, contends that while he was
reappointed by the new management after his letter of
application was transmitted, he was not given a clear position,
his benefits were reduced, and he suffered a demotion in
rank.82 These allegations were not refuted by the Samson
Group.
We hold that Simeon, Jr. was likewise illegally dismissed from
his employment.
Similar to our earlier discussion, we find that his first courtesy
resignation letter was also executed involuntarily. Thus, it
cannot be the basis of a valid resignation; and thus, at that
point, he was illegally terminated from his employment. He
was, however, rehired by SME Bank under new management,
although based on his allegations, he was not reinstated to his
former position or to a substantially equivalent one. 83 Rather,
he even suffered a reduction in benefits and a demotion in
rank.84 These led to his submission of another resignation
letter effective 15 October 2001.85
We rule that these circumstances show that Simeon, Jr. was
constructively dismissed. In
Peñaflor v. Outdoor Clothing Manufacturing Corporation,86 we
have defined constructive dismissal as follows:
Constructive dismissal is an involuntary resignation by the
employee due to the harsh, hostile, and unfavorable
conditions set by the employer and which arises when a clear
discrimination, insensibility, or disdain by an employer exists
and has become unbearable to the employee. 87
Constructive dismissal exists where there is cessation of work,
because "continued employment is rendered impossible,
unreasonable or unlikely, as an offer involving a demotion in
rank or a diminution in pay" and other benefits.88
These circumstances are clearly availing in Simeon, Jr.’s case.
He was made to resign, then rehired under conditions that
were substantially less than what he was enjoying before the
illegal termination occurred. Thus, for the second time, he
involuntarily resigned from his employment. Clearly, this case
is illustrative of constructive dismissal, an act prohibited
under our labor laws.
II
SME Bank, Eduardo M. Agustin, Jr. and Peregrin de Guzman, Jr.
are liable for illegal dismissal.

We therefore see it fit to expressly reverse our ruling in
Manlimos insofar as it upheld that, in a stock sale, the buyer
in good faith has no obligation to retain the employees of the
selling corporation; and that the dismissal of the affected
employees is lawful, even absent a just or authorized cause.

Having ruled on the illegality of the dismissal, we now discuss
the issue of liability and determine who among the parties are
liable for the claims of the illegally dismissed employees.

As to Simeon Espiritu, Jr.

The settled rule is that an employer who terminates the
employment of its employees without lawful cause or due
process of law is liable for illegal dismissal. 89

The CA and the NLRC discussed the case of Simeon, Jr.
together with that of the rest of respondent-employees.
However, a review of the records shows that the conditions
leading to his dismissal from employment are different. We
thus discuss his circumstance separately.
The Samson Group contends that Simeon, Jr., likewise
voluntarily resigned from his post.78 According to them, he had
resigned from SME Bank before the share transfer took
place.79
Upon the change of ownership of the shares and the
management of the company, Simeon, Jr. submitted a letter of
application to and was rehired by the new
management.80 However, the Samson Group alleged that for
purely personal reasons, he again resigned from his
employment on 15 October 2001.81

None of the parties dispute that SME Bank was the employer
of respondent employees. The fact that there was a change in
the composition of its shareholders did not affect the
employer-employee relationship between the employees and
the corporation, because an equity transfer affects neither the
existence nor the liabilities of a corporation. Thus, SME Bank
continued to be the employer of respondent employees
notwithstanding the equity change in the corporation. This
outcome is in line with the rule that a corporation has a
personality separate and distinct from that of its individual
shareholders or members, such that a change in the
composition of its shareholders or members would not affect
its corporate liabilities.
Therefore, we conclude that, as the employer of the illegally
dismissed employees before and after the equity transfer,
petitioner SME Bank is liable for the satisfaction of their
claims.

38

Turning now to the liability of Agustin, De Guzman and the
Samson Group for illegal dismissal, at the outset we point out
that there is no privity of employment contracts between
Agustin, De Guzman and the Samson Group, on the one hand,
and respondent employees on the other. Rather, the
employment contracts were between SME Bank and the
employees. However, this fact does not mean that Agustin, De
Guzman and the Samson Group may not be held liable for
illegal dismissal as corporate directors or officers. In BogoMedellin Sugarcane Planters Association, Inc. v. NLRC,90 we
laid down the rule as regards the liability of corporate
directors and officers in illegal dismissal cases, as follows:

solidarily liable with SME Bank for illegally dismissing
respondent employees, without prejudice to any liabilities that
may have attached under other provisions of law.

Unless they have exceeded their authority, corporate officers
are, as a general rule, not personally liable for their official
acts, because a corporation, by legal fiction, has a personality
separate and distinct from its officers, stockholders and
members. However, this fictional veil may be pierced
whenever the corporate personality is used as a means of
perpetuating a fraud or an illegal act, evading an existing
obligation, or confusing a legitimate issue. In cases of illegal
dismissal, corporate directors and officers are solidarily liable
with the corporation, where terminations of employment are
done with malice or in bad faith.91 (Citations omitted)

Finally, as regards Aurelio Villaflor, while he may be
considered as a corporate officer, being the president of SME
Bank, the records are bereft of any evidence that indicates his
actual participation in the termination of respondent
employees. Not having participated at all in the illegal act, he
may not be held individually liable for the satisfaction of their
claims.

Thus, in order to determine the respective liabilities of
Agustin, De Guzman and the Samson Group under the aforequoted rule, we must determine, first, whether they may be
considered as corporate directors or officers; and, second,
whether the terminations were done maliciously or in bad
faith.
There is no question that both Agustin and De Guzman were
corporate directors of SME Bank. An analysis of the facts
likewise reveals that the dismissal of the employees was done
in bad faith. Motivated by their desire to dispose of their
shares of stock to Samson, they agreed to and later
implemented the precondition in the Letter Agreements as to
the termination or retirement of SME Bank’s employees.
However, instead of going through the proper procedure, the
bank manager induced respondent employees to resign or
retire from their respective employments, while promising
that they would be rehired by the new management. Fully
relying on that promise, they tendered courtesy resignations
or retirements and eventually found themselves jobless.
Clearly, this sequence of events constituted a gross
circumvention of our labor laws and a violation of the
employees’ constitutionally guaranteed right to security of
tenure. We therefore rule that, as Agustin and De Guzman are
corporate directors who have acted in bad faith, they may be
held solidarily liable with SME Bank for the satisfaction of the
employees’ lawful claims.
As to spouses Samson, we find that nowhere in the records
does it appear that they were either corporate directors or
officers of SME Bank at the time the illegal termination
occurred, except that the Samson Group had already taken
over as new management when Simeon, Jr. was constructively
dismissed. Not being corporate directors or officers, spouses
Samson were not in legal control of the bank and
consequently had no power to dismiss its employees.
Respondent employees argue that the Samson Group had
already taken over and conducted an inventory before the
execution of the share purchase agreement.92 Agustin and De
Guzman likewise argued that it was at Olga Samson’s behest
that the employees were required to resign from their
posts.93 Even if this statement were true, it cannot amount to
a finding that spouses Samson should be treated as corporate
directors or officers of SME Bank. The records show that it was
Espiritu who asked the employees to tender their resignation
and or retirement letters, and that these letters were actually
tendered to him.94 He then transmitted these letters to the
representative of the Samson Group.95 That the spouses
Samson had to ask Espiritu to require the employees to resign
shows that they were not in control of the corporation, and
that the former shareholders – through Espiritu – were still in
charge thereof. As the spouses Samson were neither
corporate officers nor directors at the time the illegal
dismissal took place, we find that there is no legal basis in the
present case to hold them in their personal capacities

Furthermore, even if spouses Samson were already in control
of the corporation at the time that Simeon, Jr. was
constructively dismissed, we refuse to pierce the corporate
veil and find them liable in their individual steads. There is no
showing that his constructive dismissal amounted to more
than a corporate act by SME Bank, or that spouses Samson
acted maliciously or in bad faith in bringing about his
constructive dismissal.

III
Respondent employees are entitled to separation pay, full
backwages, moral damages, exemplary damages and
attorney’s fees.
The rule is that illegally dismissed employees are entitled to
(1) either reinstatement, if viable, or separation pay if
reinstatement is no longer viable; and (2) backwages. 96
Courts may grant separation pay in lieu of reinstatement
when the relations between the employer and the employee
have been so severely strained; when reinstatement is not in
the best interest of the parties; when it is no longer advisable
or practical to order reinstatement; or when the employee
decides not to be reinstated.97 In this case, respondent
employees expressly pray for a grant of separation pay in lieu
of reinstatement. Thus, following a finding of illegal dismissal,
we rule that they are entitled to the payment of separation
pay equivalent to their one-month salary for every year of
service as an alternative to reinstatement.
Respondent employees are likewise entitled to full backwages
notwithstanding the grant of separation pay. In Santos v.
NLRC,98 we explained that an award of backwages restores the
income that was lost by reason of the unlawful dismissal,
while separation pay "provides the employee with 'the
wherewithal during the period that he is looking for another
employment."99 Thus, separation pay is a proper substitute
only for reinstatement; it is not an adequate substitute for
both reinstatement and backwages.100 Hence, respondent
employees are entitled to the grant of full backwages in
addition to separation pay.
As to moral damages, exemplary damages and attorney's
fees, we uphold the appellate court's grant thereof based on
our finding that the forced resignations and retirement were
fraudulently done and attended by bad faith.
WHEREFORE, premises considered, the instant Petitions for
Review are PARTIALLY GRANTED.
The assailed Decision and Resolution of the Court of Appeals
in CAG.R. SP No. 97510 dated 13 March 2008 and 1
September 2008,respectively, are hereby REVERSED and SET
ASIDE insofar as it held Abelardo P. Samson, Olga Samson and
Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.
The assailed Decision and Resolution of the Court of Appeals
in CA-G.R. SP No. 97942 dated 15 January 2008 and 19
February 2009,respectively, are likewise REVERSED and
SETASIDE insofar as it held Abelardo P. Samson, Olga Samson
and Aurelio Villaflor, Jr. solidarily liable for illegal dismissal.

39

We REVERSE our ruling in Manlimos v. NLRC insofar as it
upheld that, in a stock sale, the buyer in good faith has no
obligation to retain the employees of the selling corporation,
and that the dismissal of the affected employees is lawful
even absent a just or authorized cause.

MARIA LOURDES P. A. SERENO
Chief Justice

SO ORDERED.

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