[ G.R. No.

152894, August 17, 2007 ]

CENTURY CANNING CORPORATION, PETITIONER, VS. COURT OF APPEALS
AND GLORIA C. PALAD, RESPONDENTS.
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] of the Decision[2] dated 12 November 2001 and the Resolution
dated 5 April 2002 of the Court of Appeals in CA-G.R. SP No. 60379.
The Facts
On 15 July 1997, Century Canning Corporation (petitioner) hired Gloria C. Palad (Palad) as
"fish cleaner" at petitioner's tuna and sardines factory. Palad signed on 17 July 1997 an
apprenticeship agreement [3] with petitioner. Palad received an apprentice allowance of
P138.75 daily. On 25 July 1997, petitioner submitted its apprenticeship program for approval
to the Technical Education and Skills Development Authority (TESDA) of the Department of
Labor and Employment (DOLE). On 26 September 1997, the TESDA approved petitioner's
apprenticeship program.[4]
According to petitioner, a performance evaluation was conducted on 15 November 1997,
where petitioner gave Palad a rating of N.I. or "needs improvement" since she scored only
27.75% based on a 100% performance indicator. Furthermore, according to the performance
evaluation, Palad incurred numerous tardiness and absences. As a consequence, petitioner
issued a termination notice[5] dated 22 November 1997 to Palad, informing her of her
termination effective at the close of business hours of 28 November 1997.
Palad then filed a complaint for illegal dismissal, underpayment of wages, and non- payment
of pro-rated 13th month pay for the year 1997.
On 25 February 1999, the Labor Arbiter dismissed the complaint for lack of merit but ordered
petitioner to pay Palad her last salary and her pro-rated 13th month pay. The dispositive
portion of the Labor Arbiter's decision reads:
WHEREFORE, premises considered, judgment is hereby rendered declaring that the
complaint for illegal dismissal filed by the complainant against the respondents in the aboveentitled case should be, as it is hereby DISMISSED for lack of merit. However, the
respondents are hereby ordered to pay the complainant the amount of ONE THOUSAND SIX
HUNDRED THIRTY-TWO PESOS (P1,632.00), representing her last salary and the amount
of SEVEN THOUSAND TWO HUNDRED TWENTY EIGHT (P7,228.00) PESOS
representing her prorated 13th month pay.
All other issues are likewise dismissed.

SO ORDERED.[7]

Page

WHEREFORE, premises considered, the decision of the Arbiter dated 25 February 1999 is
hereby MODIFIED in that, in addition, respondents are ordered to pay complainant's
backwages for two (2) months in the amount of P7,176.00 (P138.75 x 26 x 2 mos.). All other
dispositions of the Arbiter as appearing in the dispositive portion of his decision are
AFFIRMED.

235

SO ORDERED.[6]
On appeal, the National Labor Relations Commission (NLRC) affirmed with modification the
Labor Arbiter's decision, thus:

Upon denial of Palad's motion for reconsideration, Palad filed a special civil action for
certiorari with the Court of Appeals. On 12 November 2001, the Court of Appeals rendered a
decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the questioned decision of the NLRC is hereby SET
ASIDE and a new one entered, to wit:
a. finding the dismissal of petitioner to be illegal;
b. ordering private respondent to pay petitioner her underpayment in wages;
c. ordering private respondent to reinstate petitioner to her former position without loss
of seniority rights and to pay her full backwages computed from the time
compensation was withheld from her up to the time of her reinstatement;
d. ordering private respondent to pay petitioner attorney's fees equivalent to ten (10%)
per cent of the monetary award herein; and
e. ordering private respondent to pay the costs of the suit.
SO ORDERED.[8]
The Ruling of the Court of Appeals
The Court of Appeals held that the apprenticeship agreement which Palad signed was not
valid and binding because it was executed more than two months before the TESDA approved
petitioner's apprenticeship program. The Court of Appeals cited Nitto Enterprises v. National
Labor Relations Commission,[9] where it was held that prior approval by the DOLE of the
proposed apprenticeship program is a condition sine qua non before an apprenticeship
agreement can be validly entered into.
The Court of Appeals also held that petitioner illegally dismissed Palad. The Court of Appeals
ruled that petitioner failed to show that Palad was properly apprised of the required standard
of performance. The Court of Appeals likewise held that Palad was not afforded due process
because petitioner did not comply with the twin requirements of notice and hearing.
The Issues
Petitioner raises the following issues:
1. WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT PRIVATE RESPONDENT WAS NOT AN
APPRENTICE; and
2. WHETHER THE COURT OF APPEALS COMMITTED REVERSIBLE
ERROR IN HOLDING THAT PETITIONER HAD NOT ADEQUATELY
PROVEN THE EXISTENCE OF A VALID CAUSE IN TERMINATING
THE SERVICE OF PRIVATE RESPONDENT.[10]
The Ruling of the Court
The petition is without merit.

Page

The Labor Code defines an apprentice as a worker who is covered by a written apprenticeship
agreement with an employer.[11] One of the objectives of Title II (Training and Employment
of Special Workers) of the Labor Code is to establish apprenticeship standards for the
protection of apprentices.[12] In line with this objective, Articles 60 and 61 of the Labor Code
provide:

236

Registration and Approval by the TESDA of Apprenticeship Program Required Before

Hiring of Apprentices

ART. 60. Employment of apprentices. --Only employers in the highly technical industries
may employ apprentices and only in apprenticeable occupations approved by the
Minister of Labor and Employment. (Emphasis supplied)
ART. 61. Contents of apprenticeship agreements. -- Apprenticeship agreements, including the
wage rates of apprentices, shall conform to the rules issued by the Minister of Labor and
Employment. The period of apprenticeship shall not exceed six months. Apprenticeship
agreements providing for wage rates below the legal minimum wage, which in no case
shall start below 75 percent of the applicable minimum wage, may be entered into only
in accordance with apprenticeship programs duly approved by the Minister of Labor
and Employment. The Ministry shall develop standard model programs of apprenticeship.
(Emphasis supplied)
In Nitto Enterprises v. National Labor Relations Commission,[13] the Court cited Article 61 of
the Labor Code and held that an apprenticeship program should first be approved by the
DOLE before an apprentice may be hired, otherwise the person hired will be considered a
regular employee. The Court held:
In the case at bench, the apprenticeship agreement between petitioner and private respondent
was executed on May 28, 1990 allegedly employing the latter as an apprentice in the trade of
"care maker/molder." On the same date, an apprenticeship program was prepared by
petitioner and submitted to the Department of Labor and Employment. However, the
apprenticeship agreement was filed only on June 7, 1990. Notwithstanding the absence of
approval by the Department of Labor and Employment, the apprenticeship agreement was
enforced the day it was signed.
Based on the evidence before us, petitioner did not comply with the requirements of the law.
It is mandated that apprenticeship agreements entered into by the employer and
apprentice shall be entered only in accordance with the apprenticeship program duly
approved by the Minister of Labor and Employment.
Prior approval by the Department of Labor and Employment of the proposed
apprenticeship program is, therefore, a condition sine qua non before an apprenticeship
agreement can be validly entered into.
The act of filing the proposed apprenticeship program with the Department of Labor and
Employment is a preliminary step towards its final approval and does not instantaneously give
rise to an employer-apprentice relationship.
Article 57 of the Labor Code provides that the State aims to "establish a national
apprenticeship program through the participation of employers, workers and government and
non-government agencies" and "to establish apprenticeship standards for the protection of
apprentices." To translate such objectives into existence, prior approval of the DOLE to any
apprenticeship program has to be secured as a condition sine qua non before any such
apprenticeship agreement can be fully enforced. The role of the DOLE in apprenticeship
programs and agreements cannot be debased.

Page

Republic Act No. 7796[15] (RA 7796), which created the TESDA, has transferred the authority
over apprenticeship programs from the Bureau of Local Employment of the DOLE to the
TESDA.[16] RA 7796 emphasizes TESDA's approval of the apprenticeship program as a prerequisite for the hiring of apprentices. Such intent is clear under Section 4 of RA 7796:
SEC. 4. Definition of Terms. -- As used in this Act:
xxx

237

Hence, since the apprenticeship agreement between petitioner and private respondent has no
force and effect in the absence of a valid apprenticeship program duly approved by the
DOLE, private respondent's assertion that he was hired not as an apprentice but as a delivery
boy ("kargador" or "pahinante") deserves credence. He should rightly be considered as a
regular employee of petitioner as defined by Article 280 of the Labor Code x x x. (Emphasis
supplied)[14]

j) "Apprenticeship" training within employment with compulsory related theoretical

instructions involving a contract between an apprentice and an employer on an approved
apprenticeable occupation;
k) "Apprentice" is a person undergoing training for an approved apprenticeable
occupation during an established period assured by an apprenticeship agreement;
l) "Apprentice Agreement" is a contract wherein a prospective employer binds himself to
train the apprentice who in turn accepts the terms of training for a recognized
apprenticeable occupation emphasizing the rights, duties and responsibilities of each
party;
m) "Apprenticeable Occupation" is an occupation officially endorsed by a tripartite body
and approved for apprenticeship by the Authority [TESDA]; (Emphasis supplied)
In this case, the apprenticeship agreement was entered into between the parties before
petitioner filed its apprenticeship program with the TESDA for approval. Petitioner and Palad
executed the apprenticeship agreement on 17 July 1997 wherein it was stated that the training
would start on 17 July 1997 and would end approximately in December 1997.[17] On 25 July
1997, petitioner submitted for approval its apprenticeship program, which the TESDA
subsequently approved on 26 September 1997.[18] Clearly, the apprenticeship agreement was
enforced even before the TESDA approved petitioner's apprenticeship program. Thus, the
apprenticeship agreement is void because it lacked prior approval from the TESDA.
The TESDA's approval of the employer's apprenticeship program is required before the
employer is allowed to hire apprentices. Prior approval from the TESDA is necessary to
ensure that only employers in the highly technical industries may employ apprentices and
only in apprenticeable occupations.[19] Thus, under RA 7796, employers can only hire
apprentices for apprenticeable occupations which must be officially endorsed by a tripartite
body and approved for apprenticeship by the TESDA. This is to ensure the protection of
apprentices and to obviate possible abuses by prospective employers who may want to take
advantage of the lower wage rates for apprentices and circumvent the right of the employees
to be secure in their employment.
The requisite TESDA approval of the apprenticeship program prior to the hiring of
apprentices was further emphasized by the DOLE with the issuance of Department Order No.
68-04 on 18 August 2004. Department Order No. 68-04, which provides the guidelines in the
implementation of the Apprenticeship and Employment Program of the government,
specifically states that no enterprise shall be allowed to hire apprentices unless its
apprenticeship program is registered and approved by TESDA.[20]
Since Palad is not considered an apprentice because the apprenticeship agreement was
enforced before the TESDA's approval of petitioner's apprenticeship program, Palad is
deemed a regular employee performing the job of a "fish cleaner." Clearly, the job of a "fish
cleaner" is necessary in petitioner's business as a tuna and sardines factory. Under Article
280[21] of the Labor Code, an employment is deemed 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.
Illegal Termination of Palad
We shall now resolve whether petitioner illegally dismissed Palad.

Page

In this case, the Labor Arbiter held that petitioner terminated Palad for habitual absenteeism
and poor efficiency of performance. Under Section 25, Rule VI, Book II of the Implementing
Rules of the Labor Code, habitual absenteeism and poor efficiency of performance are among
the valid causes for which the employer may terminate the apprenticeship agreement after the
probationary period.

238

Under Article 279[22] of the Labor Code, an employer may terminate the services of an
employee for just causes[23] or for authorized causes.[24] Furthermore, under Article 277(b)[25]
of the Labor Code, the employer must send the employee who is about to be terminated, a
written notice stating the causes for termination and must give the employee the opportunity
to be heard and to defend himself. Thus, to constitute valid dismissal from employment, two
requisites must concur: (1) the dismissal must be for a just or authorized cause; and (2) the
employee must be afforded an opportunity to be heard and to defend himself.[26]

However, the NLRC reversed the finding of the Labor Arbiter on the issue of the legality of
Palad's termination:
As to the validity of complainant's dismissal in her status as an apprentice, suffice to state that
the findings of the Arbiter that complainant was dismissed due to failure to meet the standards
is nebulous. What clearly appears is that complainant already passed the probationary status
of the apprenticeship agreement of 200 hours at the time she was terminated on 28 November
1997 which was already the fourth month of the apprenticeship period of 1000 hours. As
such, under the Code, she can only be dismissed for cause, in this case, for poor efficiency of
performance on the job or in the classroom for a prolonged period despite warnings duly
given to the apprentice.
We noted that no clear and sufficient evidence exist to warrant her dismissal as an
apprentice during the agreed period. Besides the absence of any written warnings given
to complainant reminding her of "poor performance," respondents' evidence in this
respect consisted of an indecipherable or unauthenticated xerox of the performance
evaluation allegedly conducted on complainant. This is of doubtful authenticity and/or
credibility, being not only incomplete in the sense that appearing thereon is a signature
(not that of complainant) side by side with a date indicated as "1/16/98". From the looks
of it, this signature is close to and appertains to the typewritten position of
"Division/Department Head", which is below the signature of complainant's immediate
superior who made the evaluation indicated as "11-15-97."
The only conclusion We can infer is that this evaluation was made belatedly, specifically,
after the filing of the case and during the progress thereof in the Arbitral level, as shown
that nothing thereon indicate that complainant was notified of the results. Its
authenticity therefor, is a big question mark, and hence lacks any credibility. Evidence,
to be admissible in administrative proceedings, must at least have a modicum of
authenticity. This, respondents failed to comply with. As such, complainant is entitled to the
payment of her wages for the remaining two (2) months of her apprenticeship agreement.[27]
(Emphasis supplied)
Indeed, it appears that the Labor Arbiter's conclusion that petitioner validly terminated Palad
was based mainly on the performance evaluation allegedly conducted by petitioner. However,
Palad alleges that she had no knowledge of the performance evaluation conducted and that
she was not even informed of the result of the alleged performance evaluation. Palad also
claims she did not receive a notice of dismissal, nor was she given the chance to explain.
According to petitioner, Palad did not receive the termination notice because Palad allegedly
stopped reporting for work after being informed of the result of the evaluation.
Under Article 227 of the Labor Code, the employer has the burden of proving that the
termination was for a valid or authorized cause.[28] Petitioner failed to substantiate its claim
that Palad was terminated for valid reasons. In fact, the NLRC found that petitioner failed to
prove the authenticity of the performance evaluation which petitioner claims to have
conducted on Palad, where Palad received a performance rating of only 27.75%. Petitioner
merely relies on the performance evaluation to prove Palad's inefficiency. It was likewise not
shown that petitioner ever apprised Palad of the performance standards set by the company.
When the alleged valid cause for the termination of employment is not clearly proven, as in
this case, the law considers the matter a case of illegal dismissal.[29]

SO ORDERED.

Page

WHEREFORE, we AFFIRM the Decision dated 12 November 2001 and the Resolution
dated 5 April 2002 of the Court of Appeals in CA-G.R. SP No. 60379.

239

Furthermore, Palad was not accorded due process. Even if petitioner did conduct a
performance evaluation on Palad, petitioner failed to warn Palad of her alleged poor
performance. In fact, Palad denies any knowledge of the performance evaluation conducted
and of the result thereof. Petitioner likewise admits that Palad did not receive the notice of
termination[30] because Palad allegedly stopped reporting for work. The records are bereft of
evidence to show that petitioner ever gave Palad the opportunity to explain and defend
herself. Clearly, the two requisites for a valid dismissal are lacking in this case.

Quisumbing, (Chairperson), Carpio-Morales, Tinga, and Velasco, Jr., JJ., concur.

[1]

Under Rule 45 of the 1997 Rules of Civil Procedure.

Penned by Associate Justice Elvi John S. Asuncion with Associate Justices Romeo A.
Brawner and Juan Q. Enriquez, Jr., concurring.
[3]
CA rollo, pp. 57-58.
[4]
Id. at 63.
[5]
Id. at 59.
[6]
Id. at 32-33.
[7]
Id. at 42.
[8]
Rollo, p. 29.
[9]
G.R. No. 114337, 29 September 1995, 248 SCRA 654.
[10]
Rollo, p. 70.
[11]
Article 58(b) of the Labor Code.
[12]
Article 57(3) of the Labor Code.
[13]
Supra note 9.
[14]
Id. at 660-661.
[15]
Otherwise known as the TESDA Act of 1994.
[16]
Sections 5 and 18 of RA 7796 provide:
SEC. 5. Technical Education and Skills Development Authority, Creation. -- To implement
the policy declared in this Act, there is hereby created a Technical Education and Skills
Development Authority (TESDA), hereinafter referred to as the Authority, which shall
replace and absorb the National Manpower and Youth Council (NMYC), the Bureau of
Technical and Vocational Education (BTVE) and the personnel and functions pertaining to
technical-vocational education in the regional offices of the Department of Education, Culture
and Sports (DECS) and the apprenticeship program of the Bureau of Local Employment
of the Department of Labor and Employment. (Emphasis supplied)
SEC. 18. Transfer of the Apprenticeship Program. - -The Apprenticeship Program of the
Bureau of Local Employment of the Department of Labor and Employment shall be
transferred to the Authority [TESDA] which shall implement and administer said program
in accordance with existing laws, rules and regulations. (Emphasis supplied)
[17]
CA rollo, p. 57.
[18]
Id. at 63.
[19]
See Article 60 of the Labor Code.
[20]
DOLE Department Order No. 68-04: Guidelines in the Implementation of the
Kasanayan at Hanapbuhay Program (An Apprenticeship and Employment Program)
pertinently provides:
B. Definition of Terms
[2]

1. Apprenticeship -- training within employment involving a contract between an

apprentice and an enterprise on an apprenticeable occupation.
2. Apprentice -- a person undergoing training for an approved apprenticeable
occupation during an established period and covered by an apprenticeship agreement.
3. Apprenticeship Agreement -- a contract wherein a prospective enterprise binds
himself to train the apprentice who, in turn, accepts the terms of training for a
recognized apprenticeable occupation emphasizing the rights, duties and
responsibilities of each party.
4. Apprenticeable Occupation
apprenticeship by TESDA.

--

an

occupation

officially

approved

for

xxxx

1. Letter of Application;

Page

The enterprise shall register its apprenticeship program with any of the TESDA Provincial
Offices. It shall submit the following:

240

G. Registration of Apprenticeship Program

2. Certification that the number of apprentices to be hired is not more than 20 percent of
the total regular workforce; and
3. Skills Training Outline.
No enterprise shall be allowed to hire apprentices unless its apprenticeship program is
registered and approved by TESDA. H. Apprenticeship Agreement
No apprenticeship training will commence until an Apprenticeship Agreement has been
forged between an enterprise and an apprentice. (Emphasis supplied)
[21]
Article 280 of the Labor Code reads:
ART. 280. Regular and casual employment. -- The provisions of written agreement to the
contrary notwithstanding and regardless of the oral agreements 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 service to be performed is seasonal in nature and the
employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding paragraph:
Provided, That any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity exists.
(Emphasis supplied)
[22]
ART. 279. Security of Tenure. -- In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title.
An employee who is unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges and to his full backwages, inclusive of allowances,
and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
[23]
ART. 282. Termination by employer. - An employer may terminate an employment for
any of the following causes:
a. Serious misconduct or willful disobedience by the employee of the lawful orders of his
employer or representative in connection with his work;
b. Gross and habitual neglect by the employee of his duties;
c. Fraud or willful breach by the employee of the trust reposed in him by his employer or
duly authorized representative;
d. Commission of a crime or offense by the employee against the person of his employer
or any immediate member of his family or his duly authorized representative; and
e. Other causes analogous to the foregoing.
[24]

ART. 283. Closure of establishment and reduction of personnel. -- The employer may also
terminate the employment of any employee due to the installation of labor saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title x x x

(b) Subject to the constitutional right of workers to security of tenure and their right to be
protected against dismissal except for a just and authorized cause and without prejudice to the
requirement of notice under Article 283 of this Code, the employer shall furnish the worker
whose employment is sought to be terminated a written notice containing a statement of
the causes for termination and shall afford the latter ample opportunity to be heard and
to defend himself with the assistance of his representative if he so desires in accordance
with company rules and regulations promulgated pursuant to guidelines set by the Department
of Labor and Employment. Any decision taken by the employer shall be without prejudice to
the right of the worker to contest the validity or legality of his dismissal by filing a complaint

241

ART. 277. Miscellaneous provisions. - x x x

Page

[25]

with the regional branch of the National Labor Relations Commission. The burden of
proving that the termination was for a valid or authorized cause shall rest on the
employer. (Emphasis supplied)
[26]

Skippers United Pacific, Inc. v. Maguad, G.R. No. 166363, 15 August 2006, 498 SCRA
639.
[27]

CA rollo, pp. 41-42.

[28]

Manly Express, Inc. v. Payong, Jr., G.R. No. 167462, 25 October 2005, 474 SCRA 323;
Manila Electric Company (MERALCO) v. National Labor Relations Commission, G.R. No.
153180, 2 September 2005, 469 SCRA 353.
[29]

Philippine National Bank v. Cabansag, G.R. No. 157010, 21 June 2005, 460 SCRA 514.

[30]

The termination notice reads:

DATE: NOV. 22, 1997

GLORIA C. PALAD
105 LOT 1 BLK. 6, PRK. 7
B. TANYAG, TAGUIG, METRO MANILA
Dear

Ms.

PALAD,

After a thorough evaluation of your work, attitude and performance, the management found
out that you have been performing below the standard established by the company. As such,
we regret to inform you that your employment shall be terminated effective at the close of
business hours of NOV. 28, 1997.
Please proceed to the HRD office for your clearance.
NINA B. LLAGAS
Recruitment/Benefits Supervisor
Noted by
BERNARDO O. JUNIO JR.

Page

242

Human Resources Development Manager

[ G.R. No. 122917, July 12, 1999 ]

MARITES BERNARDO, ELVIRA GO DIAMANTE, REBECCA E. DAVID, DAVID P.
PASCUAL, RAQUEL ESTILLER, ALBERT HALLARE, EDMUND M. CORTEZ,
JOSELITO O. AGDON GEORGE P. LIGUTAN JR., CELSO M. YAZAR, ALEX G.
CORPUZ, RONALD M. DELFIN, ROWENA M. TABAQUERO, CORAZON C.
DELOS REYES, ROBERT G. NOORA, MILAGROS O. LEQUIGAN, ADRIANA F.
TATLONGHARI, IKE CABANDUCOS, COCOY NOBELLO, DORENDA
CANTIMBUHAN, ROBERT MARCELO, LILIBETH Q. MARMOLEJO, JOSE E.
SALES, ISABEL MAMAUAG, VIOLETA G. MONTES, ALBINO TECSON,
MELODY V. GRUELA, BERNADETH D. AGERO, CYNTHIA DE VERA, LANI R.
CORTEZ, MA. ISABEL B. CONCEPCION, DINDO VALERIO, ZENAIDA MATA,
ARIEL DEL PILAR, MARGARET CECILIA CANOZA, THELMA SEBASTIAN, MA.
JEANETTE CERVANTES, JEANNIE RAMIL, ROZAIDA PASCUAL, PINKY
BALOLOA, ELIZABETH VENTURA, GRACE S. PARDO & RICO TIMOSA,
PETITIONERS VS. NATIONAL LABOR RELATIONS COMMISSION & FAR EAST
BANK AND TRUST COMPANY, RESPONDENTS.
DECISION
PANGANIBAN, J.:
The Magna Carta for Disabled Persons mandates that qualified disabled persons be granted
the same terms and conditions of employment as qualified able-bodied employees. Once they
have attained the status of regular workers, they should be accorded all the benefits granted by
law, notwithstanding written or verbal contracts to the contrary. This treatment is rooted not
merely on charity or accommodation, but on justice for all.
The Case
Challenged in the Petition for Certiorari[1] before us is the June 20, 1995 Decision[2] of the
National Labor Relations Commission (NLRC),[3] which affirmed the August, 22 1994 ruling
of Labor Arbiter Cornelio L. Linsangan. The labor arbiter's Decision disposed as follows:[4]
"WHEREFORE, judgment is hereby rendered dismissing the above-mentioned complaint for
lack of merit."
Also assailed is the August 4, 1995 Resolution[5] of the NLRC, which denied the Motion for
Reconsideration.
The Facts
The facts were summarized by the NLRC in this wise:[6]
"Complainants numbering 43 (p. 176, Records) are deaf-mutes who were hired on various
periods from 1988 to 1993 by respondent Far East Bank and Trust Co. as Money Sorters and
Counters through a uniformly worded agreement called `Employment Contract for
Handicapped Workers'. (pp. 68 & 69, Records) The full text of said agreement is quoted
below:
`EMPLOYMENT CONTRACT FOR HANDICAPPED WORKERS

Page

FAR EAST BANK AND TRUST COMPANY, a universal banking corporation duly
organized and existing under and by virtue of the laws of the Philippines, with business
address at FEBTC Building, Muralla, Intramuros, Manila, represented herein by its Assistant
Vice President, MR. FLORENDO G. MARANAN, (hereinafter referred to as the `BANK');

243

This Contract, entered into by and between:

- and
________________, ________________ years old, of legal age, _____________, and
residing at __________________ (hereinafter referred to as the (`EMPLOYEE').
WITNESSETH: That
WHEREAS, the BANK, cognizant of its social responsibility, realizes that there is a need to
provide disabled and handicapped persons gainful employment and opportunities to realize
their potentials, uplift their socio-economic well being and welfare and make them
productive, self-reliant and useful citizens to enable them to fully integrate in the mainstream
of society;
WHEREAS, there are certain positions in the BANK which may be filled-up by disabled and
handicapped persons, particularly deaf-mutes, and the BANK ha[s] been approached by some
civic-minded citizens and authorized government agencies [regarding] the possibility of
hiring handicapped workers for these positions;
WHEREAS, the EMPLOYEE is one of those handicapped workers who [were] recommended
for possible employment with the BANK;
NOW, THEREFORE, for and in consideration of the foregoing premises and in compliance
with Article 80 of the Labor Code of the Philippines as amended, the BANK and the
EMPLOYEE have entered into this Employment Contract as follows:
1. The BANK agrees to employ and train the EMPLOYEE, and the EMPLOYEE agrees
to diligently and faithfully work with the BANK, as Money Sorter and Counter.
2. The EMPLOYEE shall perform among others, the following duties and
responsibilities:
i.

Sort out bills according to color;

ii.

Count each denomination per hundred, either manually or with the aid of a
counting machine;

iii.

Wrap and label bills per hundred;

iv.

Put the wrapped bills into bundles; and

v.

Submit bundled bills to the bank teller for verification.

3. The EMPLOYEE shall undergo a training period of one (1) month, after which the
BANK shall determine whether or not he/she should be allowed to finish the
remaining term of this Contract.

6. The EMPLOYEE shall likewise be entitled to the following benefits:

Page

5. The regular work schedule of the EMPLOYEE shall be five (5) days per week, from
Mondays thru Fridays, at eight (8) hours a day. The EMPLOYEE may be required to
perform overtime work as circumstance may warrant, for which overtime work he/she
[shall] be paid an additional compensation of 125% of his daily rate if performed
during ordinary days and 130% if performed during Saturday or [a] rest day.

244

4. The EMPLOYEE shall be entitled to an initial compensation of P118.00 per day,

subject to adjustment in the sole judgment of the BANK, payable every 15 th and end
of the month.

i.

Proportionate 13th month pay based on his basic daily wage.

ii.

Five (5) days incentive leave.

iii.

SSS premium payment.

7. The EMPLOYEE binds himself/herself to abide [by] and comply with all the BANK
Rules and Regulations and Policies, and to conduct himself/herself in a manner
expected of all employees of the BANK.
8. The EMPLOYEE acknowledges the fact that he/she had been employed under a
special employment program of the BANK, for which reason the standard hiring
requirements of the BANK were not applied in his/her case. Consequently, the
EMPLOYEE acknowledges and accepts the fact that the terms and conditions of the
employment generally observed by the BANK with respect to the BANK's regular
employee are not applicable to the EMPLOYEE, and that therefore, the terms and
conditions of the EMPLOYEE's employment with the BANK shall be governed solely
and exclusively by this Contract and by the applicable rules and regulations that the
Department of Labor and Employment may issue in connection with the employment
of disabled and handicapped workers. More specifically, the EMPLOYEE hereby
acknowledges that the provisions of Book Six of the Labor Code of the Philippines as
amended, particularly on regulation of employment and separation pay are not
applicable to him/her.
9. The Employment Contract shall be for a period of six (6) months or from ____ to
____ unless earlier terminated by the BANK for any just or reasonable cause. Any
continuation or extension of this Contract shall be in writing and therefore this
Contract will automatically expire at the end of its terms unless renewed in writing by
the BANK.
IN WITNESS WHEREOF, the parties, have hereunto affixed their signature[s] this ____ day
of _________________, ____________ at Intramuros, Manila, Philippines.'
"In 1988, two (2) deaf-mutes were hired under this Agreement; in 1989 another two (2); in
1990, nineteen (19); in 1991 six (6); in 1992, six (6) and in 1993, twenty-one (21). Their
employment[s] were renewed every six months such that by the time this case arose, there
were fifty-six (56) deaf-mutes who were employed by respondent under the said employment
agreement. The last one was Thelma Malindoy who was employed in 1992 and whose
contract expired on July 1993.

Page

"Disclaiming that complainants were regular employees, respondent Far East Bank and Trust
Company maintained that complainants who are a special class of workers - the hearing
impaired employees were hired temporarily under [a] special employment arrangement which
was a result of overtures made by some civic and political personalities to the respondent
Bank; that complainant[s] were hired due to `pakiusap' which must be considered in the light
of the context of the respondent Bank's corporate philosophy as well as its career and working
environment which is to maintain and strengthen a corps of professionals trained and qualified
officers and regular employees who are baccalaureate degree holders from excellent schools
which is an unbending policy in the hiring of regular employees; that in addition to this,
training continues so that the regular employee grows in the corporate ladder; that the idea of
hiring handicapped workers was acceptable to them only on a special arrangement basis; that
it adopted the special program to help tide over a group of handicapped workers such as deafmutes like the complainants who could do manual work for the respondent Bank; that the task

245

xxxxxxxxx

of counting and sorting of bills which was being performed by tellers could be assigned to
deaf-mutes; that the counting and sorting of money are tellering works which were always
logically and naturally part and parcel of the tellers' normal functions; that from the beginning
there have been no separate items in the respondent Bank plantilla for sorters or counters; that
the tellers themselves already did the sorting and counting chore as a regular feature and
integral part of their duties (p. 97, Records); that through the `pakiusap' of Arturo Borjal, the
tellers were relieved of this task of counting and sorting bills in favor of deaf-mutes without
creating new positions as there is no position either in the respondent or in any other bank in
the Philippines which deals with purely counting and sorting of bills in banking operations."

OF

WORKPLACE

Date Hired

Date Dismissed

1.MARITES
BERNARDO

Intramuros

12 NOV 90

17 NOV 93

2. ELVIRA GO
DIAMANTE

Intramuros

24 JAN 90

11 JAN 94

3. REBECCA E.
DAVID

Intramuros

16 APR 90

23 OCT 93

4. DAVID P.
PASCUAL

Bel-Air

15 OCT 88

21 NOV 94

5. RAQUEL
ESTILLER

Intramuros

2 JUL 92

4 JAN 94

6. ALBERT
HALLARE

West

4 JAN 91

9 JAN 94

7. EDMUND M.
CORTEZ

Bel-Air

15 JAN 91

3 DEC 93

8. JOSELITO O.
AGDON

Intramuros

5 NOV 90

17 NOV 93

9. GEORGE P.
LIGUTAN, JR.

Intramuros

6 SEPT 89

19 JAN 94

10. CELSO M.
YAZAR

Intramuros

8 FEB 93

8 AUG 93

11. ALEX G.
CORPUZ

Intramuros

15 FEB 93

15 AUG 93

12. RONALD M.
DELFIN

Intramuros

22 FEB 93

22 AUG 93

13. ROWENA M.
TABAQUERO

Intramuros

22 FEB 93

22 AUG 93

14. CORAZON C.
DELOS REYES

Intramuros

8 FEB 93

8 AUG 93

Page

"NAME
PETITIONER

246

Petitioners specified when each of them was hired and dismissed, viz:[7]

15 FEB 93

15 AUG 93

16. MILAGROS O.
LEQUIGAN

Intramuros

1 FEB 93

1 AUG 93

17. ADRIANA F.
TATLONGHARI

Intramuros

22 JAN 93

22 JUL 93

18. IKE
CABANDUCOS

Intramuros

24 FEB 93

24 AUG 93

19. COCOY
NOBELLO

Intramuros

22 FEB 93

22 AUG 93

20. DORENDA
CATIMBUHAN

Intramuros

15 FEB 93

15 AUG 93

West

31 JUL 93[8]

1 AUG 93

West

15 JUN 90

21 NOV 93

23. JOSE E. SALES West

6 AUG 92

12 OCT 93

24. ISABEL
MAMAUAG

West

8 MAY 92

10 NOV 93

25. VIOLETA G.
MONTES

Intramuros

2 FEB 90

15 JAN 94

26. ALBINO
TECSON

Intramuros

7 NOV 91

10 NOV 93

27. MELODY V.
GRUELA

West

28 OCT 91

3 NOV 93

28. BERNADETH D.
West
AGERO

19 DEC 90

27 DEC 93

29. CYNTHIA DE
VERA

Bel-Air

26 JUN 90

3 DEC 93

30. LANI R.
CORTEZ

Bel-Air

15 OCT 88

10 DEC 93

31. MA. ISABEL B.

West
CONCEPCION

6 SEPT 90

6 FEB 94

32. DINDO
VALERIO

Intramuros

30 MAY 93

30 NOV 93

33. ZENAIDA
MATA

Intramuros

10 FEB 93

10 AUG 93

34. ARIEL DEL

PILAR

Intramuros

24 FEB 93

24 AUG 93

35. MARGARET

Intramuros

27 JUL 90

4 FEB 94

21. ROBERT
MARCELO
22. LILIBETH Q.
MARMOLEJO

247

Intramuros

Page

15. ROBERT G.
NOORA

CECILIA CANOZA
36. THELMA
SEBASTIAN

Intramuros

12 NOV 90

17 NOV 93

37. MA. JEANETTE

West
CERVANTES

6 JUN 92

7 DEC 93

38. JEANNIE
RAMIL

Intramuros

23 APR 90

12 OCT 93

39. ROZAIDA
PASCUAL

Bel-Air

20 APR 89

29 OCT 93

40. PINKY
BALOLOA

West

3 JUN 91

2 DEC 93

41. ELIZABETH
VENTURA

West

12 MAR 90

FEB 94 [SIC]

42. GRACE S.
PARDO

West

4 APR 90

13 MAR 94

43. RICO TIMOSA

Intramuros

28 APR 93

28 OCT 93"

As earlier noted, the labor arbiter and, on appeal, the NLRC ruled against herein petitioners.
Hence, this recourse to this Court.[9]
The Ruling of the NLRC
In affirming the ruling of the labor arbiter that herein petitioners could not be deemed regular
employees under Article 280 of the Labor Code, as amended, Respondent Commission
ratiocinated as follows:
"We agree that Art. 280 is not controlling herein. We give due credence to the conclusion that
complainants were hired as an accommodation to [the] recommendation of civic oriented
personalities whose employment[s] were covered by xxx Employment Contract[s] with
special provisions on duration of contract as specified under Art. 80. Hence, as correctly held
by the Labor Arbiter a quo, the terms of the contract shall be the law between the parties."[10]
The NLRC also declared that the Magna Carta for Disabled Persons was not applicable,
"considering the prevailing circumstances/milieu of the case."
Issues
In their Memorandum, petitioners cite the following grounds in support of their cause:
"I. The Honorable Commission committed grave abuse of discretion in holding that the
petitioners - money sorters and counters working in a bank - were not regular employees.

In the main, the Court will resolve whether petitioners have become regular employees.

Page

"III. The Honorable Commission committed grave abuse of discretion in not applying the
provisions of the Magna Carta for the Disabled (Republic Act No. 7277), on proscription
against discrimination against disabled persons."[11]

248

"II. The Honorable Commission committed grave abuse of discretion in holding that the
employment contracts signed and renewed by the petitioners - which provide for a period of
six (6) months - were valid.

This Court's Ruling

The petition is meritorious. However, only the employees, who worked for more than six
months and whose contracts were renewed are deemed regular. Hence, their dismissal from
employment was illegal.
Preliminary Matter: Propriety of Certiorari
Respondent Far East Bank and Trust Company argues that a review of the findings of facts of
the NLRC is not allowed in a petition for certiorari. Specifically, it maintains that the Court
cannot pass upon the findings of public respondents that petitioners were not regular
employees.
True, the Court, as a rule, does not review the factual findings of public respondents in a
certiorari proceeding. In resolving whether the petitioners have become regular employees,
we shall not change the facts found by the public respondent. Our task is merely to determine
whether the NLRC committed grave abuse of discretion in applying the law to the established
facts, as above-quoted from the assailed Decision.
Main Issue: Are Petitioners Regular Employees?
Petitioners maintain that they should be considered regular employees, because their task as
money sorters and counters was necessary and desirable to the business of respondent bank.
They further allege that their contracts served merely to preclude the application of Article
280 and to bar them from becoming regular employees.
Private respondent, on the other hand, submits that petitioners were hired only as "special
workers and should not in any way be considered as part of the regular complement of the
Bank."[12] Rather, they were "special" workers under Article 80 of the Labor Code. Private
respondent contends that it never solicited the services of petitioners, whose employment was
merely an "accommodation" in response to the requests of government officials and civicminded citizens. They were told from the start, "with the assistance of government
representatives," that they could not become regular employees because there were no
plantilla positions for "money sorters," whose task used to be performed by tellers. Their
contracts were renewed several times, not because of need "but merely for humanitarian
reasons." Respondent submits that "as of the present, the `special position' that was created for
the petitioners no longer exist[s] in private respondent [bank], after the latter had decided not
to renew anymore their special employment contracts."
At the outset, let it be known that this Court appreciates the nobility of private respondent's
effort to provide employment to physically impaired individuals and to make them more
productive members of society. However, we cannot allow it to elude the legal consequences
of that effort, simply because it now deems their employment irrelevant. The facts, viewed in
light of the Labor Code and the Magna Carta for Disabled Persons, indubitably show that the
petitioners, except sixteen of them, should be deemed regular employees. As such, they have
acquired legal rights that this Court is duty-bound to protect and uphold, not as a matter of
compassion but as a consequence of law and justice.

Page

According to private respondent, the employment contracts were prepared in accordance with
Article 80 of the Labor Code, which provides:

249

The uniform employment contracts of the petitioners stipulated that they shall be trained for a
period of one month, after which the employer shall determine whether or not they should be
allowed to finish the 6-month term of the contract. Furthermore, the employer may terminate
the contract at any time for a just and reasonable cause. Unless renewed in writing by the
employer, the contract shall automatically expire at the end of the term.

"ART. 80. Employment agreement. - Any employer who employs handicapped workers shall
enter into an employment agreement with them, which agreement shall include:
(a) The names and addresses of the handicapped workers to be employed;
(b) The rate to be paid the handicapped workers which shall be not less than seventy five
(75%) per cent of the applicable legal minimum wage;
(c) The duration of employment period; and
(d) The work to be performed by handicapped workers.
(e) The employment agreement shall be subject to inspection by the Secretary of Labor or
his duly authorized representatives."
The stipulations in the employment contracts indubitably conform with the aforecited
provision. Succeeding events and the enactment of RA No. 7277 (the Magna Carta for
Disabled Persons),[13] however, justify the application of Article 280 of the Labor Code.
Respondent bank entered into the aforesaid contract with a total of 56 handicapped workers
and renewed the contracts of 37 of them. In fact, two of them worked from 1988 to 1993.
Verily, the renewal of the contracts of the handicapped workers and the hiring of others lead
to the conclusion that their tasks were beneficial and necessary to the bank. More important,
these facts show that they were qualified to perform the responsibilities of their positions. In
other words, their disability did not render them unqualified or unfit for the tasks assigned to
them.
In this light, the Magna Carta for Disabled Persons mandates that a qualified disabled
employee should be given the same terms and conditions of employment as a qualified ablebodied person. Section 5 of the Magna Carta provides:
"Section 5. Equal Opportunity for Employment.--No disabled person shall be denied access to
opportunities for suitable employment. A qualified disabled employee shall be subject to the
same terms and conditions of employment and the same compensation, privileges, benefits,
fringe benefits, incentives or allowances as a qualified able bodied person."
The fact that the employees were qualified disabled persons necessarily removes the
employment contracts from the ambit of Article 80. Since the Magna Carta accords them the
rights of qualified able-bodied persons, they are thus covered by Article 280 of the Labor
Code, which provides:

The test of whether an employee is regular was laid down in De Leon v. NLRC,[14] in which
this Court held:

Page

"An employment shall be deemed to be casual if it is not covered by the preceding paragraph:
Provided, That, any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered as regular employee with respect to the
activity in which he is employed and his employment shall continue while such activity
exists."

250

"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.

"The primary standard, therefore, of determining regular employment is the reasonable

connection between the particular activity performed by the employee in relation to the usual
trade or business of the employer. The test is whether the former is usually necessary or
desirable in the usual business or trade of the employer. The connection can be determined by
considering the nature of the work performed and its relation to the scheme of the particular
business or trade in its entirety. Also if the employee has been performing the job for at least
one year, even if the performance is not continuous and merely intermittent, the law deems
repeated and continuing need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the employment is considered regular,
but only with respect to such activity, and while such activity exists."
Without a doubt, the task of counting and sorting bills is necessary and desirable to the
business of respondent bank. With the exception of sixteen of them, petitioners performed
these tasks for more than six months. Thus, the following twenty-seven petitioners should be
deemed regular employees: Marites Bernardo, Elvira Go Diamante, Rebecca E. David, David
P. Pascual, Raquel Estiller, Albert Hallare, Edmund M. Cortez, Joselito O. Agdon, George P.
Ligutan Jr., Lilibeth Q. Marmolejo, Jose E. Sales, Isabel Mamauag, Violeta G. Montes,
Albino Tecson, Melody V. Gruela, Bernadeth D. Agero, Cynthia de Vera, Lani R. Cortez,
Ma. Isabel B. Concepcion, Margaret Cecilia Canoza, Thelma Sebastian, Ma. Jeanette
Cervantes, Jeannie Ramil, Rozaida Pascual, Pinky Baloloa, Elizabeth Ventura and Grace S.
Pardo.
As held by the Court, "Articles 280 and 281 of the Labor Code put an end to the pernicious
practice of making permanent casuals of our lowly employees by the simple expedient of
extending to them probationary appointments, ad infinitum."[15] The contract signed by
petitioners is akin to a probationary employment, during which the bank determined the
employees' fitness for the job. When the bank renewed the contract after the lapse of the sixmonth probationary period, the employees thereby became regular employees.[16] No
employer is allowed to determine indefinitely the fitness of its employees.
As regular employees, the twenty-seven petitioners are entitled to security of tenure; that is,
their services may be terminated only for a just or authorized cause. Because respondent
failed to show such cause,[17] these twenty-seven petitioners are deemed illegally dismissed
and therefore entitled to back wages and reinstatement without loss of seniority rights and
other privileges.[18] Considering the allegation of respondent that the job of money sorting is
no longer available because it has been assigned back to the tellers to whom it originally
belonged,[19] petitioners are hereby awarded separation pay in lieu of reinstatement.[20]
Because the other sixteen worked only for six months, they are not deemed regular employees
and hence not entitled to the same benefits.
Applicability of the Brent Ruling

Page

We are not persuaded. The term limit in the contract was premised on the fact that the
petitioners were disabled, and that the bank had to determine their fitness for the position.
Indeed, its validity is based on Article 80 of the Labor Code. But as noted earlier, petitioners
proved themselves to be qualified disabled persons who, under the Magna Carta for Disabled
Persons, are entitled to terms and conditions of employment enjoyed by qualified able-bodied
individuals; hence, Article 80 does not apply because petitioners are qualified for their
positions. The validation of the limit imposed on their contracts, imposed by reason of their
disability, was a glaring instance of the very mischief sought to be addressed by the new law.

251

Respondent bank, citing Brent School v. Zamora[21] in which the Court upheld the validity of
an employment contract with a fixed term, argues that the parties entered into the contract on
equal footing. It adds that the petitioners had in fact an advantage, because they were backed
by then DSWD Secretary Mita Pardo de Tavera and Representative Arturo Borjal.

Moreover, it must be emphasized that a contract of employment is impressed with public

interest.[22] Provisions of applicable statutes are deemed written into the contract, and the
"parties are not at liberty to insulate themselves and their relationships from the impact of
labor laws and regulations by simply contracting with each other."[23] Clearly, the agreement
of the parties regarding the period of employment cannot prevail over the provisions of the
Magna Carta for Disabled Persons, which mandate that petitioners must be treated as
qualified able-bodied employees.
Respondent's reason for terminating the employment of petitioners is instructive. Because the
Bangko Sentral ng Pilipinas (BSP) required that cash in the bank be turned over to the BSP
during business hours from 8:00 a.m. to 5:00 p.m., respondent resorted to nighttime sorting
and counting of money. Thus, it reasons that this task "could not be done by deaf mutes
because of their physical limitations as it is very risky for them to travel at night."[24] We find
no basis for this argument. Travelling at night involves risks to handicapped and able-bodied
persons alike. This excuse cannot justify the termination of their employment.
Other Grounds Cited by Respondent
Respondent argues that petitioners were merely "accommodated" employees. This fact does
not change the nature of their employment. As earlier noted, an employee is regular because
of the nature of work and the length of service, not because of the mode or even the reason for
hiring them.
Equally unavailing are private respondent's arguments that it did not go out of its way to
recruit petitioners, and that its plantilla did not contain their positions. In L. T. Datu v.
NLRC,[25] the Court held that "the determination of whether employment is casual or regular
does not depend on the will or word of the employer, and the procedure of hiring x x x but on
the nature of the activities performed by the employee, and to some extent, the length of
performance and its continued existence."
Private respondent argues that the petitioners were informed from the start that they could not
become regular employees. In fact, the bank adds, they agreed with the stipulation in the
contract regarding this point. Still, we are not persuaded. The well-settled rule is that the
character of employment is determined not by stipulations in the contract, but by the nature of
the work performed.[26] Otherwise, no employee can become regular by the simple expedient
of incorporating this condition in the contract of employment.
In this light, we iterate our ruling in Romares v. NLRC:[27]
"Article 280 was emplaced in our statute books to prevent the circumvention of the
employee's right to be secure in his tenure by indiscriminately and completely ruling out all
written and oral agreements inconsistent with the concept of regular employment defined
therein. Where an employee has been engaged to perform activities which are usually
necessary or desirable in the usual business of the employer, such employee is deemed a
regular employee and is entitled to security of tenure notwithstanding the contrary provisions
of his contract of employment.

Page

"At this juncture, the leading case of Brent School, Inc. v. Zamora proves instructive. As
reaffirmed in subsequent cases, this Court has upheld the legality of fixed-term employment.
It ruled that the decisive determinant in `term employment' should not be the activities that the
employee is called upon to perform but the day certain agreed upon the parties for the
commencement and termination of their employment relationship. But this Court went on to
say that where from the circumstances it is apparent that the periods have been imposed to

252

"x x x x x x x x x

preclude acquisition of tenurial security by the employee, they should be struck down or
disregarded as contrary to public policy and morals."
In rendering this Decision, the Court emphasizes not only the constitutional bias in favor of
the working class, but also the concern of the State for the plight of the disabled. The noble
objectives of Magna Carta for Disabled Persons are not based merely on charity or
accommodation, but on justice and the equal treatment of qualified persons, disabled or not.
In the present case, the handicap of petitioners (deaf-mutes) is not a hindrance to their work.
The eloquent proof of this statement is the repeated renewal of their employment contracts.
Why then should they be dismissed, simply because they are physically impaired? The Court
believes, that, after showing their fitness for the work assigned to them, they should be treated
and granted the same rights like any other regular employees.
In this light, we note the Office of the Solicitor General's prayer joining the petitioners'
cause.[28]
WHEREFORE, premises considered, the Petition is hereby GRANTED. The June 20, 1995
Decision and the August 4, 1995 Resolution of the NLRC are REVERSED and SET ASIDE.
Respondent Far East Bank and Trust Company is hereby ORDERED to pay back wages and
separation pay to each of the following twenty-seven (27) petitioners, namely, Marites
Bernardo, Elvira Go Diamante, Rebecca E. David, David P. Pascual, Raquel Estiller, Albert
Hallare, Edmund M. Cortez, Joselito O. Agdon, George P. Ligutan Jr., Lilibeth Q. Marmolejo,
Jose E. Sales, Isabel Mamauag, Violeta G. Montes, Albino Tecson, Melody V. Gruela,
Bernadeth D. Agero, Cynthia de Vera, Lani R. Cortez, Ma. Isabel B. Concepcion, Margaret
Cecilia Canoza, Thelma Sebastian, Ma. Jeanette Cervantes, Jeannie Ramil, Rozaida Pascual,
Pinky Baloloa, Elizabeth Ventura and Grace S. Pardo. The NLRC is hereby directed to
compute the exact amount due each of said employees, pursuant to existing laws and
regulations, within fifteen days from the finality of this Decision. No costs.

Page

253

SO ORDERED.

[ G.R. No. 75112, August 17, 1992 ]

FILAMER CHRISTIAN INSTITUTE, PETITIONER, VS. HON. INTERMEDIATE
APPELLATE COURT, HON. ENRIQUE P. SUPLICO, IN HIS CAPACITY AS
JUDGE OF THE REGIONAL TRIAL COURT, BRANCH XIV, ROXAS CITY AND
POTENCIANO KAPUNAN, SR., RESPONDENTS.
RESOLUTION
GUTIERREZ, JR., J.:
The private respondents, heirs of the late Pontenciano Kapunan, seek reconsideration of the
decision rendered by this Court on October 16, 1990 (Filamer Christian Institute v. Court
Appeals, 190 SCRA 477) reviewing the appellate court's conclusion that there exists an
employer-employee relationship between the petitioner and its co-defendant Funtecha. The
Court ruled that the petitioner is not liable for the injuries caused by Funtecha on the grounds
that the latter was not an authorized driver for whose acts the petitioner shall be directly and
primarily answerable, and that Funtecha was merely a working scholar who, under Section
14, Rule X, Book III of the Rules and Regulations Implementing the Labor Code is not
considered an employee of the petitioner.
The private respondents assert that the circumstances obtaining in the present case call for the
application of Article 2180 of the Civil Code since Funtecha is no doubt an employee of the
petitioner. The private respondent maintain that under Article 2180 an injured party shall have
recourse against the servant as well as the petitioner for whom, at the time of the incident, the
servant was performing an act in furtherance of the interest and for the benefit of the
petitioner. Funtecha allegedly did not steal the school jeep nor use it for a joy ride without the
knowledge of the school authorities.
After a re-examination of the laws relevant to the facts found by the trial court and the
appellate court, the Court reconsiders its decision. We reinstate the Court of Appeals' decision
penned by the late Justice Desiderio Jurado and concurred in by Justices Jose C. Campos, Jr.
and Serafin E. Camilon. Applying Civil Code provisions, the appellate court affirmed the trial
court decision which ordered the payment of the P20,000.00 liability in the Zenith Insurance
Corporation policy, P10,000.00 moral damages, P4,000.00 litigation and actual expenses, and
P3,000.00 attorney's fees.
It is undisputed that Funtecha was a working student, being a part-time janitor and a scholar
of petitioner Filamer. He was, in relation to the school, an employee even if he was assigned
to clean the school premises for only two (2) hours in the morning of each school day.

Page

Allan Masa turned over the vehicle to Funtecha only after driving down a road, negotiating a
sharp dangerous curb, and viewing that the road was clear. (TSN, April 4, 1983, pp. 78-79)
According to Allan's testimony, a fast moving truck with glaring lights nearly hit them so that
they had to swerve to the right to avoid a collision. Upon swerving, they heard a sound as if
something had bumped against the vehicle, but they did not stop to check. Actually, the Pinoy
jeep swerved towards the pedestrian, Potenciano Kapunan who was walking in his lane in the
direction against vehicular traffic, and hit him. Allan affirmed that Funtecha followed his
advise to swerve to the right. (Ibid., p. 79) At the time of the incident (6:30 P.M.) in Roxas
City, the jeep had only one functioning headlight.

254

Having a student driver's license, Funtecha requested the driver, Allan Masa, and was
allowed, to take over the vehicle while the latter was on his way home one late afternoon. It is
significant to note that the place where Allan lives is also the house of his father, the school
president, Agustin Masa. Moreover, it is also the house where Funtecha was allowed free
board while he was a student of Filamer Christian Institute.

Allan testified that he was the driver and at the same time a security guard of the petitionerschool. He further said that there was no specific time for him to be off-duty and that after
driving the students home at 5:00 in the afternoon, he still had to go back to school and then
drive home using the same vehicle.
Driving the vehicle to and from the house of the school president where both Allan and
Funtecha reside is an act in furtherance of the interest of the petitioner-school. Allan's job
demands that he drive home the school jeep so he can use it to fetch students in the morning
of the next school day.
It is indubitable under the circumstances that the school president had knowledge that the jeep
was routinely driven home for the said purpose. Moreover, it is not improbable that the school
president also had knowledge of Funtecha's possession of a student driver's license and his
desire to undergo driving lessons during the time that he was not in his classrooms.
In learning how to drive while taking the vehicle home in the direction of Allan's house,
Funtecha definitely was not having a joy ride. Funtecha was not driving for the purpose of his
enjoyment or for a "frolic of his own" but ultimately, for the service for which the jeep was
intended by the petitioner school. (See L. Battistoni v. Thomas, Can SC 144, 1 D.L.R. 577, 80
ALR 722 [1932]; See also Association of Baptists for World Evangelism, Inc. v. Fieldmen's
Insurance Co., Inc. 124 SCRA 618 [1983]). Therefore, the Court is constrained to conclude
that the act of Funtecha in taking over the steering wheel was one done for and in behalf of his
employer for which act the petitioner-school cannot deny any responsibility by arguing that it
was done beyond the scope of his janitorial duties. The clause "within the scope of their
assigned tasks" for purposes of raising the presumption of liability of an employer, includes
any act done by an employee, in furtherance of the interests of the employer or for the account
of the employer at the time of the infliction of the injury or damage. (Manuel Casada, 190 Va
906, 59 SE 2d 47 [1950]) Even if somehow, the employee driving the vehicle derived some
benefit from the act, the existence of a presumptive liability of the employer is determined by
answering the question of whether or not the servant was at the time of the accident
performing any act in furtherance of his master's business. (Kohlman v. Hyland, 210 NW 643,
50 ALR 1437 [1926]; Jameson v. Gavett, 71 P 2d 937 [1937])
Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the
petitioner anchors its defense, was promulgated by the Secretary of Labor and Employment
only for the purpose of administering and enforcing the provisions of the Labor Code on
conditions of employment. Particularly, Rule X of Book III provides guidelines on the manner
by which the powers of the Labor Secretary shall be exercised; on what records should be
kept, maintained and preserved; on payroll; and on the exclusion of working scholars from,
and inclusion of resident physicians in the employment coverage as far as compliance with
the substantive labor provisions on working conditions, rest periods, and wages, is concerned.

Page

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

255

In other words, Rule X is merely a guide to the enforcement of the substantive law on labor.
The Court, thus, makes the distinction and so holds that Section 14, Rule X, Book III of the
Rules is not the decisive law in a civil suit for damages instituted by an injured person during
a vehicular accident against a working student of a school and against the school itself.

There is evidence to show that there exists in the present case an extra-contractual obligation
arising from the negligence or reckless imprudence of a person "whose acts or omissions are
imputable, by a legal fiction, to other(s) who are in a position to exercise an absolute or
limited control over (him)." (Bahia v. Litonjua and Leynes, 30 Phil. 624 [1915])
Funtecha is an employee of petitioner Filamer. He need not have an official appointment for a
driver's position in order that the petitioner may be held responsible for his grossly negligent
act, it being sufficient that the act of driving at the time of the incident was for the benefit of
the petitioner. Hence, the fact that Funtecha was not the school driver or was not acting within
the scope of his janitorial duties does not relieve the petitioner of the burden of rebutting the
presumption juris tantum that there was negligence on its part either in the selection of a
servant or employee, or in the supervision over him. The petitioner has failed to show proof of
its having exercised the required diligence of a good father of a family over its employees
Funtecha and Allan.
The Court reiterates that supervision includes the formulation of suitable rules and regulation
for the guidance of its employees and the issuance of proper instructions intended for the
protection of the public and persons with whom the employer has relations through his
employees. (Bahia v. Litonjud and Leynes, supra, at p. 628; Phoenix Construction, Inc. v.
Intermediate Appellate Court, 148 SCRA 353 [1987])
An employer is expected to impose upon its employees the necessary discipline called for in
the performance of any act indispensable to the business and beneficial to their employer.
In the present case, the petitioner has not shown that it has set forth such rules and guidelines
as would prohibit any one of its employees from taking control over its vehicles if one is not
the official driver or prohibiting the driver and son of the Filamer president from authorizing
another employee to drive the school vehicle. Furthermore, the petitioner has failed to prove
that it had imposed sanctions or warned its employees against the use of its vehicles by
persons other than the driver.

Page

It is an admitted fact that the actual driver of the school jeep, Allan Masa, was not made a
party defendant in the civil case for damages. This is quite understandable considering that as
far as the injured pedestrian, plaintiff Potenciano Kapunan, was concerned, it was Funtecha
who was the one driving the vehicle and presumably was one authorized by the school to
drive. The plaintiff and his heirs should not now be left to suffer without simultaneous
recourse against the petitioner for the consequent injury caused by a janitor doing a driving
chore for the petitioner even for a short while. For the purpose of recovering damages under
the prevailing circumstances, it is enough that the plaintiff and the private respondent heirs
were able to establish the existence of employer-employee relationship between Funtecha and
petitioner Filamer and the fact that Funtecha was engaged in an act not for an independent
purpose of his own but in furtherance of the business of his employer. A position of
responsibility on the part of the petitioner has thus been satisfactorily demonstrated.

256

The petitioner, thus, has an obligation to pay damages for injury arising from the unskilled
manner by which Funtecha drove the vehicle. (Cangco v. Manila Railroad Co., 38 Phil. 768,
772 [1918]) In the absence of evidence that the petitioner had exercised the diligence of a
good father of a family in the supervision of its employees, the law imposes upon it the
vicarious liability for acts or omissions of its employees. (Umali v. Bacani, 69 SCRA 263
[1976); Poblete v. Fabros, 93 SCRA 200 [1979]; Kapalaran Bus Liner v. Coronado, 176
SCRA 792 [1989]; Franco v. Intermediate Appellate Court, 178 SCRA 331 [1989]; Pantranco
North Express, Inc. v. Baesa, 179, SCRA 384 [1989]) The liability of the employer is, under
Article 2180, primary and solidary. However, the employer shall have recourse against the
negligent employee for whatever damages are paid to the heirs of the plaintiff.

WHEREFORE, the motion for reconsideration of the decision dated October 16, 1990 is
hereby GRANTED. The decision of the respondent appellate court affirming the trial court
decision is REINSTATED.

Page

257

SO ORDERED.

[ G.R. No. 172101, November 23, 2007 ]

REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE SOCIAL SECURITY
COMMISSION AND SOCIAL SECURITY SYSTEM, PETITIONERS, VS. ASIAPRO
COOPERATIVE, RESPONDENT.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised
Rules of Civil Procedure seeking to annul and set aside the Decision[1] and Resolution[2] of the
Court of Appeals in CA-G.R. SP No. 87236, dated 5 January 2006 and 20 March 2006,
respectively, which annulled and set aside the Orders of the Social Security Commission
(SSC) in SSC Case No. 6-15507-03, dated 17 February 2004[3] and 16 September 2004,[4]
respectively, thereby dismissing the petition-complaint dated 12 June 2003 filed by herein
petitioner Social Security System (SSS) against herein respondent.
Herein petitioner Republic of the Philippines is represented by the SSC, a quasi-judicial body
authorized by law to resolve disputes arising under Republic Act No. 1161, as amended by
Republic Act No. 8282.[5] Petitioner SSS is a government corporation created by virtue of
Republic Act No. 1161, as amended. On the other hand, herein respondent Asiapro
Cooperative (Asiapro) is a multi-purpose cooperative created pursuant to Republic Act No.
6938[6] and duly registered with the Cooperative Development Authority (CDA) on 23
November 1999 with Registration Certificate No. 0-623-2460.[7]
The antecedents of this case are as follows:
Respondent Asiapro, as a cooperative, is composed of owners-members. Under its by-laws,
owners-members are of two categories, to wit: (1) regular member, who is entitled to all the
rights and privileges of membership; and (2) associate member, who has no right to vote and
be voted upon and shall be entitled only to such rights and privileges provided in its bylaws.[8] Its primary objectives are to provide savings and credit facilities and to develop other
livelihood services for its owners-members. In the discharge of the aforesaid primary
objectives, respondent cooperative entered into several Service Contracts[9] with Stanfilco - a
division of DOLE Philippines, Inc. and a company based in Bukidnon. The owners-members
do not receive compensation or wages from the respondent cooperative. Instead, they receive
a share in the service surplus[10] which the respondent cooperative earns from different areas
of trade it engages in, such as the income derived from the said Service Contracts with
Stanfilco. The owners-members get their income from the service surplus generated by the
quality and amount of services they rendered, which is determined by the Board of Directors
of the respondent cooperative.

Page

On 26 September 2002, however, petitioner SSS through its Vice-President for Mindanao
Division, Atty. Eddie A. Jara, sent a letter[11] to the respondent cooperative, addressed to its
Chief Executive Officer (CEO) and General Manager Leo G. Parma, informing the latter that
based on the Service Contracts it executed with Stanfilco, respondent cooperative is actually a
manpower contractor supplying employees to Stanfilco and for that reason, it is an employer
of its owners-members working with Stanfilco. Thus, respondent cooperative should register

258

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

itself with petitioner SSS as an employer and make the corresponding report and remittance of
premium contributions in accordance with the Social Security Law of 1997. On 9 October
2002,[12] respondent cooperative, through its counsel, sent a reply to petitioner SSSs letter
asserting that it is not an employer because its owners-members are the cooperative itself;
hence, it cannot be its own employer. Again, on 21 October 2002,[13] petitioner SSS sent a
letter to respondent cooperative ordering the latter to register as an employer and report its
owners-members as employees for compulsory coverage with the petitioner SSS. Respondent
cooperative continuously ignored the demand of petitioner SSS.
Accordingly, petitioner SSS, on 12 June 2003, filed a Petition[14] before petitioner SSC
against the respondent cooperative and Stanfilco praying that the respondent cooperative or,
in the alternative, Stanfilco be directed to register as an employer and to report respondent
cooperatives owners-members as covered employees under the compulsory coverage of SSS
and to remit the necessary contributions in accordance with the Social Security Law of 1997.
The same was docketed as SSC Case No. 6-15507-03. Respondent cooperative filed its
Answer with Motion to Dismiss alleging that no employer-employee relationship exists
between it and its owners-members, thus, petitioner SSC has no jurisdiction over the
respondent cooperative. Stanfilco, on the other hand, filed an Answer with Cross-claim
against the respondent cooperative.
On 17 February 2004, petitioner SSC issued an Order denying the Motion to Dismiss filed by
the respondent cooperative. The respondent cooperative moved for the reconsideration of the
said Order, but it was likewise denied in another Order issued by the SSC dated 16 September
2004.
Intending to appeal the above Orders, respondent cooperative filed a Motion for Extension of
Time to File a Petition for Review before the Court of Appeals. Subsequently, respondent
cooperative filed a Manifestation stating that it was no longer filing a Petition for Review. In
its place, respondent cooperative filed a Petition for Certiorari before the Court of Appeals,
docketed as CA-G.R. SP No. 87236, with the following assignment of errors:

A.

[Petitioner] SSC arbitrarily proceeded with the case as if it has jurisdiction

over the petition a quo, considering that it failed to first resolve the issue of the
existence of an employer-employee relationship between [respondent]
cooperative and its owners-members.

B.

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

C.

Contrary to the holding of the [petitioner] SSC, the legal issue of employeremployee relationship raised in [respondents] Motion to Dismiss can be
preliminarily resolved through summary hearings prior to the hearing on the
merits. However, any inquiry beyond a preliminary determination, as what
[petitioner SSC] wants to accomplish, would be to encroach on the jurisdiction

259

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

Page

I.

of the National Labor Relations Commission [NLRC], which is the more

competent body clothed with power to resolve issues relating to the existence
of an employment relationship.

II.

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

A.

[Respondent] is not an employer within the contemplation of the Labor Law

but is a multi-purpose cooperative created pursuant to Republic Act No. 6938
and composed of owners-members, not employees.

B.

The rights and obligations of the owners-members of [respondent] cooperative

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

C.

As found by the Bureau of Internal Revenue [BIR], the owners-members of

[respondent] cooperative are not paid any compensation income.[15] (Emphasis
supplied.)

On 5 January 2006, the Court of Appeals rendered a Decision granting the petition filed by
the respondent cooperative. The decretal portion of the Decision reads:
WHEREFORE, the petition is GRANTED. The assailed Orders dated [17 February 2004]
and [16 September 2004], are ANNULLED and SET ASIDE and a new one is entered
DISMISSING the petition-complaint dated [12 June 2003] of [herein petitioner] Social
Security System.[16]
Aggrieved by the aforesaid Decision, petitioner SSS moved for a reconsideration, but it was
denied by the appellate court in its Resolution dated 20 March 2006.
Hence, this Petition.

The [petitioner SSC] has jurisdiction over the petition-complaint filed before it by the
[petitioner SSS] under R.A. No. 8282.

II.

Respondent [cooperative] is estopped from questioning the jurisdiction of petitioner

SSC after invoking its jurisdiction by filing an [A]nswer with [M]otion to [D]ismiss
before it.

Page

I.

260

In its Memorandum, petitioners raise the issue of whether or not the Court of Appeals
erred in not finding that the SSC has jurisdiction over the subject matter and it has a
valid basis in denying respondents Motion to Dismiss. The said issue is supported by the
following arguments:

III.

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

IV.

The existence of an employer-employee relationship is a question of fact where

presentation of evidence is necessary.

V.

There is an employer-employee relationship between [respondent cooperative] and its

[owners-members].

Petitioners claim that SSC has jurisdiction over the petition-complaint filed before it by
petitioner SSS as it involved an issue of whether or not a worker is entitled to compulsory
coverage under the SSS Law. Petitioners avow that Section 5 of Republic Act No. 1161, as
amended by Republic Act No. 8282, expressly confers upon petitioner SSC the power to
settle disputes on compulsory coverage, benefits, contributions and penalties thereon or any
other matter related thereto. Likewise, Section 9 of the same law clearly provides that SSS
coverage is compulsory upon all employees. Thus, when petitioner SSS filed a petitioncomplaint against the respondent cooperative and Stanfilco before the petitioner SSC for the
compulsory coverage of respondent cooperatives owners-members as well as for collection
of unpaid SSS contributions, it was very obvious that the subject matter of the aforesaid
petition-complaint was within the expertise and jurisdiction of the SSC.
Petitioners similarly assert that granting arguendo that there is a prior need to determine the
existence of an employer-employee relationship between the respondent cooperative and its
owners-members, said issue does not preclude petitioner SSC from taking cognizance of the
aforesaid petition-complaint. Considering that the principal relief sought in the said petitioncomplaint has to be resolved by reference to the Social Security Law and not to the Labor
Code or other labor relations statutes, therefore, jurisdiction over the same solely belongs to
petitioner SSC.
Petitioners further claim that the denial of the respondent cooperatives Motion to Dismiss
grounded on the alleged lack of employer-employee relationship does not constitute grave
abuse of discretion on the part of petitioner SSC because the latter has the authority and
power to deny the same. Moreover, the existence of an employer-employee relationship is a
question of fact where presentation of evidence is necessary. Petitioners also maintain that the
respondent cooperative is already estopped from assailing the jurisdiction of the petitioner
SSC because it has already filed its Answer before it, thus, respondent cooperative has already
submitted itself to the jurisdiction of the petitioner SSC.
Finally, petitioners contend that there is an employer-employee relationship between the
respondent cooperative and its owners-members. The respondent cooperative is the employer
of its owners-members considering that it undertook to provide services to Stanfilco, the
performance of which is under the full and sole control of the respondent cooperative.

Page

Respondent cooperative further avers that the Court of Appeals correctly ruled that petitioner
SSC acted with grave abuse of discretion when it assumed jurisdiction over the petitioncomplaint without determining first if there was an employer-employee relationship between

261

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

the respondent cooperative and its owners-members. Respondent cooperative claims that the
question of whether an employer-employee relationship exists between it and its ownersmembers is a legal and not a factual issue as the facts are undisputed and need only to be
interpreted by the applicable law and jurisprudence.
Lastly, respondent cooperative asserts that it cannot be considered estopped from assailing the
jurisdiction of petitioner SSC simply because it filed an Answer with Motion to Dismiss,
especially where the issue of jurisdiction is raised at the very first instance and where the only
relief being sought is the dismissal of the petition-complaint for lack of jurisdiction.
From the foregoing arguments of the parties, the issues may be summarized into:
I.

Whether the petitioner SSC has jurisdiction over the petition-complaint filed
before it by petitioner SSS against the respondent cooperative.

II.

Whether the respondent cooperative is estopped from assailing the jurisdiction of

petitioner SSC since it had already filed an Answer with Motion to Dismiss
before the said body.

Petitioner SSCs jurisdiction is clearly stated in Section 5 of Republic Act No. 8282 as well as
in Section 1, Rule III of the 1997 SSS Revised Rules of Procedure.
Section 5 of Republic Act No. 8282 provides:
SEC. 5. Settlement of Disputes. (a) Any dispute arising under this Act with respect to
coverage, benefits, contributions and penalties thereon or any other matter related thereto,
shall be cognizable by the Commission, x x x. (Emphasis supplied.)
Similarly, Section 1, Rule III of the 1997 SSS Revised Rules of Procedure states:
Section 1. Jurisdiction. Any dispute arising under the Social Security Act with respect to
coverage, entitlement of benefits, collection and settlement of contributions and penalties
thereon, or any other matter related thereto, shall be cognizable by the Commission after
the SSS through its President,
Manager or Officer-in-charge of the
Department/Branch/Representative Office concerned had first taken action thereon in writing.
(Emphasis supplied.)
It is clear then from the aforesaid provisions that any issue regarding the compulsory coverage
of the SSS is well within the exclusive domain of the petitioner SSC. It is important to note,
though, that the mandatory coverage under the SSS Law is premised on the existence of an
employer-employee relationship[17] except in cases of compulsory coverage of the selfemployed.

Page

In this case, the petition-complaint filed by the petitioner SSS before the petitioner SSC
against the respondent cooperative and Stanfilco alleges that the owners-members of the
respondent cooperative are subject to the compulsory coverage of the SSS because they are
employees of the respondent cooperative. Consequently, the respondent cooperative being the
employer of its owners-members must register as employer and report its owners-members as
covered members of the SSS and remit the necessary premium contributions in accordance

262

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

with the Social Security Law of 1997. Accordingly, based on the aforesaid allegations in the
petition-complaint filed before the petitioner SSC, the case clearly falls within its jurisdiction.
Although the Answer with Motion to Dismiss filed by the respondent cooperative challenged
the jurisdiction of the petitioner SSC on the alleged lack of employer-employee relationship
between itself and its owners-members, the same is not enough to deprive the petitioner SSC
of its jurisdiction over the petition-complaint filed before it. Thus, the petitioner SSC cannot
be faulted for initially assuming jurisdiction over the petition-complaint of the petitioner SSS.
Nonetheless, since the existence of an employer-employee relationship between the
respondent cooperative and its owners-members was put in issue and considering that the
compulsory coverage of the SSS Law is predicated on the existence of such relationship, it
behooves the petitioner SSC to determine if there is really an employer-employee relationship
that exists between the respondent cooperative and its owners-members.
The question on the existence of an employer-employee relationship is not within the
exclusive jurisdiction of the National Labor Relations Commission (NLRC). Article 217 of
the Labor Code enumerating the jurisdiction of the Labor Arbiters and the NLRC provides
that:
ART. 217. JURISDICTION OF LABOR ARBITERS AND THE COMMISSION. - (a) x x x.
xxxx
6. Except claims for Employees Compensation, Social Security, Medicare and
maternity benefits, all other claims, arising from employer-employee relations,
including those of persons in domestic or household service, involving an amount
exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a
claim for reinstatement.[20]
Although the aforesaid provision speaks merely of claims for Social Security, it would
necessarily include issues on the coverage thereof, because claims are undeniably rooted in
the coverage by the system. Hence, the question on the existence of an employer-employee
relationship for the purpose of determining the coverage of the Social Security System is
explicitly excluded from the jurisdiction of the NLRC and falls within the jurisdiction of the
SSC which is primarily charged with the duty of settling disputes arising under the Social
Security Law of 1997.

Page

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

263

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

relationship between the respondent cooperative and its owners-members. Resultantly, the
petitioners SSS and SSC, representing the Republic of the Philippines, filed a Petition for
Review before this Court.
Although as a rule, in the exercise of the Supreme Courts power of review, the Court is not a
trier of facts and the findings of fact of the Court of Appeals are conclusive and binding on
the Court,[23] said rule is not without exceptions. There are several recognized exceptions[24] in
which factual issues may be resolved by this Court. One of these exceptions finds application
in this present case which is, when the findings of fact are conflicting. There are, indeed,
conflicting findings espoused by the petitioner SSC and the appellate court relative to the
existence of employer-employee relationship between the respondent cooperative and its
owners-members, which necessitates a departure from the oft-repeated rule that factual issues
may not be the subject of appeals to this Court.
In determining the existence of an employer-employee relationship, the following elements
are considered: (1) the selection and engagement of the workers; (2) the payment of wages by
whatever means; (3) the power of dismissal; and (4) the power to control the workers
conduct, with the latter assuming primacy in the overall consideration.[25] The most
important element is the employers control of the employees conduct, not only as to the
result of the work to be done, but also as to the means and methods to accomplish.[26]
The power of control refers to the existence of the power and not necessarily to the actual
exercise thereof. It is not essential for the employer to actually supervise the performance of
duties of the employee; it is enough that the employer has the right to wield that power. [27] All
the aforesaid elements are present in this case.

Page

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

264

First. It is expressly provided in the Service Contracts that it is the respondent cooperative
which has the exclusive discretion in the selection and engagement of the ownersmembers as well as its team leaders who will be assigned at Stanfilco.[28] Second. Wages
are defined as remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained, on a time, task, piece or
commission basis, or other method of calculating the same, which is payable by an employer
to an employee under a written or unwritten contract of employment for work done or
to be done, or for service rendered or to be rendered.[29] In this case, the weekly stipends
or the so-called shares in the service surplus given by the respondent cooperative to its
owners-members were in reality wages, as the same were equivalent to an amount not lower
than that prescribed by existing labor laws, rules and regulations, including the wage order
applicable to the area and industry; or the same shall not be lower than the prevailing rates of
wages.[30] It cannot be doubted then that those stipends or shares in the service surplus are
indeed wages, because these are given to the owners-members as compensation in rendering
services to respondent cooperatives client, Stanfilco. Third. It is also stated in the abovementioned Service Contracts that it is the respondent cooperative which has the power to
investigate, discipline and remove the owners-members and its team leaders who were
rendering services at Stanfilco.[31] Fourth. As earlier opined, of the four elements of the
employer-employee relationship, the control test is the most important. In the case at bar, it
is the respondent cooperative which has the sole control over the manner and means of
performing the services under the Service Contracts with Stanfilco as well as the means
and methods of work.[32] Also, the respondent cooperative is solely and entirely responsible
for its owners-members, team leaders and other representatives at Stanfilco.[33] All these
clearly prove that, indeed, there is an employer-employee relationship between the respondent
cooperative and its owners-members.

As previously pointed out by this Court, an employee-employer relationship actually exists

between the respondent cooperative and its owners-members. The four elements in the fourfold test for the existence of an employment relationship have been complied with. The
respondent cooperative must not be allowed to deny its employment relationship with its
owners-members by invoking the questionable Service Contracts provision, when in actuality,
it does exist. The existence of an employer-employee relationship cannot be negated by
expressly repudiating it in a contract, when the terms and surrounding circumstances
show otherwise. The employment status of a person is defined and prescribed by law
and not by what the parties say it should be.[35]
It is settled that the contracting parties may establish such stipulations, clauses, terms and
conditions as they want, and their agreement would have the force of law between them.
However, the agreed terms and conditions must not be contrary to law, morals, customs,
public policy or public order.[36] The Service Contract provision in question must be struck
down for being contrary to law and public policy since it is apparently being used by the
respondent cooperative merely to circumvent the compulsory coverage of its employees, who
are also its owners-members, by the Social Security Law.
This Court is not unmindful of the pronouncement it made in Cooperative Rural Bank of
Davao City, Inc. v. Ferrer-Calleja[37] wherein it held that:
A cooperative, therefore, is by its nature different from an ordinary business concern, being
run either by persons, partnerships, or corporations. Its owners and/or members are the ones
who run and operate the business while the others are its employees x x x.
An employee therefore of such a cooperative who is a member and co-owner thereof
cannot invoke the right to collective bargaining for certainly an owner cannot bargain
with himself or his co-owners. In the opinion of August 14, 1981 of the Solicitor General he
correctly opined that employees of cooperatives who are themselves members of the
cooperative have no right to form or join labor organizations for purposes of collective
bargaining for being themselves co-owners of the cooperative.
However, in so far as it involves cooperatives with employees who are not members or coowners thereof, certainly such employees are entitled to exercise the rights of all workers to
organization, collective bargaining, negotiations and others as are enshrined in the
Constitution and existing laws of the country.

Page

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

265

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

In the present case, it is not disputed that the respondent cooperative had registered itself with
the Cooperative Development Authority, as evidenced by its Certificate of Registration No. 0623-2460.[40] In its by-laws,[41] its Board of Directors directs, controls, and supervises the
business and manages the property of the respondent cooperative. Clearly then, the
management of the affairs of the respondent cooperative is vested in its Board of Directors
and not in its owners-members as a whole. Therefore, it is completely logical that the
respondent cooperative, as a juridical person represented by its Board of Directors, can enter
into an employment with its owners-members.
In sum, having declared that there is an employer-employee relationship between the
respondent cooperative and its owners-member, we conclude that the petitioner SSC has
jurisdiction over the petition-complaint filed before it by the petitioner SSS. This being our
conclusion, it is no longer necessary to discuss the issue of whether the respondent
cooperative was estopped from assailing the jurisdiction of the petitioner SSC when it filed its
Answer with Motion to Dismiss.

Page

266

WHEREFORE, premises considered, the instant Petition is hereby GRANTED. The

Decision and the Resolution of the Court of Appeals in CA-G.R. SP No. 87236, dated 5
January 2006 and 20 March 2006, respectively, are hereby REVERSED and SET ASIDE.
The Orders of the petitioner SSC dated 17 February 2004 and 16 September 2004 are hereby
REINSTATED. The petitioner SSC is hereby DIRECTED to continue hearing the petitioncomplaint filed before it by the petitioner SSS as regards the compulsory coverage of the
respondent cooperative and its owners-members. No costs.

[ G.R. No. 109704, January 17, 1995 ]

ALFREDO B. FELIX, PETITIONER, VS. DR. BRIGIDA BUENASEDA, IN HER
CAPACITY AS DIRECTOR, AND ISABELO BANEZ, JR. IN HIS CAPACITY AS
ADMINISTRATOR, BOTH OF THE NATIONAL CENTER FOR MENTAL
HEALTH, AND THE CIVIL SERVICE COMMISSION, RESPONDENTS.
DECISION
KAPUNAN, J.:
Taking advantage of this Court's decisions involving the removal of various civil servants
pursuant to the general reorganization of the government after the EDSA Revolution,
petitioner assails his dismissal as Medical Specialist I of the National Center for Mental
Health (formerly the National Mental Hospital) as illegal and violative of the constitutional
provision on security of tenure allegedly because his removal was made pursuant to an invalid
reorganization.
In Mendoza vs Quisumbing [1] and the consolidated cases involving the reorganization of
various government departments and agencies we held:
We are constrained to set aside the reorganizations embodied in these consolidated petitions
because the heads of departments and agencies concerned have chosen to rely on their own
concepts of unlimited discretion and "progressive" ideas on reorganization instead of showing
that they have faithfully complied with the clear letter and spirit of the two Constitutions and
the statutes affecting reorganization. [2]
In De Guzman vs CSC [3], we upheld the principle, laid down by Justice J.B.L. Reyes in Cruz
vs Primicias [4] that a valid abolition of an office neither results in a separation or removal,
likewise upholding the corollary principle that "if the abolition is void, the incumbent is
deemed never to have ceased to hold office," in sustaining therein petitioner's right to the
position she held prior to the reorganization.
The instant petition on its face turns on similar facts and issues, which is, that petitioner's
removal from a permanent position in the National Center for Mental Health as a result of the
reorganization of the Department of Health was void. However, a closer look at the facts
surrounding the instant petition leads us to a different conclusion.
After passing the Physician's Licensure Examinations given by the Professional Regulation
Commission in June of 1979, petitioner, Dr. Alfredo B. Felix, joined the National Center for
Mental Health (then the National Mental Hospital) on May 26,1980 as a Resident Physician
with an annual salary of P15,264.00. [5] In August of 1983, he was promoted to the position of
Senior Resident Physician [6] a position he held until the Ministry of Health reorganized the
National Center for Mental Health (NCMH) in January of 1988, pursuant to Executive Order
No. 119.

Page

In 1988, the Department of Health issued Department Order No. 347 which required board
certification as a prerequisite for renewal of specialist positions in various medical centers,
hospitals and agencies of the said department. Specifically, Department Order No. 347
provided that specialists working in various hospitals and branches of the Department of
Health be recognized as "Fellows" of their respective specialty societies and/or "Diplomates"

267

Under the reorganization, petitioner was appointed to the position of Senior Resident
Physician in a temporary capacity immediately after he and other employees of the NCMH
allegedly tendered their courtesy resignations to the Secretary of Health. [7] In August of 1988,
petitioner was promoted to the position of Medical Specialist I (Temporary Status), which
position was renewed the following year. [8]

of their specialty boards or both. The Order was issued for the purpose of upgrading the
quality of specialists in DOH hospitals by requiring them to pass rigorous theoretical and
clinical (bedside) examinations given by recognized specialty boards, in keeping up with
international standards of medical practice.
Upon representation of the Chiefs of Hospitals of various government hospitals and medical
centers, (then) Secretary of Health Alfredo Bengzon issued Department Order 478, series of
1991 amending Sec. 4 of Department Order No. 347 providing for an extension of
appointments of Medical Specialist positions in cases where the termination of medical
specialists who failed to meet the requirement for board certification might result in the
disruption of hospital services. Department Order No. 478 issued the following guidelines:
1. As a general policy, the provision of Department Order No. 347, Sec. 4 shall apply
unless the Chief of Hospital requests for exemption, certifies that its application will
result in the disruption of the delivery service together with the steps taken to
implement Section 4, and submit a plan of action, lasting no more than 3-years, for the
eventual phase out of non-Board certified medical specialists.
2. Medical specialists recommended for extension of appointment shall meet the
following minimum criteria:
a. DOH medical specialist certified
b. Has been in the service of the Department at least three (3) years prior to
December 1988
c. Has applied or taken the specialty board examination.

3. Each recommendation for extension of appointment must be individually justified to

show not only the qualification of the recommendee, but also what steps he has taken
to be board certified.
4. Recommendation for extension of appointment shall be evaluated on a case to case
basis.
5. As amended, the other provisions of Department Order No. 34/s. 1988 stands.

Page

On November 25, 1991, an emergency meeting of the Chiefs of Service was held to discuss,
among other matters, the petitioner's case. In the said meeting Dr. Vismindo de Grecia,
petitioner's immediate supervisor, pointed out petitioner's poor performance, frequent
tardiness and inflexibility as among the factors responsible for the recommendation not to
renew his appointment. [9] With one exception, other department heads present in the meeting
expressed the same opinion, [10] and the overwhelming concensus was for non-renewal. The
matter was thereafter referred to the Civil Service Commission, which on February 28, 1992
ruled that "the temporary appointment (of petitioner) as Medical Specialist I can be
terminated at any time..." and that "[a]ny renewal of such appointment is within the discretion

268

Petitioner was one of the hundreds of government medical specialists who would have been
adversely affected by Department Order No. 347 since he was not yet accredited by the
Psychiatry Specialty Board. Under Department Order No. 478, extension of his appointment
remained subject to the guidelines set by the said department order. On August 20, 1991, after
reviewing petitioner's service record and performance, the Medical Credentials Committee of
the National Center for Mental Health recommended non-renewal of his appointment as
Medical Specialist I, informing him of its decision on August 22, 1991. He was, however,
allowed to continue in the service, and receive his salary, allowances and other benefits even
after being informed of the termination of his appointment.

of the appointing authority." [11] Consequently, in a memorandum dated March 25, 1992
petitioner was advised by hospital authorities to vacate his cottage since he was no longer
entitled to accommodation. Refusing to comply with said memorandum petitioner filed a
petition with the Merit System Protection Board ((MSPB)) complaining about the alleged
harassment by respondents and questioning the non?renewal of his appointment. In a Decision
rendered on July 29, 1992, the (MSPB) dismissed petitioner's complaint for lack of merit,
finding that:
As an apparent incident of the power to appoint, the renewal of a temporary appointment
upon or after its expiration is a matter largely addressed to the sound discretion of the
appointing authority. In this case, there is no dispute that Complainant was a temporary
employee and his appointment expired on August 22, 1991. This being the case, his reappointment to his former position or the renewal of his temporary appointment would be
determined solely by the proper appointing authority who is the Secretary, Department of
Health upon the favorable recommendation of the Chief of Hospital III, NCMH. The Supreme
Court in the case of Central Bank vs. Civil Service Commission G.R. Nos. 80455-56 dated
April 10, 1989, held as follows:
The power of appointment is essentially a political question involving considerations of
wisdom which only the appointing authority can decide.
In this light, Complainant therefore, has no basis in law, to assail the non-renewal of his
expired temporary appointment much less invoke the aid of this board for that purpose since
this Board cannot substitute its judgment to that of the appointing authority nor direct the
latter to issue an appointment in the complainant's favor.
Regarding the alleged Department Order secured by the complainant from the Department of
Health (DOH), the Board finds the same inconsequential. Said Department Order merely
allowed the extension of tenure of Medical Specialist I for a certain period but does not
mandate the renewal of the expired appointment.
The Board likewise finds as baseless complainant's allegation of harassment. It should be
noted that the subsistence, quarters and laundry benefits provided to the Complainant were in
connection with his employment with the NCMH. Now that his employment ties with the said
agency are severed, he eventually loses his right to the said benefits. Hence, the Hospital
Management has the right to take steps to prevent him from the continuous enjoyment thereof,
including the occupancy of the said cottage, after his cessation form office.
In sum, the actuations of Dr. Buenaseda and Lt. Col. Balez are not shown to have been tainted
with any legal infirmity, thus rendering as baseless, this instant complaint.
Said decision was appealed to the Civil Service Commission which dismissed the same in its
Resolution dated December 1, 1992. Motion for Reconsideration was denied in CSC
Resolution No. 93-677 dated February 3, 1993, hence this appeal, in which petitioner
interposes the following assignments of errors:
I

Page

269

THE PUBLIC RESPONDENT CIVIL SERVICE COMMISSION ERRED IN HOLDING

THAT BY SUBMITTING HIS COURTESY RESIGNATION AND ACCEPTING HIS
TEMPORARY APPOINTMENT PETITIONER HAD EFFECTIVELY DIVESTED
HIMSELF OF HIS SECURITY OF TENURE, CONSIDERING THE CIRCUMSTANCES
OF SUCH COURTESY RESIGNATION AND ACCEPTANCE OF APPOINTMENT.

II
THE RESPONDENT COMMISSION ERRED IN NOT DECLARING THAT THE
CONVERSION OF THE PERMANENT APPOINTMENT OF PETITIONER TO
TEMPORARY WAS DONE IN BAD FAITH IN THE GUISE OF REORGANIZATION
AND THUS INVALID, BEING VIOLATIVE OF THE PETITIONER'S RIGHT OF
SECURITY OF TENURE.
Responding to the instant petition, [12] the Solicitor General contends that 1) the petitioner's
temporary appointments after the reorganization pursuant to E.O. No. 119 were valid and did
not violate his constitutional right to security of tenure; [13] 2) petitioner is guilty of estoppel
or laches, having acquiesced to such temporary appointments from 1988 to 1991; [14] and 3)
the respondent Commission did not act with grave abuse of discretion in affirming the
petitioner's non-renewal of his appointment at the National Center for Mental Health. [15]
We agree.
The patent absurdity of petitioner's posture is readily obvious. A residency or resident
physician position in a medical specialty is never a permanent one. Residency connotes
training and temporary status. It is the step taken by a physician right after post-graduate
internship (and after hurdling the Medical Licensure Examinations) prior to his recognition as
a specialist or sub-specialist in a given field.

Page

Petitioner's insistence on being reverted back to the status quo prior to the reorganizations
made pursuant to Executive Order No. 119 would therefore be akin to a college student
asking to be sent back to high school and staying there. From the position of senior resident
physician, which he held at the time of the government reorganization, the next logical step in
the stepladder process was obviously his promotion to the rank of Medical Specialist I, a

270

A physician who desires to specialize in Cardiology takes a required three-year accredited

residency in Internal Medicine (four years in DOH hospitals) and moves on to a two or threeyear fellowship or residency in Cardiology before he is allowed to take the specialty
examinations given by the appropriate accrediting college. In a similar manner, the accredited
Psychiatrist goes through the same stepladder process which culminates in his recognition as a
fellow or diplomate (or both) of the Psychiatry Specialty Board.[16] This upward movement
from residency to specialist rank, institutionalized in the residency training process,
guarantees minimum standards and skills and ensures that the physician claiming to be a
specialist will not be set loose on the community without the basic knowledge and skills of his
specialty. Because acceptance and promotion requirements are stringent, competitive, and
based on merit, acceptance to a first year residency program is no guaranty that the physician
will complete the program. Attrition rates are high. Some programs are pyramidal. Promotion
to the next post-graduate year is based on merit and performance determined by periodic
evaluations and examinations of knowledge, skills and bedside manner. [17] Under this system,
residents, specially those in university teaching hospitals [18] enjoy their right to security of
tenure only to the extent that they periodically make the grade, making the situation quite
unique as far as physicians undergoing post-graduate residencies and fellowships are
concerned. While physicians (or consultants) of specialist rank are not subject to the same
stringent evaluation procedures, [19] specialty societies require continuing education as a
requirement for accreditation in good standing, in addition to peer review processes based on
performance, mortality and morbidity audits, feedback from residents, interns and medical
students and research output. The nature of the contracts of resident physicians meet
traditional tests for determining employer-employee relationships, but because the focus of
residency is training, they are neither here nor there. Moreover, stringent standards and
requirements for renewal of specialist-rank positions or for promotion to the next postgraduate residency year are necessary because lives are ultimately at stake.

position which he apparently accepted not only because of the increase in salary and rank but
because of the prestige and status which the promotion conferred upon him in the medical
community. Such status, however, clearly carried with it certain professional responsibilities
including the responsibility of keeping up with the minimum requirements of specialty rank,
the responsibility of keeping abreast with current knowledge in his specialty and in Medicine
in general, and the responsibility of completing board certification requirements within a
reasonable period of time. The evaluation made by petitioner's peers and superiors clearly
showed that he was deficient in a lot of areas, in addition to the fact that at the time of his
non-renewal, he was not even board-certified.
It bears emphasis that at the time of petitioner's promotion to the position of Medical
Specialist I (temporary) in August of 1988, no objection was raised by him about the change
of position or the temporary nature of the designation. The pretense of objecting to the
promotion to specialist rank apparently came only as an afterthought, three years later,
following the non-renewal of his position by the Department of Health.
We lay stress to the fact that petitioner made no attempt to oppose earlier renewals of his
temporary Specialist I contracts in 1989 and 1990, clearly demonstrating his acquiescence to if not his unqualified acceptance of - the promotion (albeit of a temporary nature) made in
1988. Whatever objections petitioner had against the earlier change from the status of
permanent senior resident physician to temporary senior resident physician were neither
pursued nor mentioned at or after his designation as Medical Specialist I (Temporary). He is
therefore estopped from insisting upon a right or claim which he had plainly abandoned when
he, from all indications, enthusiastically accepted the promotion. His negligence to assert his
claim within a reasonable time, coupled with his failure to repudiate his promotion to a
temporary position, warrants a presumption, in the words of this Court in Tijam Vs
Sibonghanoy, [20] that he "either abandoned (his claim) or declined to assert it."

Page

In fine, this petition, on its surface, seems to be an ordinary challenge against the validity of
the conversion of petitioner's position from permanent resident physician status to that of a
temporary resident physician pursuant to the government reorganization after the EDSA
Revolution. What is unique to petitioner's averments is the fact that he hardly attempts to
question the validity of his removal from his position of Medical Specialist I (Temporary) of
the National Center for Mental Health, which is plainly the pertinent issue in the case at
bench. The reason for this is at once apparent, for there is a deliberate and dishonest attempt
to skirt the fundamental issue first, by falsely claiming that petitioner was forced to submit his
courtesy resignation in 1987 when he actually did not; and second, by insisting on a right of
claim clearly abandoned by his acceptance of the position of Medical Specialist I (temporary),
which is hence barred by laches.

271

There are weighty reasons of public policy and convenience which demand that any claim to
any position in the civil service, permanent, temporary or otherwise, or any claim to a
violation of the constitutional provision on security of tenure be made within a reasonable
period of time. An assurance of some degree of stability in the civil service is necessary in
order to avoid needless disruptions in the conduct of public business. Delays in the statement
of a right to any position are strongly discouraged. [21] In the same token, the failure to assert a
claim or the voluntary acceptance of another position in government, obviously without
reservation, leads to a presumption that the civil servant has either given up his claim or has
already settled into the new position. This is the essence of laches which is the failure or
neglect, for an unreasonable and unexplained length of time to do that which, by exercising
due diligence, could or should have been done earlier; it is the negligence or omission to
assert a right within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it. [22]

The validity of the government reorganization of the Ministry of Health pursuant to E.O. 119
not being the real issue in the case at bench, we decline to make any further pronouncements
relating to petitioner's contentions relating to the effect on him of the reorganization except to
say that in the specific case of the change in designation from permanent resident physician to
temporary resident physician, a change was necessary, overall, to rectify a ludicrous situation
whereby some government resident physicians were erroneously being classified as
permanent resident physicians in spite of the inherently temporary nature of the designation.
The attempts by the Department of Health not only to streamline these positions but to make
them conform to current standards of specialty practice is a step in a positive direction. The
patient who consults with a physician of specialist rank should at least be safe in the
assumption that the government physician of specialist rank: 1.) has completed all necessary
requirements of specialist training in his field; and 2.) has been board certified. These
fundamental requirements at least assure the public at large that those in government centers
who claim to be specialists in specific areas of Medicine possess the minimum knowledge and
skills required to fulfill that first and foremost maxim, embodied in the Hippocratic Oath, that
they do their patients no harm. Primium non nocere.
Finally, it is crystal clear, from the facts of the case at bench, that the petitioner accepted a
temporary appointment (Medical Specialist I). As respondent Civil Service Commission has
correctly pointed out [23], the appointment was for a definite and renewable period which,
when it was not renewed, did not involve a dismissal but an expiration of the petitioner's term.

Page

272

ACCORDINGLY, the petition is hereby DISMISSED, for lack of merit. SO ORDERED.

[ G.R. NO. 170087, August 31, 2006 ]

ANGELINA FRANCISCO, PETITIONER, VS. NATIONAL LABOR RELATIONS
COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD LIZA AND RAMON
ESCUETA, RESPONDENTS.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and
set aside the Decision and Resolution of the Court of Appeals dated October 29, 2004[1] and
October 7, 2005,[2] respectively, in CA-G.R. SP No. 78515 dismissing the complaint for
constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court
reversed and set aside the Decision of the National Labor Relations Commission (NLRC)
dated April 15, 2003,[3] in NLRC NCR CA No. 032766-02 which affirmed with modification
the decision of the Labor Arbiter dated July 31, 2002,[4] in NLRC-NCR Case No. 30-10-0489-01, finding that private respondents were liable for constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was
designated as Accountant and Corporate Secretary and was assigned to handle all the
accounting needs of the company. She was also designated as Liaison Officer to the City of
Makati to secure business permits, construction permits and other licenses for the initial
operation of the company.[5]
Although she was designated as Corporate Secretary, she was not entrusted with the corporate
documents; neither did she attend any board meeting nor required to do so. She never
prepared any legal document and never represented the company as its Corporate Secretary.
However, on some occasions, she was prevailed upon to sign documentation for the
company.[6]
In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as
accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle
recruitment of all employees and perform management administration functions; represent the
company in all dealings with government agencies, especially with the Bureau of Internal
Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to
administer all other matters pertaining to the operation of Kasei Restaurant which is owned
and operated by Kasei Corporation.[7]
For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000
her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of
Kasei Corporation.[8]

Page

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

273

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

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers
but she was informed that she is no longer connected with the company.[11]
Since she was no longer paid her salary, petitioner did not report for work and filed an action
for constructive dismissal before the labor arbiter.
Private respondents averred that petitioner is not an employee of Kasei Corporation. They
alleged that petitioner was hired in 1995 as one of its technical consultants on accounting
matters and act concurrently as Corporate Secretary. As technical consultant, petitioner
performed her work at her own discretion without control and supervision of Kasei
Corporation. Petitioner had no daily time record and she came to the office any time she
wanted. The company never interfered with her work except that from time to time, the
management would ask her opinion on matters relating to her profession. Petitioner did not go
through the usual procedure of selection of employees, but her services were engaged through
a Board Resolution designating her as technical consultant. The money received by petitioner
from the corporation was her professional fee subject to the 10% expanded withholding tax on
professionals, and that she was not one of those reported to the BIR or SSS as one of the
company's employees.[12]
Petitioner's designation as technical consultant depended solely upon the will of management.
As such, her consultancy may be terminated any time considering that her services were only
temporary in nature and dependent on the needs of the corporation.
To prove that petitioner was not an employee of the corporation, private respondents
submitted a list of employees for the years 1999 and 2000 duly received by the BIR showing
that petitioner was not among the employees reported to the BIR, as well as a list of payees
subject to expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioner's latest employer was Seiji Corporation.[13]
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. finding complainant an employee of respondent corporation;
2. declaring complainant's dismissal as illegal;
3. ordering respondents to reinstate complainant to her former position without loss of
seniority rights and jointly and severally pay complainant her money claims in
accordance with the following computation:

b.

Salary Differentials (01/2001 09/2001)

22,500.00

c.

Housing Allowance (01/2001 07/2002)

57,000.00

d.

Midyear Bonus 2001

27,500.00

e.

13th Month Pay

27,500.00

f.

10% share in the profits of Kasei361,175.00

Corp. from 1996-2001

g.

Moral and exemplary damages

h.

10%
P957,742.50

Attorney's

07/2002275,000.00

100,000.00
fees7,076.50

274

Backwages
10/2001
(27,500 x 10 mos.)

Page

a.

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation

pay with additional backwages that would accrue up to actual payment of separation pay.
SO ORDERED.[14]
On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter,
the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant separation pay computed at one month
per year of service in addition to full backwages from October 2001 to July 31, 2002;
2) The awards representing moral and exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00 are deleted;
3) The award of 10% attorney's fees shall be based on salary differential award only;
4) The awards representing salary differentials, housing allowance, mid year bonus and
13th month pay are AFFIRMED.
SO ORDERED.[15]
On appeal, the Court of Appeals reversed the NLRC decision, thus:
WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor
Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a
new one is hereby rendered dismissing the complaint filed by private respondent against
Kasei Corporation, et al. for constructive dismissal.
SO ORDERED.[16]
The appellate court denied petitioner's motion for reconsideration, hence, the present recourse.
The core issues to be resolved in this case are (1) whether there was an employer-employee
relationship between petitioner and private respondent Kasei Corporation; and if in the
affirmative, (2) whether petitioner was illegally dismissed.
Considering the conflicting findings by the Labor Arbiter and the National Labor Relations
Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine
the records to determine which of the propositions espoused by the contending parties is
supported by substantial evidence.[17]

Page

However, in certain cases the control test is not sufficient to give a complete picture of the
relationship between the parties, owing to the complexity of such a relationship where several
positions have been held by the worker. There are instances when, aside from the employer's
power to control the employee with respect to the means and methods by which the work is to
be accomplished, economic realities of the employment relations help provide a

275

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

comprehensive analysis of the true classification of the individual, whether as employee,

independent contractor, corporate officer or some other capacity.
The better approach would therefore be to adopt a two-tiered test involving: (1) the putative
employer's power to control the employee with respect to the means and methods by which
the work is to be accomplished; and (2) the underlying economic realities of the activity or
relationship.
This two-tiered test would provide us with a framework of analysis, which would take into
consideration the totality of circumstances surrounding the true nature of the relationship
between the parties. This is especially appropriate in this case where there is no written
agreement or terms of reference to base the relationship on; and due to the complexity of the
relationship based on the various positions and responsibilities given to the worker over the
period of the latter's employment.
The control test initially found application in the case of Viaa v. Al-Lagadan and Piga,[19]
and lately in Leonardo v. Court of Appeals,[20] where we held that there is an employeremployee relationship when the person for whom the services are performed reserves the right
to control not only the end achieved but also the manner and means used to achieve that end.
In Sevilla v. Court of Appeals,[21] we observed the need to consider the existing economic
conditions prevailing between the parties, in addition to the standard of right-of-control like
the inclusion of the employee in the payrolls, to give a clearer picture in determining the
existence of an employer-employee relationship based on an analysis of the totality of
economic circumstances of the worker.
Thus, the determination of the relationship between employer and employee depends upon the
circumstances of the whole economic activity,[22] such as: (1) the extent to which the services
performed are an integral part of the employer's business; (2) the extent of the worker's
investment in equipment and facilities; (3) the nature and degree of control exercised by the
employer; (4) the worker's opportunity for profit and loss; (5) the amount of initiative, skill,
judgment or foresight required for the success of the claimed independent enterprise; (6) the
permanency and duration of the relationship between the worker and the employer; and (7)
the degree of dependency of the worker upon the employer for his continued employment in
that line of business.[23]
The proper standard of economic dependence is whether the worker is dependent on the
alleged employer for his continued employment in that line of business.[24] In the United
States, the touchstone of economic reality in analyzing possible employment relationships for
purposes of the Federal Labor Standards Act is dependency.[25] By analogy, the benchmark of
economic reality in analyzing possible employment relationships for purposes of the Labor
Code ought to be the economic dependence of the worker on his employer.

Page

Under the broader economic reality test, the petitioner can likewise be said to be an employee
of respondent corporation because she had served the company for six years before her
dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay,
bonuses and allowances, as well as deductions and Social Security contributions from August

276

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

1, 1999 to December 18, 2000.[26] When petitioner was designated General Manager,
respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner's
membership in the SSS as manifested by a copy of the SSS specimen signature card which
was signed by the President of Kasei Corporation and the inclusion of her name in the on-line
inquiry system of the SSS evinces the existence of an employer-employee relationship
between petitioner and respondent corporation.[27]
It is therefore apparent that petitioner is economically dependent on respondent corporation
for her continued employment in the latter's line of business.
In Domasig v. National Labor Relations Commission,[28] we held that in a business
establishment, an identification card is provided not only as a security measure but mainly to
identify the holder thereof as a bona fide employee of the firm that issues it. Together with the
cash vouchers covering petitioner's salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that petitioner was an
employee of private respondent.
We likewise ruled in Flores v. Nuestro[29] that a corporation who registers its workers with the
SSS is proof that the latter were the former's employees. The coverage of Social Security Law
is predicated on the existence of an employer-employee relationship.
Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established
that petitioner never acted as Corporate Secretary and that her designation as such was only
for convenience. The actual nature of petitioner's job was as Kamura's direct assistant with the
duty of acting as Liaison Officer in representing the company to secure construction permits,
license to operate and other requirements imposed by government agencies. Petitioner was
never entrusted with corporate documents of the company, nor required to attend the meeting
of the corporation. She was never privy to the preparation of any document for the
corporation, although once in a while she was required to sign prepared documentation for the
company.[30]
The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001
affidavit has been allegedly withdrawn by Kamura himself from the records of the case.[31]
Regardless of this fact, we are convinced that the allegations in the first affidavit are sufficient
to establish that petitioner is an employee of Kasei Corporation.
Granting arguendo, that the second affidavit validly repudiated the first one, courts do not
generally look with favor on any retraction or recanted testimony, for it could have been
secured by considerations other than to tell the truth and would make solemn trials a mockery
and place the investigation of the truth at the mercy of unscrupulous witnesses.[32] A
recantation does not necessarily cancel an earlier declaration, but like any other testimony the
same is subject to the test of credibility and should be received with caution.[33]

Page

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a
month from January to September 2001. This amounts to an illegal termination of
employment, where the petitioner is entitled to full backwages. Since the position of petitioner

277

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

as accountant is one of trust and confidence, and under the principle of strained relations,
petitioner is further entitled to separation pay, in lieu of reinstatement.[34]
A diminution of pay is prejudicial to the employee and amounts to constructive dismissal.
Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to
when continued employment becomes impossible, unreasonable or unlikely; when there is a
demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or
disdain by an employer becomes unbearable to an employee.[35] In Globe Telecom, Inc. v.
Florendo-Flores,[36] we ruled that where an employee ceases to work due to a demotion of
rank or a diminution of pay, an unreasonable situation arises which creates an adverse
working environment rendering it impossible for such employee to continue working for her
employer. Hence, her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.
In affording full protection to labor, this Court must ensure equal work opportunities
regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the
fragile relationship between employees and employers, we are mindful of the fact that the
policy of the law is to apply the Labor Code to a greater number of employees. This would
enable employees to avail of the benefits accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to labor, promoting their welfare
and reaffirming it as a primary social economic force in furtherance of social justice and
national development.
WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515
are ANNULLED and SET ASIDE. The Decision of the National Labor Relations
Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The
case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina
Francisco's full backwages from the time she was illegally terminated until the date of finality
of this decision, and separation pay representing one-half month pay for every year of service,
where a fraction of at least six months shall be considered as one whole year.

Page

278

SO ORDERED.

[ G.R. NO. 146667, January 23, 2007 ]

JOHN F. MCLEOD, PETITIONER, VS. NATIONAL LABOR RELATIONS
COMMISSION
(FIRST
DIVISION),
FILIPINAS
SYNTHETIC
FIBER
CORPORATION (FILSYN), FAR EASTERN TEXTILE MILLS, INC., STA. ROSA
TEXTILES, INC., (PEGGY MILLS, INC.), PATRICIO L. LIM, AND ERIC HU,
RESPONDENTS.
DECISION
CARPIO, J.:
The Case
This is a petition for review[1] to set aside the Decision[2] dated 15 June 2000 and the
Resolution[3] dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130.
The Court of Appeals affirmed with modification the 29 December 1998 Decision[4] of the
National Labor Relations Commission (NLRC) in NLRC NCR 02-00949-95.
The Facts
The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of
Appeals, are as follows:

Page

In his Position Paper, complainant alleged that he is an expert in textile manufacturing

process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal
Textiles, Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till
1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy
Mills, Inc. with respondent Filsyn having controlling interest; that complainant was absorbed
by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that
at the time of his retirement complainant was receiving P60,000.00 monthly with vacation and
sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a
Manila-London-Manila itinerary every three years which is convertible to cas[h] if unused;
that in January 1986, respondents failed to pay vacation and leave credits and requested
complainant to wait as it was short of funds but the same remain unpaid at present; that
complainant is entitled to such benefit as per CBA provision (Annex A); that respondents
likewise failed to pay complainants holiday pay up to the present; that complainant is entitled
to such benefits as per CBA provision (Annex B); that in 1989 the plant union staged a
strike and in 1993 was found guilty of staging an illegal strike; that from 1989 to 1992
complainant was entitled to 4 round trip business class plane tickets on a Manila-LondonManila itinerary but this benefit not (sic) its monetary equivalent was not given; that on
August 1990 the respondents reduced complainants monthly salary of P60,000.00 by
P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills,
Inc. to Far Eastern Textile Mills, Inc. as per agreement (Annex D) and this was renamed as
Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for
Sta. Rosa until November 30 that from time to time the owners of Far Eastern consulted with
complainant on technical aspects of reoperation of the plant as per correspondence (Annexes
D-1 and D-2); that when complainant reached and applied retirement age at the end of
1993, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of
P15,816.87; that thereafter the owners of Far Eastern Textiles decided for cessation of

279

On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and
sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of
salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest
against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa
Textiles, Inc., Patricio Lim and Eric Hu.

operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes
E-1 to E-2) to Patricio Lim requesting for his retirement and other benefits; that in the last
quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00
which complainant rejected; that again complainant wrote a letter (Annex F) reiterating his
demand for full payment of all benefits and to no avail, hence this complaint; and that he is
entitled to all his money claims pursuant to law.

Page

In his Reply, complainant alleged that all respondents being one and the same entities are
solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents
have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds
office in the same address; that all respondents have the same offices and key personnel such
as Patricio Lim and Eric Hu; that respondents Position Paper is verified by Marialen C.
Corpuz who knows all the corporate officers of all respondents; that the veil of corporate
fiction may be pierced if it is used as a shield to perpetuate fraud and confuse legitimate
issues; that complainant never accepted the change in his position from Vice-President and
Plant Manger to consultant and it is incumbent upon respondents to prove that he was only a
consultant; that the Deed of Dation in Payment with Lease (Annex C) proves that Sta. Rosa
took over the assets of Peggy Mills as early as June 15, 1992 and not 1995 as alleged by
respondents; that complainant never resigned from his job but applied for retirement as per
letters (Annexes E-1, E-2 and F); that documents G, H and I show that Eric Hu

280

On the other hand, respondents in their Position Paper alleged that complainant was the
former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980
and Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the
corporation still exists at present; that its assets were acquired by Sta. Rosa Textile
Corporation which was established in April 1992 but still remains non-operational at present;
that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he
resigned on November 30, 1993; that Filsyn and Far Eastern Textiles are separate legal
entities and have no employer relationship with complainant; that respondent Patricio Lim is
the President and Board Chairman of Sta. Rosa Textile Corporation; that respondent Eric Hu
is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of
action against Filsyn, Far Eastern Textile Ltd., Sta. Rosa Textile Corporation and Eric Hu;
that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio
Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as private
individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the
union staged a strike up to July 1992 resulting in closure of operations due to irreversible
losses as per Notice (Annex 1); that complainant was relied upon to settle the labor problem
but due to his lack of attention and absence the strike continued resulting in closure of the
company; and losses to Sta. Rosa which acquired its assets as per their financial statements
(Annexes 2 and 3); that the attendance records of complainant from April 1992 to
November 1993 (Annexes 4 and 5) show that he was either absent or worked at most two
hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the
total amount of P36,757.00 against complainant; that complainants monthly salary at Peggy
Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement
program; that whatever amount complainant is entitled should be offset with the
counterclaims; that complainant worked only for 12 years from 1980 to 1992; that
complainant was only hired as a consultant and not an employee by Sta. Rosa Textile; that
complainants attendance record of absence and two hours daily work during the period of the
strike wipes out any vacation/sick leave he may have accumulated; that there is no basis for
complainants claim of two (2) business class airline tickets; that complainants pay already
included the holiday pay; that he is entitled to holiday pay as consultant by Sta. Rosa; that he
has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th
month pay as consultant; and that he is not entitled to moral and exemplary damages and
attorneys fees.

is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of
complainant; that the strike was staged on the issue of CBA negotiations which is not part of
the usual duties and responsibilities as Plant Manager; that complainant is a British national
and is prohibited by law in engaging in union activities; that as per Resolution (Annex 3) of
the NLRC in the proper case, complainant testified in favor of management; that the alleged
attendance record of complainant was lifted from the logbook of a security agency and is
hearsay evidence; that in the other attendance record it shows that complainant was reporting
daily and even on Saturdays; that his limited hours was due to the strike and cessation of
operations; that as plant manager complainant was on call 24 hours a day; that respondents
must pay complainant the unpaid portion of his salaries and his retirement benefits that cash
voucher No. 17015 (Annex K) shows that complainant drew the monthly salary of
P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the
consent of complainant; that complainant was assured that he will be paid the deduction as
soon as the company improved its financial standing but this assurance was never fulfilled;
that Patricio Lim promised complainant his retirement pay as per the latters letters (Annexes
E-1, E-2 and F); that the law itself provides for retirement benefits; that Patricio Lim by
way of Memorandum (Annex M) approved vacation and sick leave benefits of 22 days per
year effective 1986; that Peggy Mills required monthly paid employees to sign an
acknowledgement that their monthly compensation includes holiday pay; that complainant
was not made to sign this undertaking precisely because he is entitled to holiday pay over and
above his monthly pay; that the company paid for complainants two (2) round trip tickets to
London in 1983 and 1986 as reflected in the complainants passport (Annex N); that
respondents claim that complainant is not entitled to 13th month pay but paid in 1993 and all
the past 13 years; that complainant is entitled to moral and exemplary damages and attorneys
fees; that all doubts must be resolved in favor of complainant; and that complainant reserved
the right to file perjury cases against those concerned.
In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not
proper persons in interest due to the lack of employer-employee relationship between them
and complainant; that undersigned counsel does not represent Peggy Mills, Inc.
In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on
February 10, 1991 as per Board Minutes (Annex A); that on August 19, 1987, the workers
staged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed
a Notice of Closure with the DOLE (Annex B); that all employees were given separation
pay except for complainant whose task was extended to December 31, 1992 to wind up the
affairs of the company as per vouchers (Annexes C and C-1); that respondent offered
complainant his retirement benefits under RA 7641 but complainant refused; that the regular
salaries of complainant from closure up to December 31, 1992 have offset whatever vacation
and sick leaves he accumulated; that his claim for unused plane tickets from 1989 to 1992 has
no policy basis, the companys formula of employees monthly rate x 314 days over 12 months
already included holiday pay; that complainants unpaid portion of the 13th month pay in
1993 has no basis because he was only an employee up to December 31, 1992; that the 13th
month pay was based on his last salary; and that complainant is not entitled to damages.[5]
On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive
portion:

6/80

11/30/93

14

years

P 840,000.00

Page

Retirement Benefits (one month salary for every

year of service)

281

WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable
for complainants money claims as adjudicated above and computed below as follows:

P60,000 x 14.0 mos. ...................

Vacation and Sick Leave (3 yrs.)
P2,000.00 x 22 days x 3 yrs. .......

132,000.00

Underpayment of Salaries (3 yrs.)

P60,000
P50,495
P 9,505 x 36.0 mos. ....................

P9,505
342,180.00

Holiday Pay (3 yrs.)

P2,000 x 30 days .......................

60,000.00

Underpayment of 13th month pay (1993)...

15,816.87

Moral Damages .....................................

3,000,000.00

Exemplary Damages ..............................

1,000,000.00

10% Attorneys Fees .............................

138,999.68

TOTAL

P5,528,996.55

Unused
Airline
Tickets
(3
(To be converted in Peso upon payment)
$2,450.00 x 3.0 [yrs.] .................

yrs.)

$7,350.00

SO ORDERED.[6]
Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta.
Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC.
The NLRC rendered its decision on 29 December 1998, thus:
WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and
a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his
retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of
service from 1980 to 1992 based on a salary rate of P50,495.00 a month.
All other claims are DISMISSED for lack of merit.
SO ORDERED.[7]
John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its
Resolution of 30 June 1999.[8] McLeod thus filed a petition for certiorari before the Court of
Appeals assailing the decision and resolution of the NLRC.[9]
The Ruling of the Court of Appeals

Page

WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED
with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with
Peggy Mills, Inc., to pay the following amounts to petitioner John F. McLeod:

282

On 15 June 2000, the Court of Appeals rendered judgment as follows:

1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12)
years of service from 1980 to 1992 based on a salary rate of P50,495, a month;
2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos;
3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and
4. attorneys fees equivalent to 10% of the total award.
No costs is awarded.
SO ORDERED.[10]
The Court of Appeals rejected McLeods theory that all respondent corporations are the same
corporate entity which should be held solidarily liable for the payment of his monetary claims.
The Court of Appeals ruled that the fact that (1) all respondent corporations have the same
address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano
holds office at respondent corporations address; and (4) all respondent corporations have
common officers and key personnel, would not justify the application of the doctrine of
piercing the veil of corporate fiction.
The Court of Appeals held that there should be clear and convincing evidence that SRTI,
FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole
benefit of Peggy Mills, Inc. (PMI), otherwise, said corporations should be treated as distinct
and separate from each other.
The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has
six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E.
A. Picasso, and Walter Euyang. On the other hand, the Articles of Incorporation of Filsyn
show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang
Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr., Cipriano Azada, Manuel Tomacruz, Ismael
Maningas, and Benigno Zialcita, Jr.
The Court of Appeals pointed out that PMI and Filsyn have only two interlocking
incorporators and directors, namely, Patricio and Carlos Palanca, Jr.
Reiterating the ruling of this Court in Laguio v. NLRC,[11] the Court of Appeals held that mere
substantial identity of the incorporators of two corporations does not necessarily imply fraud,
nor warrant the piercing of the veil of corporate fiction.
The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in
Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before
the execution of the contract.
The Court of Appeals held that McLeod failed to substantiate his claim that all respondent
corporations should be treated as one corporate entity. The Court of Appeals thus upheld the
NLRCs finding that no employer-employee relationship existed between McLeod and
respondent corporations except PMI.

Page

The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs
financial obligation to McLeod. The Court of Appeals stated that, on several occasions,
despite his approval, Patricio refused and ignored to pay McLeods retirement benefits. The
Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal

283

The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any
liability, there being no proof of malice or bad faith on his part. The Court of Appeals,
however, ruled that McLeod was entitled to recover from PMI and Patricio, the companys
Chairman and President.

action. The Court of Appeals stated that although PMI offered to pay McLeod his retirement
benefits, this offer for P300,000 was still below the floor limits provided by law. The Court
of Appeals held that an employee could demand payment of retirement benefits as a matter of
right.
The Court of Appeals stated that considering that PMI was no longer in operation, its officer
should be held liable for acting on behalf of the corporation.
The Court of Appeals also ruled that since PMI did not have a retirement program providing
for retirement benefits of its employees, Article 287 of the Labor Code must be followed. The
Court of Appeals thus upheld the NLRCs finding that McLeod was entitled to retirement pay
equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of
P50,495 a month.
The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave
and holiday pay because as Vice President and Plant Manager, McLeod is a managerial
employee who, under Article 82 of the Labor Code, is not entitled to these benefits.
The Court of Appeals stated that for McLeod to be entitled to payment of service incentive
leave and holidays, there must be an agreement to that effect between him and his employer.
Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his two
round-trip tickets Manila-London in 1983 and 1986, he was also entitled to unused airline
tickets. The Court of Appeals stated that the fact that PMI granted McLeod free transport to
and from Manila and London for the year 1983 and 1986 does not ipso facto characterize it as
regular that would establish a prevailing company policy.
The Court of Appeals also denied McLeods claims for underpayment of salaries and his 13th
month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it could be
deduced from McLeods own narration of facts that he agreed to the reduction of his
compensation from P60,000 to P50,495 in August 1990 to November 1993.
The Court of Appeals found the award of moral damages for P50,000 in order because of the
stubborn refusal of PMI and Patricio to respect McLeods valid claims.
The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total award
should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.[12]
Hence, this petition.
The Issues
McLeod submits the following issues for our consideration:
1. Whether the challenged Decision and Resolution of the 14th Division of the Court of
Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CAG.R. SP No. 55130 are in accord with law and jurisprudence;
2. Whether an employer-employee relationship exists between the private respondents
and the petitioner for purposes of determining employer liability to the petitioner;
3. Whether the private respondents may avoid their financial obligations to the petitioner
by invoking the veil of corporate fiction;

Page

5. Whether the ruling of [this] Court in Special Police and Watchman Association
(PLUM) Federation v. National Labor Relations Commission cited by the Office of
the Solicitor General is applicable to the case of petitioner; and

284

4. Whether petitioner is entitled to the relief he seeks against the private respondents;

6. Whether the appeal taken by the private respondents from the Decision of the labor
arbiter meets the mandatory requirements recited in the Labor Code of the Philippines,
as amended.[13]
The Courts Ruling
The petition must fail.
McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings that he
was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a
consultant of SRTI up to 30 November 1993. McLeod asserts that if only for this brazen
assumption, the Court of Appeals should not have sustained the NLRCs ruling that his cause
of action was only against PMI.
These assertions do not deserve serious consideration.
Records disclose that McLeod was an employee only of PMI.[14] PMI hired McLeod as its
acting Vice President and General Manager on 20 June 1980.[15] PMI confirmed McLeods
appointment as Vice President/Plant Manager in the Special Meeting of its Board of Directors
on 10 February 1981.[16] McLeod himself testified during the hearing before the Labor Arbiter
that his regular employment was with PMI.[17]
When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI
incurred serious business losses.[18] This prompted PMI to stop permanently plant operations
and to send a notice of closure to the Department of Labor and Employment on 21 July
1992.[19
PMI informed its employees, including McLeod, of the closure.[20] PMI paid its employees,
including managerial employees, except McLeod, their unpaid wages, sick leave, vacation
leave, prorated 13th month pay, and separation pay. Under the compromise agreement
between PMI and its employees, the employer-employee relationship between them ended on
25 November 1992.[21]
Records also disclose that PMI extended McLeods service up to 31 December 1992 to wind
up some affairs of the company.[22] McLeod testified on cross-examination that he received
his last salary from PMI in December 1992.[23]
It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31
December 1992.
However, McLeod claims that after FETMI purchased PMI in January 1993, he continued to
work at the same plant with the same responsibilities until 30 November 1993. McLeod
claims that FETMI merely renamed PMI as SRTI. McLeod asserts that it was for this reason
that when he reached the retirement age in 1993, he asked all the respondents for the payment
of his benefits.[24]
These assertions deserve scant consideration.

WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the

Obligations, including the Assets, to the Asset Privatization Trust (APT) and the latter has

Page

WHEREAS, PMI is indebted to the Development Bank of the Philippines (DBP) and as
security for such debts (the Obligations) has mortgaged its real properties covered by TCT
Nos. T-38647, T-37136, and T-37135, together with all machineries and improvements found
thereat, a complete listing of which is hereto attached as Annex A (the Assets);

285

What took place between PMI and SRTI was dation in payment with lease. Pertinent portions
of the contract that PMI and SRTI executed on 15 June 1992 read:

received payment for the Obligations from PMI, under APTs Direct Debt Buy-Out
(DDBO) program thereby causing APT to completely discharge and cancel the mortgage in
the Assets and to release the titles of the Assets back to PMI;
WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO
HUNDRED TEN MILLION PESOS (P210,000,000.00) (the Advances) to enable PMI to
consummate the DDBO with APT, with SRTC subrogating APT as PMIs creditor thereby;
WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its
rights, title and interests in the Assets by way of a dation in payment to SRTC, provided
that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to
lease the Assets under terms and conditions stated hereunder;
xxxx
NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and
conditions hereinafter set forth, the parties hereby agree as follows:
1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS
(P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, title
and interest in and to the Assets by way of a dation in payment.[25] (Emphasis supplied)
As a rule, a corporation that purchases the assets of another will not be liable for the debts of
the selling corporation, provided the former acted in good faith and paid adequate
consideration for such assets, except when any of the following circumstances is present: (1)
where the purchaser expressly or impliedly agrees to assume the debts, (2) where the
transaction amounts to a consolidation or merger of the corporations, (3) where the
purchasing corporation is merely a continuation of the selling corporation, and (4) where the
selling corporation fraudulently enters into the transaction to escape liability for those
debts.[26]
None of the foregoing exceptions is present in this case.
Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of
P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape
its liability for any of its debts. PMI had already paid its employees, except McLeod, their
money claims.
There was also no merger or consolidation of PMI and SRTI.
Consolidation is the union of two or more existing corporations to form a new corporation
called the consolidated corporation. It is a combination by agreement between two or more
corporations by which their rights, franchises, and property are united and become those of a
single, new corporation, composed generally, although not necessarily, of the stockholders of
the original corporations.

Page

The parties to a merger or consolidation are called constituent corporations. In consolidation,

all the constituents are dissolved and absorbed by the new consolidated enterprise. In merger,
all constituents, except the surviving corporation, are dissolved. In both cases, however, there
is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated
corporation acquires all their properties, rights and franchises and their stockholders usually
become its stockholders.

286

Merger, on the other hand, is a union whereby one corporation absorbs one or more existing
corporations, and the absorbing corporation survives and continues the combined business.

The surviving or consolidated corporation assumes automatically the liabilities of the

dissolved corporations, regardless of whether the creditors have consented or not to such
merger or consolidation.[27]
In the present case, there is no showing that the subject dation in payment involved any
corporate merger or consolidation. Neither is there any showing of those indicative factors
that SRTI is a mere instrumentality of PMI.
Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Pertinent
portions of the subject Deed of Dation in Payment with Lease provide, thus:
2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the
following:
xxxx
(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any
liability for claims of PMIs creditors, laborers, and workers and for physical injury or injury
to property arising from PMIs custody, possession, care, repairs, maintenance, use or
operation of the Assets except ordinary wear and tear;[28] (Emphasis supplied)
Also, McLeod did not present any evidence to show the alleged renaming of Peggy Mills,
Inc. to Sta. Rosa Textiles, Inc.
Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.
Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped
operations.[29] On the other hand, McLeod asserts that he was respondent corporations
employee from 1980 to 30 November 1993.[30] However, McLeod failed to present any proof
of employer-employee relationship between him and Filsyn, SRTI, or FETMI. McLeod
testified, thus:
ATTY. ESCANO:
Do you have any employment contract with Far Eastern Textile?
WITNESS:
It is my belief up the present time.
ATTY. AVECILLA:
May I request that the witness be allowed to go through his Annexes, Your Honor.
ATTY. ESCANO:
Yes, but I want a precise answer to that question. If he has an employment contract with Far
Eastern Textile?
WITNESS:

But the answer is still, there is no employment contract in your possession appointing you in
any capacity by Far Eastern?

Page

ATTY. ESCANO:

287

Can I answer it this way, sir? There is not a valid contract but I was under the impression
taking into consideration that the closeness that I had at Far Eastern Textile is enough during
that period of time of the development of Peggy Mills to reorganize a staff. I was under the
basic impression that they might still retain my status as Vice President and Plant Manager of
the company.

WITNESS:
There was no written contract, sir.
xxxx
ATTY. ESCANO:
So, there is proof that you were in fact really employed by Peggy Mills?
WITNESS:
Yes, sir.
ATTY. ESCANO:
Of course, my interest now is to whether or not there is a similar document to present that you
were employed by the other respondents like Filsyn Corporation?
WITNESS:
I have no document, sir.
ATTY. ESCANO:
What about Far Eastern Textile Mills?
WITNESS:
I have no document, sir.
ATTY. ESCANO:
And Sta. Rosa Textile Mills?
WITNESS:
There is no document, sir.[31]
xxxx
ATTY. ESCANO:
Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from
Far Eastern Textiles, Inc.?
A

No, sir.

Q What about Sta. Rosa Textile Mills, do you have an employment contract from this
company?
A

No, sir.

xxxx

Page

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu.
Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr.
Patricio Lim at that period of time.

288

Q And what about respondent Eric Hu. Have you had any contract of employment from
Mr. Eric Hu?

No documents to show, Mr. McLeod?

No. No documents, sir.[32]

McLeod could have presented evidence to support his allegation of employer-employee

relationship between him and any of Filsyn, SRTI, and FETMI, but he did not. Appointment
letters or employment contracts, payrolls, organization charts, SSS registration, personnel list,
as well as testimony of co-employees, may serve as evidence of employee status.[33]
It is a basic rule in evidence that parties must prove their affirmative allegations. While
technical rules are not strictly followed in the NLRC, this does not mean that the rules on
proving allegations are entirely ignored. Bare allegations are not enough. They must be
supported by substantial evidence at the very least.[34]
However, McLeod claims that for purposes of determining employer liability, all private
respondents are one and the same employer because: (1) they have the same address; (2) they
are all engaged in the same business; and (3) they have interlocking directors and officers.[35]
This assertion is untenable.
A corporation is an artificial being invested by law with a personality separate and distinct
from that of its stockholders and from that of other corporations to which it may be
connected.[36]
While a corporation may exist for any lawful purpose, the law will regard it as an association
of persons or, in case of two corporations, merge them into one, when its corporate legal
entity is used as a cloak for fraud or illegality. This is the doctrine of piercing the veil of
corporate fiction. The doctrine applies only when such corporate fiction is used to defeat
public convenience, justify wrong, protect fraud, or defend crime,[37] or when it is made as a
shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business
conduit of a person, or where the corporation is so organized and controlled and its affairs are
so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another
corporation.[38]
To disregard the separate juridical personality of a corporation, the wrongdoing must be
established clearly and convincingly. It cannot be presumed.[39]
Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the
corporate veil.
Respondent corporations may be engaged in the same business as that of PMI, but this fact
alone is not enough reason to pierce the veil of corporate fiction.[40]

Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo
de Roxas, Makati City,[43] can be explained by the two companies stipulation in their Deed of

Page

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging
that the creation of the corporation is a devise to evade the application of the CBA between
petitioner Union and private respondent Company. While we do not discount the possibility
of the similarities of the businesses of private respondent and Acrylic, neither are we inclined
to apply the doctrine invoked by petitioner in granting the relief sought. The fact that the
businesses of private respondent and Acrylic are related, that some of the employees of
the private respondent are the same persons manning and providing for auxiliary
services to the units of Acrylic, and that the physical plants, offices and facilities are
situated in the same compound, it is our considered opinion that these facts are not
sufficient to justify the piercing of the corporate veil of Acrylic.[42] (Emphasis supplied)

289

In Indophil Textile Mill Workers Union v. Calica,[41] the Court ruled, thus:

Dation in Payment with Lease that simultaneous with the dation in payment, SRTC shall
grant unto PMI the right to lease the Assets under terms and conditions stated hereunder.[44]
As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg.,
Paseo de Roxas, Makati City,[45] while FETMI held office at 18F, Tun Nan Commercial
Building, 333 Tun Hwa South Road, Sec. 2, Taipei, Taiwan, R.O.C.[46] Hence, they did not
have the same address as that of PMI.
That respondent corporations have interlocking incorporators, directors, and officers is of no
moment.
The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca,
Jr.[47] While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI,[48] he was
never an officer of FETMI.
Eric Hu, on the other hand, was Director of Filsyn and SRTI.[49] He was never an officer of
PMI
Marialen C. Corpuz, Filsyns Finance Officer,[50] testified on cross-examination that (1)
among all of Filsyns officers, only she was the one involved in the management of PMI; (2)
only she and Patricio were the common officers between Filsyn and PMI; and (3) Filsyn and
PMI are two separate companies.[51]
Apolinario L. Posio, PMIs Chief Accountant, testified that SRTI is a different corporation
from PMI.[52]
At any rate, the existence of interlocking incorporators, directors, and officers is not enough
justification to pierce the veil of corporate fiction, in the absence of fraud or other public
policy considerations.[53]
In Del Rosario v. NLRC,[54] the Court ruled that substantial identity of the incorporators of
corporations does not necessarily imply fraud.
In light of the foregoing, and there being no proof of employer-employee relationship
between McLeod and respondent corporations and Eric Hu, McLeods cause of action is only
against his former employer, PMI.
On Patricios personal liability, it is settled that in the absence of malice, bad faith, or specific
provision of law, a stockholder or an officer of a corporation cannot be made personally liable
for corporate liabilities.[55]
To reiterate, a corporation is a juridical entity with legal personality separate and distinct from
those acting for and in its behalf and, in general, from the people comprising it. The rule is
that obligations incurred by the corporation, acting through its directors, officers, and
employees, are its sole liabilities.[56]

Page

Considering that McLeod failed to prove any of the foregoing exceptions in the present case,
McLeod cannot hold Patricio solidarily liable with PMI.

290

Personal liability of corporate directors, trustees or officers attaches only when (1) they assent
to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross
negligence in directing its affairs, or when there is a conflict of interest resulting in damages
to the corporation, its stockholders or other persons; (2) they consent to the issuance of
watered down stocks or when, having knowledge of such issuance, do not forthwith file with
the corporate secretary their written objection; (3) they agree to hold themselves personally
and solidarily liable with the corporation; or (4) they are made by specific provision of law
personally answerable for their corporate action.[57]

The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is
a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence.
It imports a dishonest purpose or some moral obliquity and conscious wrongdoing. It means
breach of a known duty through some ill motive or interest. It partakes of the nature of
fraud.[58]
In the present case, there is nothing substantial on record to show that Patricio acted in bad
faith in terminating McLeods services to warrant Patricios personal liability. PMI had no
other choice but to stop plant operations. The work stoppage therefore was by necessity. The
company could no longer continue with its plant operations because of the serious business
losses that it had suffered. The mere fact that Patricio was president and director of PMI is not
a ground to conclude that he should be held solidarily liable with PMI for McLeods money
claims.
The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,[59] which the Court of Appeals
cited, does not apply to this case. We quote pertinent portions of the ruling, thus:
(a) Article 265 of the Labor Code, in part, expressly provides:
Any worker whose employment has been terminated as a consequence of an unlawful
lockout shall be entitled to reinstatement with full backwages.
Article 273 of the Code provides that:
Any person violating any of the provisions of Article 265 of this Code shall be punished by
a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1)
day nor more than six (6) months.
(b) How can the foregoing provisions be implemented when the employer is a corporation?
The answer is found in Article 212 (c) of the Labor Code which provides:
(c) Employer includes any person acting in the interest of an employer, directly or
indirectly. The term shall not include any labor organization or any of its officers or agents
except when acting as employer.The foregoing was culled from Section 2 of RA 602, the
Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can
be presumed to be the employer, being the person acting in the interest of (the) employer
RANSOM. The corporation, only in the technical sense, is the employer.
The responsible officer of an employer corporation can be held personally, not to say even
criminally, liable for non-payment of back wages. That is the policy of the law.
xxxx

It is true, there were various cases when corporate officers were themselves held by the Court
to be personally accountable for the payment of wages and money claims to its employees. In

Page

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade
payment of backwages to the 22 strikers. This situation, or anything similar showing malice
or bad faith on the part of Patricio, does not obtain in the present case. In Santos v. NLRC,[61]
the Court held, thus:

291

(c) If the policy of the law were otherwise, the corporation employer can have devious ways
for evading payment of back wages. In the instant case, it would appear that RANSOM, in
1969, foreseeing the possibility or probability of payment of back wages to the 22
strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually
phased out if the 22 strikers win their case. RANSOM actually ceased operations on May
1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was
promulgated against RANSOM.[60] (Emphasis supplied)

A.C. Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the
Minimum Wage Law, the responsible officer of an employer corporation could be held
personally liable for nonpayment of backwages for (i)f the policy of the law were otherwise,
the corporation employer (would) have devious ways for evading payment of backwages. In
the absence of a clear identification of the officer directly responsible for failure to pay the
backwages, the Court considered the President of the corporation as such officer. The case
was cited in Chua vs. NLRC in holding personally liable the vice-president of the company,
being the highest and most ranking official of the corporation next to the President who was
dismissed for the latters claim for unpaid wages.

A review of the above exceptional cases would readily disclose the attendance of facts and
circumstances that could rightly sanction personal liability on the part of the company officer.
In A.C. Ransom, the corporate entity was a family corporation and execution against it could
not be implemented because of the disposition posthaste of its leviable assets evidently in
order to evade its just and due obligations. The doctrine of piercing the veil of
corporate fiction was thus clearly appropriate. Chua likewise involved another family
corporation, and this time the conflict was between two brothers occupying the highest
ranking positions in the company. There were incontrovertible facts which pointed to extreme
personal animosity that resulted, evidently in bad faith, in the easing out from the company of
one of the brothers by the other.
The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs.
National Labor Relations Commission; thus:
We come now to the personal liability of petitioner, Sunio, who was made jointly and
severally responsible with petitioner company and CIPI for the payment of the backwages of
private respondents. This is reversible error. The Assistant Regional Directors Decision
failed to disclose the reason why he was made personally liable. Respondents, however,
alleged as grounds thereof, his being the owner of one-half () interest of said corporation,
and his alleged arbitrary dismissal of private respondents.
Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of
petitioner corporation. There appears to be no evidence on record that he acted maliciously or
in bad faith in terminating the services of private respondents. His act, therefore, was within
the scope of his authority and was a corporate act.

We concur with the CA that these two respondents are not liable. Section 31 of the
Corporation Code (Batas Pambansa Blg. 68) provides:

Page

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the
corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend
crime. In the absence of malice, bad faith, or a specific provision of law making a corporate
officer liable, such corporate officer cannot be made personally liable for corporate liabilities.
Neither Article 212(c) nor Article 273 (now 272) of the Labor Code expressly makes any
corporate officer personally liable for the debts of the corporation. As this Court ruled in H.L.
Carlos Construction, Inc. v. Marina Properties Corporation:[63]

292

It is basic that a corporation is invested by law with a personality separate and distinct from
those of the persons composing it as well as from that of any other legal entity to which it may
be related. Mere ownership by a single stockholder or by another corporation of all or nearly
all of the capital stock of a corporation is not of itself sufficient ground for disregarding the
separate corporate personality. Petitioner Sunio, therefore, should not have been made
personally answerable for the payment of private respondents back salaries.[62] (Emphasis
supplied)

Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully
and knowingly vote for or assent to patently unlawful acts of the corporation or who are guilty
of gross negligence or bad faith ... shall be liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders and other persons.
The personal liability of corporate officers validly attaches only when (a) they assent to a
patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence
in directing its affairs; or (c) they incur conflict of interest, resulting in damages to the
corporation, its stockholders or other persons.
The records are bereft of any evidence that Typoco acted in bad faith with gross or
inexcusable negligence, or that he acted outside the scope of his authority as company
president. The unilateral termination of the Contract during the existence of the TRO was
indeed contemptible for which MPC should have merely been cited for contempt of court at
the most and a preliminary injunction would have then stopped work by the second
contractor. Besides, there is no showing that the unilateral termination of the Contract was
null and void.[64]
McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay.
Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods,
provides:
Coverage. ? The provisions of this title shall apply to employees in all establishments and
undertakings whether for profit or not, but not to government employees, managerial
employees, field personnel, members of the family of the employer who are dependent on
him for support, domestic helpers, persons in the personal service of another, and workers
who are paid by results as determined by the Secretary of Labor in appropriate regulations.
As used herein, managerial employees refer to those whose primary duty consists of the
management of the establishment in which they are employed or of a department or
subdivision thereof, and to other officers or members of the managerial staff. (Emphasis
supplied)
As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from
the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of
vacation leave and sick leave only if he and PMI had agreed on it. The payment of vacation
leave and sick leave depends on the policy of the employer or the agreement between the
employer and employee.[65] In the present case, there is no showing that McLeod and PMI had
an agreement concerning payment of these benefits.

Page

Also unavailing is McLeods claim that he was entitled to the unpaid monetary equivalent of
unused plane tickets for the period covering 1989 to 1992 in the amount of P279,300.00.[69]
PMI has no company policy granting its officers and employees expenses for trips abroad. [70]
That at one time PMI reimbursed McLeod for his and his wifes plane tickets in a vacation to
London[71] could not be deemed as an established practice considering that it happened only
once. To be considered a regular practice, the giving of the benefits should have been done
over a long period, and must be shown to have been consistent and deliberate.[72]

293

McLeods assertion of underpayment of his 13th month pay in December 1993 is

unavailing.[66] As already stated, PMI stopped plant operations in 1992. McLeod himself
testified that he received his last salary from PMI in December 1992. After the termination of
the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as
consultant and not as employee. Since McLeod was no longer an employee, he was not
entitled to the 13th month pay.[67] Besides, there is no evidence on record that McLeod indeed
received his alleged reduced 13th month pay of P44,183.63 in December 1993.[68]

In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co.,
Inc.,[73] the Court held that for a bonus to be enforceable, the employer must have promised it,
and the parties must have expressly agreed upon it, or it must have had a fixed amount and
had been a long and regular practice on the part of the employer.
In the present case, there is no showing that PMI ever promised McLeod that it would
continue to grant him the benefit in question. Neither is there any proof that PMI and McLeod
had expressly agreed upon the giving of that benefit.
McLeods reliance on Annex M[74] can hardly carry the day for him. Annex M, which is
McLeods letter addressed to Philip Lim, VP Administration, merely contains McLeods
proposals for the grant of some benefits to supervisory and confidential employees. Contrary
to McLeods allegation, Patricio did not sign the letter. Hence, the letter does not embody any
agreement between McLeod and the management that would entitle McLeod to his money
claims.
Neither can McLeods assertions find support in Annex U.[75] Annex U is the Agreement
which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely
contains the renewal of the service agreement which the parties signed in 1956.
McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without
his consent.
McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be
reduced. McLeod said that Philip told him that they were short in finances; that it would be
repaid.[76] Were McLeod not amenable to that reduction in salary, he could have immediately
resigned from his work in PMI.
McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod
testified that PMI was not able to operate from August 1989 to 1992 because of the strike.
Even before 1989, as Vice President of PMI, McLeod was aware that the company had
incurred huge loans from DBP.[77] As it happened, McLeod continued to work with PMI.
We find it pertinent to quote some portions of Apolinario Posios testimony, to wit:
Q You also stated that before the period of the strike as shown by annex K of the reply
filed by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly
P60,000.00 a month?
A

Yes, sir.

Q And as shown by their annex L to their reply, that this was reduced to roughly
P50,000.00 a month?
A

Yes, sir.

Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills
at that time and that was Mr. Philip Lim, would you not?
A

Yes, sir.

Page

A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr.
Philip Lim and Mr. McLeod, because the voucher that we prepared was actually
acknowledged by Mr. McLeod, the reduced amount was acknowledged by Mr. McLeod thru
the voucher that we prepared.

294

Q Of your own personal knowledge, can you say if this was, in fact, by agreement between
Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod?

Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received
the reduced amount of P50,000.00 by signing the voucher and receiving the amount in
question?
A

Yes, sir.

Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of
this reduced amount of his salary at that time?
A

I dont have any personal knowledge of any complaint, sir.

Q At least, that is in so far as you were concerned, he said nothing when he signed the
voucher in question?
A

Yes, sir.

Q Now, you also stated that the reason for what appears to be an agreement between Peggy
Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00
a month was because he would have a reduced number of working days in view of the strike
at Peggy Mills, is that right?
A

Yes, sir.

Q And that this was so because on account of the strike, there was no work to be done in
the company?
A

Yes, sir.[78]

xxxx
Q Now, you also stated if you remember during the first time that you testified that in the
beginning, the monthly salary of the complainant was P60,000.00, is that correct?
A

Yes, sir.

Q And because of the long period of the strike, when there was no work to be done, by
agreement with the complainant, his monthly salary was adjusted to only P50,495 because he
would not have to report for work on Saturday. Do you remember having made that
explanation?
A

Yes, sir.

Q You also stated that the complainant continuously received his monthly salary in the
adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for that
without complaining, is that not right, Mr. Posio?
A

Yes, sir.[79]

Since the last salary that McLeod received from PMI was P50,495, that amount should be the
basis in computing his retirement benefits. McLeod must be credited only with his service to
PMI as it had a juridical personality separate and distinct from that of the other respondent
corporations.

Page

5.1 In the absence of an applicable agreement or retirement plan, an employee who retires
pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2)
month salary for every year of service, a fraction of at least six (6) months being considered
as one whole year.

295

Since PMI has no retirement plan,[80] we apply Section 5, Rule II of the Rules Implementing
the New Retirement Law which provides:

5.2 Components of One-half (1/2) Month Salary. ? For the purpose of determining the
minimum retirement pay due an employee under this Rule, the term one-half month salary
shall include all of the following:
(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x
With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a
retirement pay equivalent to month salary for every year of service based on his latest
salary rate of P50,495 a month.
There is no basis for the award of moral damages.
Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or
is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual
obligations. The breach must be wanton, reckless, malicious, or in bad faith, oppressive or
abusive.[81] From the records of the case, the Court finds no ultimate facts to support a
conclusion of bad faith on the part of PMI.
Records disclose that PMI had long offered to pay McLeod his money claims. In their
Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as
separation benefits, and not P300,000, if only to buy peace and to forestall any complaint
that McLeod may initiate before the NLRC. McLeod admitted at the hearing before the Labor
Arbiter that PMI has made this offer ?
ATTY. ESCANO:
x x x According to your own statement in your Position Paper and I am referring to page 8,
your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is
P840,000.00, is that correct?
WITNESS:
That is correct, sir.
ATTY. ESCANO:
And this amount is correct P840,000.00, according to your Position Paper?
WITNESS:
That is correct, sir.
ATTY. ESCANO:
The question I want to ask is, are you aware that this amount was offered to you sometime last
year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us?
WITNESS:
I was aware, sir.
ATTY. ESCANO:
So this was offered to you, is that correct?

ATTY. ESCANO:

Page

I was told that a fixed sum of P840,000.00 was offered.

296

WITNESS:

And , of course, the reason, if I may assume, that you declined this offer was that, according
to you, there are other claims which you would like to raise against the Respondents which,
by your impression, they were not willing to pay in addition to this particular amount?
WITNESS:
Yes, sir.
ATTY. ESCANO:
The question now is, if the same amount is offered to you by way of retirement which is
exactly what you stated in your own Position Paper, would you accept it or not?
WITNESS:
Not on the concept without all the basic benefits due me, I will refuse.[82]
xxxx
ATTY. ROXAS:
Q You mentioned in the cross-examination of Atty. Escano that you were offered the
separation pay in 1994, is that correct, Mr. Witness?

WITNESS:
A I was offered a settlement of P300,000.00 for complete settlement and that was I think in
January or February 1994, sir.
ATTY. ESCANO:
No. What was mentioned was the amount of P840,000.00.
WITNESS:
What did you say, Atty. Escano?
ATTY. ESCANO:
The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .
ITNESS:
May I ask that the question be clarified, your Honor?
ATTY. ROXAS:

Hence, the awards for exemplary damages and attorneys fees are not proper in the present
case.[84]

Page

A During that period in time, while the petition in this case was ongoing, we already filed a
case at that period of time, sir. There was a discussion. To the best of my knowledge, they are
willing to settle for P840,000.00 and based on what the Attorney told me, I refused to accept
because I believe that my position was not in anyway due to a compromise situation to the
benefits I am entitled to.[83]

297

Q You mentioned that you were offered for the settlement of your claims in 1994 for
P840,000.00, is that right, Mr. Witness?

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their
memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New
Rules of Procedure provides:
Requisites for Perfection of Appeal. ? (a) The appeal shall be filed within the reglementary
period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the
required appeal fee and the posting of a cash or surety bond as provided in Section 5 of this
Rule; shall be accompanied by a memorandum of appeal x x x and proof of service on the
other party of such appeal. (Emphasis supplied)
The other party mentioned in the Rule obviously refers to the adverse party, in this case,
McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of
service of the memorandum of appeal on the other party, is merely a rundown of the contents
of the required memorandum of appeal to be submitted by the appellant. These are not
jurisdictional requirements.[85]
WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals
in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of
John F. McLeod should be computed at month salary for every year of service for 12 years
based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal
liability; and (c) the awards for moral and exemplary damages and attorneys fees are deleted.
No pronouncement as to costs.

Page

298

SO ORDERED.

[ G.R. NO. 155731, September 03, 2007 ]

LOLITA LOPEZ, PETITIONER, VS. BODEGA CITY (VIDEO-DISCO KITCHEN OF
THE PHILIPPINES) AND/OR ANDRES C. TORRES-YAP, RESPONDENTS.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the July 18, 2002 Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No.
66861, dismissing the petition for certiorari filed before it and affirming the Decision of the
National Labor Relations Commission (NLRC) in NLRC-NCR Case No. 00-03-01729-95;
and its Resolution dated October 16, 2002,[2] denying petitioner's Motion for Reconsideration.
The NLRC Decision set aside the Decision of the Labor Arbiter finding that Lolita Lopez
(petitioner) was illegally dismissed by Bodega City and/or Andres C. Torres-Yap
(respondents).
Respondent Bodega City (Bodega City) is a corporation duly registered and existing under
and by virtue of the laws of the Republic of the Philippines, while respondent Andres C.
Torres-Yap (Yap) is its owner/ manager. Petitioner was the "lady keeper" of Bodega City
tasked with manning its ladies' comfort room.
In a letter signed by Yap dated February 10, 1995, petitioner was made to explain why the
concessionaire agreement between her and respondents should not be terminated or suspended
in view of an incident that happened on February 3, 1995, wherein petitioner was seen to have
acted in a hostile manner against a lady customer of Bodega City who informed the
management that she saw petitioner sleeping while on duty.
In a subsequent letter dated February 25, 1995, Yap informed petitioner that because of the
incident that happened on February 3, 1995, respondents had decided to terminate the
concessionaire agreement between them.
On March 1, 1995, petitioner filed with the Arbitration Branch of the NLRC, National Capital
Region, Quezon City, a complaint for illegal dismissal against respondents contending that
she was dismissed from her employment without cause and due process.
In their answer, respondents contended that no employer-employee relationship ever existed
between them and petitioner; that the latter's services rendered within the premises of Bodega
City was by virtue of a concessionaire agreement she entered into with respondents.
The complaint was dismissed by the Labor Arbiter for lack of merit. However, on appeal, the
NLRC set aside the order of dismissal and remanded the case for further proceedings. Upon
remand, the case was assigned to a different Labor Arbiter. Thereafter, hearings were
conducted and the parties were required to submit memoranda and other supporting
documents.
On December 28, 1999, the Labor Arbiter rendered judgment finding that petitioner was an
employee of respondents and that the latter illegally dismissed her.[3]

Page

WHEREFORE, premises duly considered, the Decision appealed from is hereby ordered SET
ASIDE and VACATED, and in its stead, a new one entered DISMISSING the above-entitled
case for lack of merit.[4]

299

Respondents filed an appeal with the NLRC. On March 22, 2001, the NLRC issued a
Resolution, the dispositive portion of which reads as follows:

Petitioner filed a motion for reconsideration of the above-quoted NLRC Resolution, but the
NLRC denied the same.
Aggrieved, petitioner filed a Petition for Certiorari with the CA. On July 18, 2002, the CA
promulgated the presently assailed Decision dismissing her special civil action for certiorari.
Petitioner moved for reconsideration but her motion was denied.
Hence, herein petition based on the following grounds:
1. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
IN EXCESS OF JURISDICTION IN RULING THAT THE NATIONAL LABOR
RELATIONS COMMISSION DID NOT COMMIT GRAVE ABUSE OF
DISCRETION IN REVERSING THE DECISION OF THE LABOR ARBITER
FINDING PETITIONER TO HAVE BEEN ILLEGALLY DISMISSED BY
PRIVATE RESPONDENTS.
2. WITH DUE RESPECT, PUBLIC RESPONDENT COURT OF APPEALS
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
IN EXCESS OF JURISDICTION IN RULING THAT PETITIONER WAS NOT AN
EMPLOYEE OF PRIVATE RESPONDENTS.[5]
Petitioner contends that it was wrong for the CA to conclude that even if she did not sign the
document evidencing the concessionaire agreement, she impliedly accepted and thus bound
herself to the terms and conditions contained in the said agreement when she continued to
perform the task which was allegedly specified therein for a considerable length of time.
Petitioner claims that the concessionaire agreement was only offered to her during her tenth
year of service and after she organized a union and filed a complaint against respondents.
Prior to all these, petitioner asserts that her job as a "lady keeper" was a task assigned to her
as an employee of respondents.
Petitioner further argues that her receipt of a special allowance from respondents is a clear
evidence that she was an employee of the latter, as the amount she received was equivalent to
the minimum wage at that time.
Petitioner also contends that her identification card clearly shows that she was not a
concessionaire but an employee of respondents; that if respondents really intended the ID card
issued to her to be used simply for having access to the premises of Bodega City, then
respondents could have clearly indicated such intent on the said ID card.

Page

On the other hand, respondents contend that the present petition was filed for the sole purpose
of delaying the proceedings of the case; the grounds relied upon in the instant petition are
matters that have been exhaustively discussed by the NLRC and the CA; the present petition
raises questions of fact which are not proper in a petition for review on certiorari under Rule
45 of the Rules of Court; the respective decisions of the NLRC and the CA are based on
evidence presented by both parties; petitioner's compliance with the terms and conditions of
the proposed concessionaire contract for a period of three years is evidence of her implied
acceptance of such proposal; petitioner failed to present evidence to prove her allegation that
the subject concessionaire agreement was only proposed to her in her 10th year of
employment with respondent company and after she organized a union and filed a labor
complaint against respondents; petitioner failed to present competent documentary and

300

Moreover, petitioner submits that the fact that she was required to follow rules and regulations
prescribing appropriate conduct while she was in the premises of Bodega City is clear
evidence of the existence of an employer-employee relationship between her and petitioners.

testimonial evidence to prove her contention that she was an employee of respondents since
1985.
The main issue to be resolved in the present case is whether or not petitioner is an employee
of respondents.
The issue of whether or not an employer-employee relationship exists in a given case is
essentially a question of fact.[6]
While it is a settled rule that only errors of law are generally reviewed by this Court in
petitions for review on certiorari of CA decisions,[7] there are well-recognized exceptions to
this rule, as in this case, when the factual findings of the NLRC as affirmed by the CA
contradict those of the Labor Arbiter.[8] In that event, it is this Court's task, in the exercise of
its equity jurisdiction, to re-evaluate and review the factual issues by looking into the records
of the case and re-examining the questioned findings.[9]
It is a basic rule of evidence that each party must prove his affirmative allegation. [10] 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.[11]
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.[12]
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.[13] However, before a case for illegal dismissal can
prosper, an employer-employee relationship must first be established.[14]
In filing a complaint before the Labor Arbiter for illegal dismissal based on the premise that
she was an employee of respondent, it is incumbent upon petitioner to prove the employeeemployer relationship by substantial evidence.[15]
The NLRC and the CA found that petitioner failed to discharge this burden, and the Court
finds no cogent reason to depart from their findings.
The Court applies the four-fold test expounded in Abante v. Lamadrid Bearing and Parts
Corp.,[16] to wit:
To ascertain the existence of an employer-employee relationship, jurisprudence has invariably
applied the four-fold test, namely: (1) the manner of selection and engagement; (2) the
payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence
or absence of the power of control. Of these four, the last one is the most important. The socalled "control test" is commonly regarded as the most crucial and determinative indicator of
the presence or absence of an employer-employee relationship. Under the control test, an
employer-employee relationship exists where the person for whom the services are performed
reserves the right to control not only the end achieved, but also the manner and means to be
used in reaching that end.[17]

Page

Indeed, if petitioner was really an employee of respondents for that length of time, she should
have been able to present salary vouchers or pay slips and not just a single petty cash voucher.
The Court agrees with respondents that petitioner could have easily shown other pieces of
evidence such as a contract of employment, SSS or Medicare forms, or certificates of
withholding tax on compensation income; or she could have presented witnesses to prove her
contention that she was an employee of respondents. Petitioner failed to do so.

301

To prove the element of payment of wages, petitioner presented a petty cash voucher showing
that she received an allowance for five (5) days.[18] The CA did not err when it held that a
solitary petty cash voucher did not prove that petitioner had been receiving salary from
respondents or that she had been respondents' employee for 10 years.

Anent the element of control, petitioner's contention that she was an employee of respondents
because she was subject to their control does not hold water.
Petitioner failed to cite a single instance to prove that she was subject to the control of
respondents insofar as the manner in which she should perform her job as a "lady keeper" was
concerned.
It is true that petitioner was required to follow rules and regulations prescribing appropriate
conduct while within the premises of Bodega City. However, this was imposed upon
petitioner as part of the terms and conditions in the concessionaire agreement embodied in a
1992 letter of Yap addressed to petitioner, to wit:
January 6, 1992
Dear Ms. Lolita Lopez,

The new owners of Bodega City, 1121 Food Service Corporation offers to your goodself the
concessionaire/contract to provide independently, customer comfort services to assist users of
the ladies comfort room of the Club to further enhance its business, under the following terms
and conditions:
1. You will provide at your own expense, all toilet supplies, useful for the purpose, such
as toilet papers, soap, hair pins, safety pins and other related items or things which in
your opinion is beneficial to the services you will undertake;
2. For the entire duration of this concessionaire contract, and during the Club's operating
hours, you shall maintain the cleanliness of the ladies comfort room. Provided, that
general cleanliness, sanitation and physical maintenance of said comfort rooms shall
be undertaken by the owners of Bodega City;
3. You shall at all times ensure satisfaction and good services in the discharge of your
undertaking. More importantly, you shall always observe utmost courtesy in dealing
with the persons/individuals using said comfort room and shall refrain from doing acts
that may adversely affect the goodwill and business standing of Bodega City;
4. All remunerations, tips, donations given to you by individuals/persons utilizing said
comfort rooms and/or guests of Bodega City shall be waived by the latter to your
benefit provided however, that if concessionaire receives tips or donations per day in
an amount exceeding 200% the prevailing minimum wage, then, she shall remit fifty
percent (50%) of said amount to Bodega City by way of royalty or concession fees;
5. This contract shall be for a period of one year and shall be automatically renewed on a
yearly basis unless notice of termination is given thirty (30) days prior to expiration.
Any violation of the terms and conditions of this contract shall be a ground for its
immediate revocation and/or termination.

Bodega City

Page

1121 FoodService Corporation

302

6. It is hereby understood that no employer-employee relationship exists between

Bodega City and/or 1121 FoodService Corporation and your goodself, as you are an
independent contractor who has represented to us that you possess the necessary
qualification as such including manpower compliment, equipment, facilities, etc. and
that any person you may engage or employ to work with or assist you in the discharge
of your undertaking shall be solely your own employees and/or agents.

By:
(Sgd.) ANDRES C. TORRES-YAP
Conforme:
_______________
LOLITA LOPEZ[19]
Petitioner does not dispute the existence of the letter; neither does she deny that respondents
offered her the subject concessionaire agreement. However, she contends that she could not
have entered into the said agreement with respondents because she did not sign the document
evidencing the same.
Settled is the rule that contracts are perfected by mere consent, upon the acceptance by the
offeree of the offer made by the offeror.[20] For a contract, to arise, the acceptance must be
made known to the offeror.[21] Moreover, the acceptance of the thing and the cause, which are
to constitute a contract, may be express or implied as can be inferred from the
contemporaneous and subsequent acts of the contracting parties.[22] A contract will be upheld
as long as there is proof of consent, subject matter and cause; it is generally obligatory in
whatever form it may have been entered into.[23]
In the present case, the Court finds no cogent reason to disregard the findings of both the CA
and the NLRC that while petitioner did not affix her signature to the document evidencing the
subject concessionaire agreement, the fact that she performed the tasks indicated in the said
agreement for a period of three years without any complaint or question only goes to show
that she has given her implied acceptance of or consent to the said agreement.
Petitioner is likewise estopped from denying the existence of the subject concessionaire
agreement. She should not, after enjoying the benefits of the concessionaire agreement with
respondents, be allowed to later disown the same through her allegation that she was an
employee of the respondents when the said agreement was terminated by reason of her
violation of the terms and conditions thereof.
The principle of estoppel in pais applies wherein -- by one's acts, representations or
admissions, or silence when one ought to speak out -- intentionally or through culpable
negligence, induces another to believe certain facts to exist and to rightfully rely and act on
such belief, so as to be prejudiced if the former is permitted to deny the existence of those
facts.[24]
Moreover, petitioner failed to dispute the contents of the affidavit[25] as well as the
testimony[26] of Felimon Habitan (Habitan), the concessionaire of the men's comfort room of
Bodega City, that he had personal knowledge of the fact that petitioner was the concessionaire
of the ladies' comfort room of Bodega City.

Page

The Court is not persuaded by petitioner's contention that the Labor Arbiter was correct in
concluding that there existed an employer-employee relationship between respondents and
petitioner. A perusal of the Decision[29] of the Labor Arbiter shows that his only basis for
arriving at such a conclusion are the bare assertions of petitioner and the fact that the latter did
not sign the letter of Yap containing the proposed concessionaire agreement. However, as

303

Petitioner also claims that the concessionaire agreement was offered to her only in her 10th
year of service, after she organized a union and filed a complaint against respondents.
However, petitioner's claim remains to be an allegation which is not supported by any
evidence. It is a basic rule in evidence that each party must prove his affirmative allegation,[27]
that mere allegation is not evidence.[28]

earlier discussed, this Court finds no error in the findings of the NLRC and the CA that
petitioner is deemed as having given her consent to the said proposal when she continuously
performed the tasks indicated therein for a considerable length of time. For all intents and
purposes, the concessionaire agreement had been perfected.
Petitioner insists that her ID card is sufficient proof of her employment. In Domasig v.
National Labor Relations Commission,[30] this Court held that the complainant's ID card and
the cash vouchers covering his salaries for the months indicated therein were substantial
evidence that he was an employee of respondents, especially in light of the fact that the latter
failed to deny said evidence. This is not the situation in the present case. The only evidence
presented by petitioner as proof of her alleged employment are her ID card and one petty cash
voucher for a five-day allowance which were disputed by respondents.
As to the ID card, it is true that the words "EMPLOYEE'S NAME" appear printed below
petitioner's name.[31] However, she failed to dispute respondents' evidence consisting of
Habitan's testimony,[32] that he and the other "contractors" of Bodega City such as the singers
and band performers, were also issued the same ID cards for the purpose of enabling them to
enter the premises of Bodega City.
The Court quotes, with approval, the ruling of the CA on this matter, to wit:
Nor can petitioners identification card improve her cause any better. It is undisputed that nonemployees, such as Felimon Habitan, an admitted concessionaire, musicians, singers and the
like at Bodega City are also issued identification cards. Given this premise, it appears clear to
Us that petitioner's I.D. Card is incompetent proof of an alleged employer-employee
relationship between the herein parties. Viewed in the context of this case, the card is at best a
"passport" from management assuring the holder thereof of his unmolested access to the
premises of Bodega City.[33]
With respect to the petty cash voucher, petitioner failed to refute respondent's claim that it
was not given to her for services rendered or on a regular basis, but simply granted as
financial assistance to help her temporarily meet her family's needs.
Hence, going back to the element of control, the concessionaire agreement merely stated that
petitioner shall maintain the cleanliness of the ladies' comfort room and observe courtesy
guidelines that would help her obtain the results they wanted to achieve. There is nothing in
the agreement which specifies the methods by which petitioner should achieve these results.
Respondents did not indicate the manner in which she should go about in maintaining the
cleanliness of the ladies' comfort room. Neither did respondents determine the means and
methods by which petitioner could ensure the satisfaction of respondent company's customers.
In other words, petitioner was given a free hand as to how she would perform her job as a
"lady keeper." In fact, the last paragraph of the concessionaire agreement even allowed
petitioner to engage persons to work with or assist her in the discharge of her functions.[34]

It should, however, be obvious that not every form of control that the hiring party reserves to
himself over the conduct of the party hired in relation to the services rendered may be

Page

In Consulta v. Court of Appeals,[35] this Court held:

304

Moreover, petitioner was not subjected to definite hours or conditions of work. The fact that
she was expected to maintain the cleanliness of respondent company's ladies' comfort room
during Bodega City's operating hours does not indicate that her performance of her job was
subject to the control of respondents as to make her an employee of the latter. Instead, the
requirement that she had to render her services while Bodega City was open for business was
dictated simply by the very nature of her undertaking, which was to give assistance to the
users of the ladies' comfort room.

accorded the effect of establishing an employer-employee relationship between them in the

legal or technical sense of the term. A line must be drawn somewhere, if the recognized
distinction between an employee and an individual contractor is not to vanish altogether.
Realistically, it would be a rare contract of service that gives untrammeled freedom to the
party hired and eschews any intervention whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.[36]
Lastly, the Court finds that the elements of selection and engagement as well as the power of
dismissal are not present in the instant case.
It has been established that there has been no employer-employee relationship between
respondents and petitioner. Their contractual relationship was governed by the concessionaire
agreement embodied in the 1992 letter. Thus, petitioner was not dismissed by respondents.
Instead, as shown by the letter of Yap to her dated February 15, 1995,[37] their contractual
relationship was terminated by reason of respondents' termination of the subject
concessionaire agreement, which was in accordance with the provisions of the agreement in
case of violation of its terms and conditions.
In fine, the CA did not err in dismissing the petition for certiorari filed before it by petitioner.
WHEREFORE, the instant petition is DENIED. The assailed Decision and Resolution of the
Court of Appeals are AFFIRMED. Costs against petitioner.

Page

305

SO ORDERED.

[ G.R. No. 151228, August 15, 2002 ]

ROLANDO Y. TAN, PETITIONER, VS. LEOVIGILDO LAGRAMA AND THE
HONORABLE COURT OF APPEALS, RESPONDENTS.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari of the decision,[1] dated May 31, 2001, and the
resolution,[2] dated November 27, 2001, of the Court of Appeals in C.A.-G.R. SP. No. 63160,
annulling the resolutions of the National Labor Relations Commission (NLRC) and
reinstating the ruling of the Labor Arbiter which found petitioner Rolando Tan guilty of
illegally dismissing private respondent Leovigildo Lagrama and ordering him to pay the latter
the amount of P136,849.99 by way of separation pay, backwages, and damages.
The following are the facts.
Petitioner Rolando Tan is the president of Supreme Theater Corporation and the general
manager of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo
Lagrama is a painter, making ad billboards and murals for the motion pictures shown at the
Empress, Supreme, and Crown Theaters for more than 10 years, from September 1, 1988 to
October 17, 1998.
On October 17, 1998, private respondent Lagrama was summoned by Tan and upbraided:
Nangihi na naman ka sulod sa imong drawinganan. (You again urinated inside your work
area.) When Lagrama asked what Tan was saying, Tan told him, Ayaw daghang estorya.
Dili ko gusto nga mo-drawing ka pa. Guikan karon, wala nay drawing. Gawas. (Dont say
anything further. I dont want you to draw anymore. From now on, no more drawing. Get
out.)
Lagrama denied the charge against him. He claimed that he was not the only one who entered
the drawing area and that, even if the charge was true, it was a minor infraction to warrant his
dismissal. However, everytime he spoke, Tan shouted Gawas (Get out), leaving him with
no other choice but to leave the premises.
Lagrama filed a complaint with the Sub-Regional Arbitration Branch No. X of the National
Labor Relations Commission (NLRC) in Butuan City. He alleged that he had been illegally
dismissed and sought reinvestigation and payment of 13th month pay, service incentive leave
pay, salary differential, and damages.

WHEREFORE, premises considered judgment is hereby ordered:

Page

As no amicable settlement had been reached, Labor Arbiter Rogelio P. Legaspi directed the
parties to file their position papers. On June 17, 1999, he rendered a decision, the dispositive
portion of which reads:

306

Petitioner Tan denied that Lagrama was his employee. He asserted that Lagrama was an
independent contractor who did his work according to his methods, while he (petitioner) was
only interested in the result thereof. He cited the admission of Lagrama during the
conferences before the Labor Arbiter that he was paid on a fixed piece-work basis, i.e., that he
was paid for every painting turned out as ad billboard or mural for the pictures shown in the
three theaters, on the basis of a no mural/billboard drawn, no pay policy. He submitted the
affidavits of other cinema owners, an amusement park owner, and those supervising the
construction of a church to prove that the services of Lagrama were contracted by them. He
denied having dismissed Lagrama and alleged that it was the latter who refused to paint for
him after he was scolded for his habits.

1. Declaring complainants [Lagramas] dismissal illegal and

2. Ordering respondents [Tan] to pay complainant the following:
A. Separation Pay

- P 59,000.00

B. Backwages

- 47,200.00

(from 17 October
1998 to 17 June
1999)
C. 13th month pay (3 - 17,700.00
years)
D. Service
Leave

Incentive

Pay (3 years)
E. Damages

TOTAL

- 2, 949.99
- 10,000.00
______________
[P136,849.99]

Complainants other claims are dismissed for lack of merit.[3]

Petitioner Rolando Tan appealed to the NLRC Fifth Division, Cagayan de Oro City, which,
on June 30, 2000, rendered a decision[4] finding Lagrama to be an independent contractor, and
for this reason reversing the decision of the Labor Arbiter.
Respondent Lagrama filed a motion for reconsideration, but it was denied for lack of merit by
the NLRC in a resolution of September 29, 2000. He then filed a petition for certiorari under
Rule 65 before the Court of Appeals.
The Court of Appeals found that petitioner exercised control over Lagramas work by
dictating the time when Lagrama should submit his billboards and murals and setting rules on
the use of the work area and rest room. Although it found that Lagrama did work for other
cinema owners, the appeals court held it to be a mere sideline insufficient to prove that he was
not an employee of Tan. The appeals court also found no evidence of any intention on the part
of Lagrama to leave his job or sever his employment relationship with Tan. Accordingly, on
May 31, 2001, the Court of Appeals rendered a decision, the dispositive portion of which
reads:

I. With all due respect, the decision of respondent Court of Appeals in CA-G.R. SP NO.
63160 is bereft of any finding that Public Respondent NLRC, 5th Division, had no

Page

Petitioner moved for a reconsideration, but the Court of Appeals found no reason to reverse
its decision and so denied his motion for lack of merit.[5] Hence, this petition for review on
certiorari based on the following assignments of errors:

307

IN THE LIGHT OF ALL THE FOREGOING, the Petition is hereby GRANTED. The
Resolutions of the Public Respondent issued on June 30, 2000 and September 29, 2000 are
ANNULLED. The Decision of the Honorable Labor Arbiter Rogelio P. Legaspi on June 17,
1999 is hereby REINSTATED.

jurisdiction or exceeded it or otherwise gravely abused its discretion in its Resolution of 30

June 2000 in NLRC CA-NO. M-004950-99.
II. With all due respect, respondent Court of Appeals, absent any positive finding on its part
that the Resolution of 30 June 2000 of the NLRC is not supported by substantial evidence, is
without authority to substitute its conclusion for that of said NLRC.
III. With all due respect, respondent Court of Appeals discourse on freelance artists and
painters in the decision in question is misplaced or has no factual or legal basis in the record.
IV. With all due respect, respondent Court of Appeals opening statement in its decision as to
employment, monthly salary of P1,475.00 and work schedule from Monday to Saturday,
from 8:00 oclock in the morning up to 5:00 oclock in the afternoon as facts is not
supported by the evidence on record.
V. With all due respect, the case of Lambo, et al., v. NLRC, et al., 317 SCRA 420 [G.R. No.
111042 October 26, 1999] relied upon by respondent Court of Appeals is not applicable to the
peculiar circumstances of this case.[6]
The issues raised boil down to whether or not an employer-employee relationship existed
between petitioner and private respondent, and whether petitioner is guilty of illegally
dismissing private respondent. We find the answers to these issues to be in the affirmative.
I.
In determining whether there is an employer-employee relationship, we have applied a fourfold test, to wit: (1) whether the alleged employer has the power of selection and engagement
of employees; (2) whether he has control of the employee with respect to the means and
methods by which work is to be accomplished; (3) whether he has the power to dismiss; and
(4) whether the employee was paid wages.[7] These elements of the employer-employee
relationship are present in this case.
First. The existence in this case of the first element is undisputed. It was petitioner who
engaged the services of Lagrama without the intervention of a third party. It is the existence of
the second element, the power of control, that requires discussion here.

Page

In the case at bar, albeit petitioner Tan claims that private respondent Lagrama was an
independent contractor and never his employee, the evidence shows that the latter performed
his work as painter under the supervision and control of petitioner. Lagrama worked in a
designated work area inside the Crown Theater of petitioner, for the use of which petitioner
prescribed rules. The rules included the observance of cleanliness and hygiene and a
prohibition against urinating in the work area and any place other than the toilet or the rest
rooms.[9] Petitioners control over Lagramas work extended not only to the use of the work
area, but also to the result of Lagramas work, and the manner and means by which the work
was to be accomplished.

308

Of the four elements of the employer-employee relationship, the control test is the most
important. Compared to an employee, an independent contractor is one who carries on a
distinct and independent business and undertakes to perform the job, work, or service on its
own account and under its own responsibility according to its own manner and method, free
from the control and direction of the principal in all matters connected with the performance
of the work except as to the results thereof.[8] Hence, while an independent contractor enjoys
independence and freedom from the control and supervision of his principal, an employee is
subject to the employers power to control the means and methods by which the employees
work is to be performed and accomplished.

Moreover, it would appear that petitioner not only provided the workplace, but supplied as
well the materials used for the paintings, because he admitted that he paid Lagrama only for
the latters services.[10]
Private respondent Lagrama claimed that he worked daily, from 8 oclock in the morning to 5
oclock in the afternoon. Petitioner disputed this allegation and maintained that he paid
Lagrama P1,475.00 per week for the murals for the three theaters which the latter usually
finished in 3 to 4 days in one week.[11] Even assuming this to be true, the fact that Lagrama
worked for at least 3 to 4 days a week proves regularity in his employment by petitioner.
Second. That petitioner had the right to hire and fire was admitted by him in his position paper
submitted to the NLRC, the pertinent portions of which stated:
Complainant did not know how to use the available comfort rooms or toilets in and about his
work premises. He was urinating right at the place where he was working when it was so easy
for him, as everybody else did and had he only wanted to, to go to the comfort rooms. But no,
the complainant had to make a virtual urinal out of his work place! The place then stunk to
high heavens, naturally, to the consternation of respondents and everyone who could smell the
malodor.
...
Given such circumstances, the respondents had every right, nay all the compelling reason, to
fire him from his painting job upon discovery and his admission of such acts. Nonetheless,
though thoroughly scolded, he was not fired. It was he who stopped to paint for
respondents.[12]
By stating that he had the right to fire Lagrama, petitioner in effect acknowledged Lagrama to
be his employee. For the right to hire and fire is another important element of the employeremployee relationship.[13] Indeed, the fact that, as petitioner himself said, he waited for
Lagrama to report for work but the latter simply stopped reporting for work reinforces the
conviction that Lagrama was indeed an employee of petitioner. For only an employee can
nurture such an expectancy, the frustration of which, unless satisfactorily explained, can bring
about some disciplinary action on the part of the employer.

Page

The Rules Implementing the Labor Code require every employer to pay his employees by
means of payroll.[17] The payroll should show among other things, the employees rate of pay,
deductions made, and the amount actually paid to the employee. In the case at bar, petitioner
did not present the payroll to support his claim that Lagrama was not his employee, raising
speculations whether his failure to do so proves that its presentation would be adverse to his
case.[18]

309

Third. Payment of wages is one of the four factors to be considered in determining the
existence of employer-employee relation. Wages are defined as remuneration or earnings,
however designated, capable of being expressed in terms of money, whether fixed or
ascertained on a time, task, piece, or commission basis, or other method of calculating the
same, which is payable by an employer to an employee under a written or unwritten contract
of employment for work done or to be done, or for services rendered or to be rendered.[14]
That Lagrama worked for Tan on a fixed piece-work basis is of no moment. Payment by
result is a method of compensation and does not define the essence of the relation.[15] It is a
method of computing compensation, not a basis for determining the existence or absence of
employer-employee relationship. One may be paid on the basis of results or time expended on
the work, and may or may not acquire an employment status, depending on whether the
elements of an employer-employee relationship are present or not.[16]

The primary standard for determining regular employment is the reasonable connection
between the particular activity performed by the employee in relation to the usual trade or
business of the employer.[19] In this case, there is such a connection between the job of
Lagrama painting billboards and murals and the business of petitioner. To let the people know
what movie was to be shown in a movie theater requires billboards. Petitioner in fact admits
that the billboards are important to his business.[20]
The fact that Lagrama was not reported as an employee to the SSS is not conclusive on the
question of whether he was an employee of petitioner.[21] Otherwise, an employer would be
rewarded for his failure or even neglect to perform his obligation.[22]
Neither does the fact that Lagrama painted for other persons affect or alter his employment
relationship with petitioner. That he did so only during weekends has not been denied by
petitioner. On the other hand, Samuel Villalba, for whom Lagrama had rendered service,
admitted in a sworn statement that he was told by Lagrama that the latter worked for
petitioner.[23]
Lagrama had been employed by petitioner since 1988. Under the law, therefore, he is deemed
a regular employee and is thus entitled to security of tenure, as provided in Art. 279 of Labor
Code:
ART. 279. Security of Tenure. In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title.
An employee who is unjustly dismissed from work shall be entitled to reinstatement without
loss of seniority rights and other privileges and to his full backwages, inclusive of allowances,
and to his other benefits or their monetary equivalent computed from the time his
compensation was withheld from him up to the time of his actual reinstatement.
This Court has held that if the employee has been performing the job for at least one year,
even if not continuously but intermittently, the repeated and continuing need for its
performance is sufficient evidence of the necessity, if not indispensability, of that activity to
the business of his employer. Hence, the employment is also considered regular, although
with respect only to such activity, and while such activity exists.[24]
It is claimed that Lagrama abandoned his work. There is no evidence to show this.
Abandonment requires two elements: (1) the failure to report for work or absence without
valid or justifiable reason, and (2) a clear intention to sever the employer-employee
relationship, with the second element as the more determinative factor and being manifested
by some overt acts.[25] Mere absence is not sufficient. What is more, the burden is on the
employer to show a deliberate and unjustified refusal on the part of the employee to resume
his employment without any intention of returning.[26] In the case at bar, the Court of Appeals
correctly ruled:
Neither do we agree that Petitioner abandoned his job. In order for abandonment to be a just
and valid ground for dismissal, the employer must show, by clear proof, the intention of the
employee to abandon his job. . . .

Page

More, after the repeated refusal of the Private Respondent to give Petitioner murals or
billboards to work on, the Petitioner filed, with the Sub-Regional Arbitration Branch No. X of
the National Labor Relations Commission, a Complaint for Illegal Dismissal and Money

310

In the present recourse, the Private Respondent has not established clear proof of the intention
of the Petitioner to abandon his job or to sever the employment relationship between him and
the Private Respondent. On the contrary, it was Private Respondent who told Petitioner that
he did not want the latter to draw for him and thereafter refused to give him work to do or any
mural or billboard to paint or draw on.

Claims. Such act has, as the Supreme Court declared, negate any intention to sever
employment relationship. . . .[27]
II.
The second issue is whether private respondent Lagrama was illegally dismissed. To begin,
the employer has the burden of proving the lawfulness of his employees dismissal.[28] The
validity of the charge must be clearly established in a manner consistent with due process.
The Implementing Rules of the Labor Code[29] provide that no worker shall be dismissed
except for a just or authorized cause provided by law and after due process. This provision has
two aspects: (1) the legality of the act of dismissal, that is, dismissal under the grounds
provided for under Article 282 of the Labor Code and (2) the legality in the manner of
dismissal. The illegality of the act of dismissal constitutes discharge without just cause, while
illegality in the manner of dismissal is dismissal without due process.[30]
In this case, by his refusal to give Lagrama work to do and ordering Lagrama to get out of his
sight as the latter tried to explain his side, petitioner made it plain that Lagrama was
dismissed. Urinating in a work place other than the one designated for the purpose by the
employer constitutes violation of reasonable regulations intended to promote a healthy
environment under Art. 282(1) of the Labor Code for purposes of terminating employment,
but the same must be shown by evidence. Here there is no evidence that Lagrama did urinate
in a place other than a rest room in the premises of his work.
Instead of ordering his reinstatement as provided in Art. 279 of the Labor Code, the Labor
Arbiter found that the relationship between the employer and the employee has been so
strained that the latters reinstatement would no longer serve any purpose. The parties do not
dispute this finding. Hence, the grant of separation pay in lieu of reinstatement is appropriate.
This is of course in addition to the payment of backwages which, in accordance with the
ruling in Bustamante v. NLRC,[31] should be computed from the time of Lagramas dismissal
up to the time of the finality of this decision, without any deduction or qualification.
The Bureau of Working Conditions[32] classifies workers paid by results into two groups,
namely; (1) those whose time and performance is supervised by the employer, and (2) those
whose time and performance is unsupervised by the employer. The first involves an element
of control and supervision over the manner the work is to be performed, while the second
does not. If a piece worker is supervised, there is an employer-employee relationship, as in
this case. However, such an employee is not entitled to service incentive leave pay since, as
pointed out in Makati Haberdashery v. NLRC[33] and Mark Roche International v. NLRC,[34]
he is paid a fixed amount for work done, regardless of the time he spent in accomplishing
such work.
WHEREFORE, based on the foregoing, the petition is DENIED for lack of showing that the
Court of Appeals committed any reversible error. The decision of the Court of Appeals,
reversing the decision of the National Labor Relations Commission and reinstating the
decision of the Labor Arbiter, is AFFIRMED with the MODIFICATION that the backwages
and other benefits awarded to private respondent Leovigildo Lagrama should be computed
from the time of his dismissal up to the time of the finality of this decision, without any
deduction and qualification. However, the service incentive leave pay awarded to him is
DELETED.

Page

311

SO ORDERED.

[ 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 cards[3] 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.
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)

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]

Page

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.

312

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]

On March 20, 1998, Dr. Lanzanas filed a complaint for illegal suspension[13] 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 memorandum[16] 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 re-assignments."
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
BMCMC-UWP) 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 Med-Arbiter'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-39879-98-L.
By Decision[19] of March 23, 1999, Labor Arbiter Antonio R. Macam dismissed the spouses'
complaints for want of jurisdiction upon a finding that there was no employer-employee
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 Decision[20] of May 3, 2002, reversed the Labor Arbiter's findings,
disposing as follows:

Petitioner's motion for reconsideration having been denied, it brought the case to the Court of
Appeals on certiorari.

Page

SO ORDERED.[21]

313

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 of
P250,000.00 each plus ten percent (10%) of the total award as attorney's fees.

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, it reinstated the NLRC decision in an Amended Decision[23] 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.
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-to-work 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.
SO ORDERED.[26] (Emphasis and italics in the original; underscoring supplied)

Page

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

314

Preliminarily, the present petition calls for a determination of whether there exists an
employer-employee relationship[27] between petitioner and the spouses-respondents.

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),

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"

Page

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 Law [34] 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]

315

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.

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 employer-employee 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 non-training 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-andfile. This is the import of the Secretary of Labor's Resolution of May 22, 1998 in OS A-0515-98 which reads:
xxxx
In the motion to dismiss it filed before the Med-Arbiter, the employer (CMC) alleged that 24
members of petitioner are supervisors, namely x x x Rolando Lanzonas [sic] x x x.
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.
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)
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

Page

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.

316

(g) x x x x

xxxx

(Emphasis and underscoring supplied)

An assumption or certification order of the DOLE Secretary automatically results in a returnto-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
Memorandum[41] of April 22, 1998 contains nothing more than a general directive to all union
officers and members to return-to-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 schedule[42] was not refuted by petitioner. Petitioner in
fact never released any findings of its supposed investigation into Dr. Lanzanas' alleged
"inimical acts."
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] Nonobservance of these requirements runs afoul of the procedural mandate.[44]
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-to-work order.
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 282[47] of the Labor
Code. Mere suspicion or belief, no matter how strong, cannot substitute for factual findings
carefully established through orderly procedure.[48]

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,

Page

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:

317

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.

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]
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 with MODIFICATION 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.

Page

318

SO ORDERED.

[ G.R. No. 164652, June 08, 2007 ]

THELMA DUMPIT-MURILLO, PETITIONER, VS. COURT OF APPEALS,
ASSOCIATED BROADCASTING COMPANY, JOSE JAVIER AND EDWARD TAN,
RESPONDENTS.
DECISION
QUISUMBING, J.:
This petition seeks to reverse and set aside both the Decision[1] dated January 30, 2004 of the
Court of Appeals in CA-G.R. SP No. 63125 and its Resolution[2] dated June 23, 2004 denying
the motion for reconsideration. The Court of Appeals had overturned the Resolution[3] dated
August 30, 2000 of the National Labor Relations Commission (NLRC) ruling that petitioner
was illegally dismissed.
The facts of the case are as follows:
On October 2, 1995, under Talent Contract No. NT95-1805,[4] private respondent Associated
Broadcasting Company (ABC) hired petitioner Thelma Dumpit-Murillo as a newscaster and
co-anchor for Balitang-Balita, an early evening news program. The contract was for a period
of three months. It was renewed under Talent Contracts Nos. NT95-1915, NT96-3002, NT984984 and NT99-5649.[5] In addition, petitioner's services were engaged for the program "Live
on Five." On September 30, 1999, after four years of repeated renewals, petitioner's talent
contract expired. Two weeks after the expiration of the last contract, petitioner sent a letter to
Mr. Jose Javier, Vice President for News and Public Affairs of ABC, informing the latter that
she was still interested in renewing her contract subject to a salary increase. Thereafter,
petitioner stopped reporting for work. On November 5, 1999, she wrote Mr. Javier another
letter,[6] which we quote verbatim:
xxxx
Dear Mr. Javier:
On October 20, 1999, I wrote you a letter in answer to your query by way of a marginal note
"what terms and conditions" in response to my first letter dated October 13, 1999. To date, or
for more than fifteen (15) days since then, I have not received any formal written reply. Xxx
In view hereof, should I not receive any formal response from you until Monday, November
8, 1999, I will deem it as a constructive dismissal of my services.
xxxx

Page

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

319

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

The parties agreed to submit the case for resolution after settlement failed during the
mandatory conference/conciliation. On March 29, 2000, the Labor Arbiter dismissed the
complaint.[9]
On appeal, the NLRC reversed the Labor Arbiter in a Resolution dated August 30, 2000. The
NLRC held that an employer-employee relationship existed between petitioner and ABC; that
the subject talent contract was void; that the petitioner was a regular employee illegally
dismissed; and that she was entitled to reinstatement and backwages or separation pay, aside
from 13th month pay and service incentive leave pay, moral and exemplary damages and
attorney's fees. It held as follows:
WHEREFORE, the Decision of the Arbiter dated 29 March 2000 is hereby REVERSED/SET
ASIDE and a NEW ONE promulgated:
1) declaring respondents to have illegally dismissed complainant from her regular work
therein and thus, ordering them to reinstate her in her former position without loss of seniority
right[s] and other privileges and to pay her full backwages, inclusive of allowances and other
benefits, including 13th month pay based on her said latest rate of P28,000.00/mo. from the
date of her illegal dismissal on 21 October 1999 up to finality hereof, or at complainant's
option, to pay her separation pay of one (1) month pay per year of service based on said latest
monthly rate, reckoned from date of hire on 30 September 1995 until finality hereof;
2) to pay complainant's accrued SILP [Service Incentive Leave Pay] of 5 days pay per year
and 13th month pay for the years 1999, 1998 and 1997 of P19,236.00 and P84,000.00,
respectively and her accrued salary from 16 September 1999 to 20 October 1999 of
P32,760.00 plus legal interest at 12% from date of judicial demand on 20 December 1999
until finality hereof;
3) to pay complainant moral damages of P500,000.00, exemplary damages of P350,000.00
and 10% of the total of the adjudged monetary awards as attorney's fees.
Other monetary claims of complainant are dismissed for lack of merit.
SO ORDERED.[10]
After its motion for reconsideration was denied, ABC elevated the case to the Court of
Appeals in a petition for certiorari under Rule 65. The petition was first dismissed for failure
to attach particular documents,[11] but was reinstated on grounds of the higher interest of
justice.[12]
Thereafter, the appellate court ruled that the NLRC committed grave abuse of discretion, and
reversed the decision of the NLRC.[13] The appellate court reasoned that petitioner should not
be allowed to renege from the stipulations she had voluntarily and knowingly executed by
invoking the security of tenure under the Labor Code. According to the appellate court,
petitioner was a fixed-term employee and not a regular employee within the ambit of Article
280[14] of the Labor Code because her job, as anticipated and agreed upon, was only for a
specified time.[15]
Aggrieved, petitioner now comes to this Court on a petition for review, raising issues as
follows:

Page

THIS HONORABLE COURT CAN REVIEW THE FINDINGS OF THE HONORABLE

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

320

I.

II.
THE PRO-FORMA TALENT CONTRACTS, AS CORRECTLY FOUND BY THE NLRC
FIRST DIVISION, ARE "ANTI-REGULARIZATION DEVICES" WHICH MUST BE
STRUCK DOWN FOR REASONS OF PUBLIC POLICY[;]
III.
BY REASON OF THE CONTINUOUS AND SUCCESSIVE RENEWALS OF THE
THREE-MONTH
TALENT
CONTRACTS,
AN
EMPLOYER-EMPLOYEE
RELATIONSHIP WAS CREATED AS PROVIDED FOR UNDER ARTICLE 280 OF THE
LABOR CODE[;]
IV.
BY THE CONSTRUCTIVE DISMISSAL OF HEREIN PETITIONER, AS A REGULAR
EMPLOYEE, THERE WAS A DENIAL OF PETITIONER'S RIGHT TO DUE PROCESS
THUS ENTITLING HER TO THE MONEY CLAIMS AS STATED IN THE
COMPLAINT[.][16]
The issues for our disposition are: (1) whether or not this Court can review the findings of the
Court of Appeals; and (2) whether or not under Rule 45 of the Rules of Court the Court of
Appeals committed a reversible error in its Decision.
On the first issue, private respondents contend that the issues raised in the instant petition are
mainly factual and that there is no showing that the said issues have been resolved arbitrarily
and without basis. They add that the findings of the Court of Appeals are supported by
overwhelming wealth of evidence on record as well as prevailing jurisprudence on the
matter.[17]
Petitioner however contends that this Court can review the findings of the Court of Appeals,
since the appellate court erred in deciding a question of substance in a way which is not in
accord with law or with applicable decisions of this Court.[18]
We agree with petitioner. Decisions, final orders or resolutions of the Court of Appeals in any
case regardless of the nature of the action or proceeding involved may be appealed to this
Court through a petition for review. This remedy is a continuation of the appellate process
over the original case,[19] and considering there is no congruence in the findings of the NLRC
and the Court of Appeals regarding the status of employment of petitioner, an exception to the
general rule that this Court is bound by the findings of facts of the appellate court,[20] we can
review such findings.
On the second issue, private respondents contend that the Court of Appeals did not err when it
upheld the validity of the talent contracts voluntarily entered into by petitioner. It further
stated that prevailing jurisprudence has recognized and sustained the absence of employeremployee relationship between a talent and the media entity which engaged the talent's
services on a per talent contract basis, citing the case of Sonza v. ABS-CBN Broadcasting
Corporation.[21]

Page

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

321

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

Further, the Sonza case is not applicable. In Sonza, the television station did not instruct
Sonza how to perform his job. How Sonza delivered his lines, appeared on television, and
sounded on radio were outside the television station's control. Sonza had a free hand on what
to say or discuss in his shows provided he did not attack the television station or its interests.
Clearly, the television station did not exercise control over the means and methods of the
performance of Sonza's work.[24] In the case at bar, ABC had control over the performance of
petitioner's work. Noteworthy too, is the comparatively low P28,000 monthly pay of
petitioner[25] vis the P300,000 a month salary of Sonza,[26] that all the more bolsters the
conclusion that petitioner was not in the same situation as Sonza.
The contract of employment of petitioner with ABC had the following stipulations:
xxxx
1. SCOPE OF SERVICES TALENT agrees to devote his/her talent, time, attention and best
efforts in the performance of his/her duties and responsibilities as Anchor/Program
Host/Newscaster of the Program, in accordance with the direction of ABC and/or its
authorized representatives.
1.1. DUTIES AND RESPONSIBILITIES TALENT shall:
a. Render his/her services as a newscaster on the Program;
b. Be involved in news-gathering operations by conducting interviews on- and off-theair;
c. Participate in live remote coverages when called upon;
d. Be available for any other news assignment, such as writing, research or camera work;
e. Attend production meetings;
f. f. On assigned days, be at the studios at least one (1) hour before the live telecasts;
g. Be present promptly at the studios and/or other place of assignment at the time
designated by ABC;
h. Keep abreast of the news;
i. Give his/her full cooperation to ABC and its duly authorized representatives in the
production and promotion of the Program; and
j. Perform such other functions as may be assigned to him/her from time to time.
xxxx
1.3 COMPLIANCE WITH STANDARDS, INSTRUCTIONS AND OTHER RULES AND
REGULATIONS TALENT agrees that he/she will promptly and faithfully comply with the
requests and instructions, as well as the program standards, policies, rules and regulations of
ABC, the KBP and the government or any of its agencies and instrumentalities.[27]

Page

In Manila Water Company, Inc. v. Pena,[28] we said that the elements to determine the
existence of an employment relationship are: (a) the selection and engagement of the
employee, (b) the payment of wages, (c) the power of dismissal, and (d) the employer's power
to control. The most important element is the employer's control of the employee's conduct,
not only as to the result of the work to be done, but also as to the means and methods to
accomplish it.[29]

322

xxxx

The duties of petitioner as enumerated in her employment contract indicate that ABC had
control over the work of petitioner. Aside from control, ABC also dictated the work
assignments and payment of petitioner's wages. ABC also had power to dismiss her. All these
being present, clearly, there existed an employment relationship between petitioner and ABC.
Concerning regular employment, the law provides for two kinds of employees, namely: (1)
those who are engaged to perform activities which are usually necessary or desirable in the
usual business or trade of the employer; and (2) those who have rendered at least one year of
service, whether continuous or broken, with respect to the activity in which they are
employed.[30] In other words, regular status arises from either the nature of work of the
employee or the duration of his employment.[31] In Benares v. Pancho,[32] we very succinctly
said:
"[T]he primary standard for determining regular employment is the reasonable connection
between the particular activity performed by the employee vis--vis the usual trade or
business of the employer. This connection can be determined by considering the nature of the
work performed and its relation to the scheme of the particular business or trade in its entirety.
If the employee has been performing the job for at least a year, even if the performance is not
continuous and merely intermittent, the law deems repeated and continuing need for its
performance as sufficient evidence of the necessity if not indispensability of that activity to
the business. Hence, the employment is considered regular, but only with respect to such
activity and while such activity exists.[33]
In our view, the requisites for regularity of employment have been met in the instant case.
Gleaned from the description of the scope of services aforementioned, petitioner's work was
necessary or desirable in the usual business or trade of the employer which includes, as a precondition for its enfranchisement, its participation in the government's news and public
information dissemination. In addition, her work was continuous for a period of four years.
This repeated engagement under contract of hire is indicative of the necessity and desirability
of the petitioner's work in private respondent ABC's business.[34]

Page

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

323

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

While this Court has recognized the validity of fixed-term employment contracts in a number
of cases, it has consistently emphasized that when the circumstances of a case show that the
periods were imposed to block the acquisition of security of tenure, they should be struck
down for being contrary to law, morals, good customs, public order or public policy.[39]
As a regular employee, petitioner is entitled to security of tenure and can be dismissed only
for just cause and after due compliance with procedural due process. Since private
respondents did not observe due process in constructively dismissing the petitioner, we hold
that there was an illegal dismissal.
WHEREFORE, the challenged Decision dated January 30, 2004 and Resolution dated June
23, 2004 of the Court of Appeals in CA-G.R. SP No. 63125, which held that the petitioner
was a fixed-term employee, are REVERSED and SET ASIDE. The NLRC decision is
AFFIRMED.
Costs against private respondents.

Page

324

SO ORDERED.

[ G.R. No. 167622, November 07, 2008 ]

GREGORIO V. TONGKO, PETITIONER, VS. THE MANUFACTURERS LIFE
INSURANCE CO. (PHILS.), INC. AND RENATO A. VERGEL DE DIOS,
RESPONDENTS.
DECISION
VELASCO JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29, 2005
Decision[1] of the Court of Appeals (CA) in CA-G.R. SP No. 88253, entitled The
Manufacturers Life Insurance Co. (Phils.), Inc. v. National Labor Relations Commission and
Gregorio V. Tongko. The assailed decision set aside the Decision dated September 27, 2004
and Resolution dated December 16, 2004 rendered by the National Labor Relations
Commission (NLRC) in NLRC NCR CA No. 040220-04.
The Facts
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged
in life insurance business. Renato A. Vergel De Dios was, during the period material, its
President and Chief Executive Officer. Gregorio V. Tongko started his professional
relationship with Manulife on July 1, 1977 by virtue of a Career Agent's Agreement[2]
(Agreement) he executed with Manulife.
In the Agreement, it is provided that:
It is understood and agreed that the Agent is an independent contractor and nothing contained
herein shall be construed or interpreted as creating an employer-employee relationship
between the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and
other products offered by the Company, and collect, in exchange for provisional receipts
issued by the Agent, money due or to become due to the Company in respect of applications
or policies obtained by or through the Agent or from policyholders allotted by the Company
to the Agent for servicing, subject to subsequent confirmation of receipt of payment by the
Company as evidenced by an Official Receipt issued by the Company directly to the
policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within fifteen (15) days
from the time of the discovery of the breach. No waiver, extinguishment, abandonment,
withdrawal or cancellation of the right to terminate this Agreement by the Company shall be
construed for any previous failure to exercise its right under any provision of this Agreement.

Page

In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In
1990, he became a Branch Manager. As the CA found, Tongko's gross earnings from his work
at Manulife, consisting of commissions, persistency income, and management overrides, may
be summarized as follows:

325

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

January to December 10,2002

P 865,096.07

2001

6,214,737.11

2000

8,003,180.38

1999

6,797,814.05

1998

4,805,166.34

1997

2,822,620.00[3]

The problem started sometime in 2001, when Manulife instituted manpower development
programs in the regional sales management level. Relative thereto, De Dios addressed a letter
dated November 6, 2001[4] to Tongko regarding an October 18, 2001 Metro North Sales
Managers Meeting. In the letter, De Dios stated:
The first step to transforming Manulife into a big league player has been very clear - to
increase the number of agents to at least 1,000 strong for a start. This may seem diametrically
opposed to the way Manulife was run when you first joined the organization. Since then,
however, substantial changes have taken place in the organization, as these have been
influenced by developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for a
Senior Managers' meeting earlier last month when Kevin O'Connor, SVP - Agency, took to
the floor to determine from our senior agency leaders what more could be done to bolster
manpower development. At earlier meetings, Kevin had presented information where
evidently, your Region was the lowest performer (on a per Manager basis) in terms of
recruiting in 2000 and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end
which were perceived to be uncalled for, it became clear that a one-on-one meeting with you
was necessary to ensure that you and management, were on the same plane. As gleaned from
some of your previous comments in prior meetings (both in group and one-on-one), it was not
clear that we were proceeding in the same direction
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly.
In those subsequent meetings you reiterated certain views, the validity of which we
challenged and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North
Managers may be a bit confused as to the directions the company was taking. For this reason,
I sought a meeting with everyone in your management team, including you, to clear the air, so
to speak.
This note is intended to confirm the items that were discussed at the said Metro North
Region's Sales Managers meeting held at the 7/F Conference room last 18 October.
xxxx

Page

This is an often repeated issue you have raised with me and with Kevin. For this reason, I
placed the issue on the table before the rest of your Region's Sales Managers to verify its
validity. As you must have noted, no Sales Manager came forward on their own to confirm

326

Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the
position of agents."

your statement and it took you to name Malou Samson as a source of the same, an allegation
that Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe
what I had thought all along, that these allegations were simply meant to muddle the issues
surrounding the inability of your Region to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process,
they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that you
made a lot more money in the Year 2000 versus 1999. In addition, you also volunteered the
information to Kevin when you said that you probably will make more money in the Year
2001 compared to Year 2000. Obviously, your above statement about making "less money"
did not refer to you but the way you argued this point had us almost believing that you were
spouting the gospel of truth when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this group
towards the new direction that we have been discussing these past few weeks, i.e., Manulife's
goal to become a major agency-led distribution company in the Philippines. While as you
claim, you have not stopped anyone from recruiting, I have never heard you proactively push
for greater agency recruiting. You have not been proactive all these years when it comes to
agency growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and
so, we are making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of
the routine tasks which can be easily delegated. This assistant should be so chosen as
to complement your skills and help you in the areas where you feel "may not be your
cup of tea".
You have stated, if not implied, that your work as Regional Manager may be too
taxing for you and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the
North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your
Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely
responsible for meeting the objectives of these remaining groups.

Page

The above changes can end at this point and they need not go any further. This, however, is
entirely dependent upon you. But you have to understand that meeting corporate objectives by
everyone is primary and will not be compromised. We are meeting tough challenges next year
and I would want everybody on board. Any resistance or holding back by anyone will be dealt
with accordingly.

327

xxxx

Subsequently, De Dios wrote Tongko another letter dated December 18, 2001,[5] terminating
Tongko's services, thus:
It would appear, however, that despite the series of meetings and communications, both oneon-one meetings between yourself and SVP Kevin O'Connor, some of them with me, as well
as group meetings with your Sales Managers, all these efforts have failed in helping you align
your directions with Management's avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your
Agents Contract as we are now issuing this notice of termination of your Agency Agreement
with us effective fifteen days from the date of this letter.
Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against
Manulife for illegal dismissal. The case, docketed as NLRC NCR Case No. 11-10330-02,
was raffled to Labor Arbiter Marita V. Padolina.
In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged
that De Dios gave him specific directives on how to manage his area of responsibility in the
latter's letter dated November 6, 2001. He further claimed that Manulife exercised control
over him as follows:
Such control was certainly exercised by respondents over the herein complainant. It was
Manulife who hired, promoted and gave various assignments to him. It was the company who
set objectives as regards productions, recruitment, training programs and all activities
pertaining to its business. Manulife prescribed a Code of Conduct which would govern in
minute detail all aspects of the work to be undertaken by employees, including the sales
process, the underwriting process, signatures, handling of money, policyholder service,
confidentiality, legal and regulatory requirements and grounds for termination of
employment. The letter of Mr. De Dios dated 06 November 2001 left no doubt as to who was
in control. The subsequent termination letter dated 18 December 2001 again established in no
uncertain terms the authority of the herein respondents to control the employees of Manulife.
Plainly, the respondents wielded control not only as to the ends to be achieved but the ways
and means of attaining such ends.[6]
Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC (4th
Division)[7] and Great Pacific Life Assurance Corporation v. NLRC,[8] which Tongko claimed
to be similar to the instant case.
Tongko further claimed that his dismissal was without basis and that he was not afforded due
process. He also cited the Manulife Code of Conduct by which his actions were controlled by
the company.
Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003,[9] in
which it alleged that Tongko is not its employee, and that it did not exercise "control" over
him. Thus, Manulife claimed that the NLRC has no jurisdiction over the case.

SO ORDERED.

Page

WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant

complaint for lack of jurisdiction, there being no employer-employee relationship between the
parties.

328

In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint
for lack of an employer-employee relationship. Padolina found that applying the four-fold test
in determining the existence of an employer-employee relationship, none was found in the
instant case. The dispositive portion thereof states:

Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a
Decision dated September 27, 2004 finding Tongko to have been illegally dismissed.
The NLRC's First Division, while finding an employer-employee relationship between
Manulife and Tongko applying the four-fold test, held Manulife liable for illegal dismissal. It
further stated that Manulife exercised control over Tongko as evidenced by the letter dated
November 6, 2001 of De Dios and wrote:
The above-mentioned letter shows the extent to which respondents controlled complainant's
manner and means of doing his work and achieving the goals set by respondents. The letter
shows how respondents concerned themselves with the manner complainant managed the
Metro North Region as Regional Sales Manager, to the point that respondents even had a say
on how complainant interacted with other individuals in the Metro North Region. The letter is
in fact replete with comments and criticisms on how complainant carried out his functions as
Regional Sales Manager.
More importantly, the letter contains an abundance of directives or orders that are intended to
directly affect complainant's authority and manner of carrying out his functions as Regional
Sales Manager.[10] x x x
Additionally, the First Division also ruled that:
Further evidence of [respondents'] control over complainant can be found in the records of the
case. [These] are the different codes of conduct such as the Agent Code of Conduct, the
Manulife Financial Code of Conduct, and the Manulife Financial Code of Conduct
Agreement, which serve as the foundations of the power of control wielded by respondents
over complainant that is further manifested in the different administrative and other tasks that
he is required to perform. These codes of conduct corroborate and reinforce the display of
respondents' power of control in their 06 November 2001 Letter to complainant.[11]
The fallo of the September 27, 2004 Decision reads:
WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside.
We find complainant to be a regular employee of respondent Manulife and that he was
illegally dismissed from employment by respondents.
In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation
pay as above set forth. Respondent Manulife is further ordered to pay complainant
backwages from the time he was dismissed on 02 January 2002 up to the finality of this
decision also as indicated above.
xxxx
All other claims are hereby dismissed for utter lack of merit.
From this Decision, Manulife filed a motion for reconsideration which was denied by the
NLRC First Division in a Resolution dated December 16, 2004.[12]

Page

WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ
prayed for accordingly GRANTED. The assailed Decision dated September 27, 2004 and
Resolution dated December 16, 2004 of the National Labor Relations Commission in NLRC

329

Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter,
the CA issued the assailed Decision dated March 29, 2005, finding the absence of an
employer-employee relationship between the parties and deeming the NLRC with no
jurisdiction over the case. The CA arrived at this conclusion while again applying the fourfold test. The CA found that Manulife did not exercise control over Tongko that would render
the latter an employee of Manulife. The dispositive portion reads:

NCR Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-04) are hereby ANNULLED
and SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter Marita V. Padolina is
hereby REINSTATED.
Hence, Tongko filed this petition and presented the following issues:
A
The Court of Appeals committed grave abuse of discretion in granting respondents' petition
for certiorari.
B
The Court of Appeals committed grave abuse of discretion in annulling and setting aside the
Decision dated September 27, 2004 and Resolution dated December 16, 2004 in finding that
there is no employer-employee relationship between petitioner and respondent.
C
The Court of Appeals committed grave abuse of discretion in annulling and setting aside the
Decision dated September 27, 2004 and Resolution dated December 16, 2004 which found
petitioner to have been illegally dismissed and ordered his reinstatement with payment of
backwages.[13]
Restated, the issues are: (1) Was there an employer-employee relationship between Manulife
and Tongko? and (2) If yes, was Manulife guilty of illegal dismissal?
The Court's Ruling
This petition is meritorious.
Tongko Was An Employee of Manulife
The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself into
the question of whether an employer-employee relationship existed between Manulife and
Tongko. If no employer-employee relationship existed between the two parties, then
jurisdiction over the case properly lies with the Regional Trial Court.
In the determination of whether an employer-employee relationship exists between two
parties, this Court applies the four-fold test to determine the existence of the elements of such
relationship. In Pacific Consultants International Asia, Inc. v. Schonfeld, the Court set out the
elements of an employer-employee relationship, thus:

Page

The NLRC, for its part, applied the four-fold test and found the existence of all the elements
and declared Tongko an employee of Manulife. The CA, on the other hand, found that the
element of control as an indicator of the existence of an employer-employee relationship was
lacking in this case. The NLRC and the CA based their rulings on the same findings of fact
but differed in their interpretations.

330

Jurisprudence is firmly settled that whenever the existence of an employment relationship is

in dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of
the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's
power to control the employee's conduct. It is the so-called "control test" which constitutes the
most important index of the existence of the employer-employee relationship that is, whether
the employer controls or has reserved the right to control the employee not only as to the
result of the work to be done but also as to the means and methods by which the same is to be
accomplished. Stated otherwise, an employer-employee relationship exists where the person
for whom the services are performed reserves the right to control not only the end to be
achieved but also the means to be used in reaching such end.[14]

The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6, 2001
addressed by De Dios to Tongko. According to the NLRC, the letter contained "an abundance
of directives or orders that are intended to directly affect complainant's authority and manner
of carrying out his functions as Regional Sales Manager." It enumerated these "directives" or
"orders" as follows:
1. You will hire at your expense a competent assistant who can unload you of much of
the routine tasks which can be easily delegated. x x x
xxxx
This assistant should be hired immediately.
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the
North Star Branch (NSB) in autonomous fashion x x x.
xxxx
I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your
Central Unit and the rest of the Sales Managers in Metro North. x x x
3. Any resistance or holding back by anyone will be dealt with accordingly.
4. I have been straightforward in this my letter and I know that we can continue to work
together... but it will have to be on my terms. Anything else is unacceptable!
The NLRC further ruled that the different codes of conduct that were applicable to Tongko
served as the foundations of the power of control wielded by Manulife over Tongko that is
further manifested in the different administrative and other tasks that he was required to
perform.
The NLRC also found that Tongko was required to render exclusive service to Manulife,
further bolstering the existence of an employer-employee relationship.
Finally, the NLRC ruled that Tongko was integrated into a management structure over which
Manulife exercised control, including the actions of its officers. The NLRC held that such
integration added to the fact that Tongko did not have his own agency belied Manulife's claim
that Tongko was an independent contractor.
The CA, however, considered the finding of the existence of an employer-employee
relationship by the NLRC as far too sweeping having as its only basis the letter dated
November 6, 2001 of De Dios. The CA did not concur with the NLRC's ruling that the
elements of control as pointed out by the NLRC are "sufficient indicia of control that negates
independent contractorship and conclusively establish an employer-employee relationship
between"[15] Tongko and Manulife. The CA ruled that there is no employer-employee
relationship between Tongko and Manulife.

Page

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

331

An impasse appears to have been reached between the CA and the NLRC on the sole issue of
control over an employee's conduct. It bears clarifying that such control not only applies to
the work or goal to be done but also to the means and methods to accomplish it. [16] In Sonza
v. ABS-CBN Broadcasting Corporation, we explained that not all forms of control would
establish an employer-employee relationship, to wit:

Logically, the line should be drawn between rules that merely serve as guidelines towards the
achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict the
party hired to the use of such means. The first, which aim only to promote the result, create no
employer-employee relationship unlike the second, which address both the result and the
means used to achieve it.[17] (Emphasis supplied.)
We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:
It is, therefore, usual and expected for an insurance company to promulgate a set of rules to
guide its commission agents in selling its policies that they may not run afoul of the law and
what it requires or prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications to processing
and approval by the Company, and also reserve to the Company the determination of the
premiums to be paid and the schedules of payment. None of these really invades the agent's
contractual prerogative to adopt his own selling methods or to sell insurance at his own time
and convenience, hence cannot justifiably be said to establish an employer-employee
relationship between him and the company.[18]
Hence, we ruled in Insular that no employer-employee relationship existed therein. However,
such ruling was tempered with the qualification that had there been evidence that the
company promulgated rules or regulations that effectively controlled or restricted an
insurance agent's choice of methods or the methods themselves in selling insurance, an
employer-employee relationship would have existed. In other words, the Court in Insular in
no way definitively held that insurance agents are not employees of insurance companies, but
rather made the same a case-to-case basis. We held:
The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from time
to time prescribe. No showing has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued which effectively controlled or
restricted his choice of methods or the methods themselves of selling insurance. Absent such
showing, the Court will not speculate that any exceptions or qualifications were imposed on
the express provision of the contract leaving Basiao "... free to exercise his own judgment as
to the time, place and means of soliciting insurance."[19] (Emphasis supplied.)

Based on the foregoing cases, if the specific rules and regulations that are enforced against
insurance agents or managers are such that would directly affect the means and methods by

Page

[I]t cannot be gainsaid that Grepalife had control over private respondents' performance as
well as the result of their efforts. A cursory reading of their respective functions as
enumerated in their contracts reveals that the company practically dictates the manner by
which their jobs are to be carried out. For instance, the District Manager must properly
account, record and document the company's funds spot-check and audit the work of the zone
supervisors, conserve the company's business in the district through `reinstatements', follow
up the submission of weekly remittance reports of the debit agents and zone supervisors,
preserve company property in good condition, train understudies for the position of district
manager, and maintain his quota of sales (the failure of which is a ground for termination). On
the other hand, a zone supervisor must direct and supervise the sales activities of the debit
agents under him, conserve company property through "reinstatements", undertake and
discharge the functions of absentee debit agents, spot-check the records of debit agents, and
insure proper documentation of sales and collections by the debit agents.[20] (Emphasis
supplied.)

332

There is no conflict between our rulings in Insular and in Great Pacific Life Assurance
Corporation. We said in the latter case:

which such agents or managers would achieve the objectives set by the insurance company,
they are employees of the insurance company.
In the instant case, Manulife had the power of control over Tongko that would make him its
employee. Several factors contribute to this conclusion.
In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided
that:
The Agent hereby agrees to comply with all regulations and requirements of the Company as
herein provided as well as maintain a standard of knowledge and competency in the sale of
the Company's products which satisfies those set by the Company and sufficiently meets the
volume of new business required of Production Club membership.[21]
Under this provision, an agent of Manulife must comply with three (3) requirements: (1)
compliance with the regulations and requirements of the company; (2) maintenance of a level
of knowledge of the company's products that is satisfactory to the company; and (3)
compliance with a quota of new businesses.
Among the company regulations of Manulife are the different codes of conduct such as the
Agent Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial Code
of Conduct Agreement, which demonstrate the power of control exercised by the company
over Tongko. The fact that Tongko was obliged to obey and comply with the codes of
conduct was not disowned by respondents.
Thus, with the company regulations and requirements alone, the fact that Tongko was an
employee of Manulife may already be established. Certainly, these requirements controlled
the means and methods by which Tongko was to achieve the company's goals.
More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform
administrative duties that establishes his employment with Manulife.
In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005,
Manulife attached affidavits of its agents purportedly to support its claim that Tongko, as a
Regional Sales Manager, did not perform any administrative functions. An examination of
these affidavits would, however, prove the opposite.
In an Affidavit dated April 28, 2003,[22] John D. Chua, a Regional Sales Manager of Manulife,
stated:
4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional
Sales Manager ("RSM") for Metro South Region pursuant to an Agency Contract. As
such RSM, I have the following functions:
1. Refer and recommend prospective agents to Manulife
2. Coach agents to become productive
3. Regularly meet with, and coordinate activities of agents affiliated to my region.
While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29,
2003[23] that:

a. Refer and recommend prospective agents to Manulife;

Page

4. As such BM, I render the following services:

333

3. In January 1997, I was assigned as a Branch Manager ("BM") of Manulife for the
Metro North Sector;

b. Train and coordinate activities of other commission agents;

c. Coordinate activities of Agency Managers who, in turn, train and coordinate
activites of other commission agents;
d. Achieve agreed production objectives in terms of Net Annualized
Commissions and Case Count and recruitment goals; and
e. Sell the various products of Manulife to my personal clients.
While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April
28, 2003[24] that:
3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks Unit, North Star
Branch, Metro North Region;
4. As such UM, I render the following services:
a. To render or recommend prospective agents to be licensed, trained and
contracted to sell Manulife products and who will be part of my Unit;
b. To coordinate activities of the agents under my Unit in their daily, weekly and
monthly selling activities, making sure that their respective sales targets are
met;
c. To conduct periodic training sessions for my agents to further enhance their
sales skills.
d. To assist my agents with their sales activities by way of joint fieldwork,
consultations and one-on-one evaluation and analysis of particular accounts.
e. To provide opportunities to motivate my agents to succeed like conducting
promos to increase sales activities and encouraging them to be involved in
company and industry activities.
f. To provide opportunities for professional growth to my agents by encouraging
them to be a member of the LUCAP (Life Underwriters Association of the
Philippines).
A comparison of the above functions and those contained in the Agreement with those cited in
Great Pacific Life Assurance Corporation[25] reveals a striking similarity that would more
than support a similar finding as in that case. Thus, there was an employer-employee
relationship between the parties.
Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a
certain number of agents, in addition to his other administrative functions, leads to no other
conclusion that he was an employee of Manulife.

Page

Tongko Was Illegally Dismissed

334

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of
becoming a major agency-led distribution company whereby greater agency recruitment is
required of the managers, including Tongko. De Dios made it clear that agent recruitment has
become the primary means by which Manulife intends to sell more policies. More
importantly, it is Tongko's alleged failure to follow this principle of recruitment that led to the
termination of his employment with Manulife. With this, it is inescapable that Tongko was an
employee of Manulife.

In its Petition for Certiorari dated January 7, 2005[26] filed before the CA, Manulife argued
that even if Tongko is considered as its employee, his employment was validly terminated on
the ground of gross and habitual neglect of duties, inefficiency, as well as willful
disobedience of the lawful orders of Manulife. Manulife stated:
In the instant case, private respondent, despite the written reminder from Mr. De Dios refused
to shape up and altogether disregarded the latter's advice resulting in his laggard performance
clearly indicative of his willful disobedience of the lawful orders of his superior. x x x
xxxx
As private respondent has patently failed to perform a very fundamental duty, and that is to
yield obedience to all reasonable rules, orders and instructions of the Company, as well as
gross failure to reach at least minimum quota, the termination of his engagement from
Manulife is highly warranted and therefore, there is no illegal dismissal to speak of.
It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite
a single iota of evidence to support its claims. Manulife did not even point out which order or
rule that Tongko disobeyed. More importantly, Manulife did not point out the specific acts
that Tongko was guilty of that would constitute gross and habitual neglect of duty or
disobedience. Manulife merely cited Tongko's alleged "laggard performance," without
substantiating such claim, and equated the same to disobedience and neglect of duty.
We cannot, therefore, accept Manulife's position.
In Quebec, Sr. v. National Labor Relations Commission, we ruled that:
When there is no showing of a clear, valid and legal cause for the termination of employment,
the law considers the matter a case of illegal dismissal and the burden is on the employer to
prove that the termination was for a valid or authorized cause. This burden of proof
appropriately lies on the shoulders of the employer and not on the employee because a
worker's job has some of the characteristics of property rights and is therefore within the
constitutional mantle of protection. No person shall be deprived of life, liberty or property
without due process of law, nor shall any person be denied the equal protection of the laws.
Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the
burden of proving the validity of the termination of employment rests on the employer.
Failure to discharge this evidentialburden would necessarily mean that the dismissal was not
justified, and, therefore, illegal.[27]
We again ruled in Times Transportation Co., Inc. v. National Labor Relations Commission
that:
The law mandates that the burden of proving the validity of the termination of employment
rests with the employer. Failure to discharge this evidentiary burden would necessarily mean
that the dismissal was not justified, and, therefore, illegal. Unsubstantiated suspicions,
accusations and conclusions of employers do not provide for legal justification for dismissing
employees. In case of doubt, such cases should be resolved in favor of labor, pursuant to the
social justice policy of our labor laws and Constitution.[28]

Page

The Labor Code provides that an employer may terminate the services of an employee for just
cause and this must be supported by substantial evidence. The settled rule in administrative
and quasi-judicial proceedings is that proof beyond reasonable doubt is not required in
determining the legality of an employer's dismissal of an employee, and not even a
preponderance of evidence is necessary as substantial evidence is considered sufficient.

335

This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v. Paez
to mean substantial evidence, to wit:

Substantial evidence is more than a mere scintilla of evidence or relevant evidence as a

reasonable mind might accept as adequate to support a conclusion, even if other minds,
equally reasonable, might conceivably opine otherwise.[29]
Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife
even failed to identify the specific acts by which Tongko's employment was terminated much
less support the same with substantial evidence. To repeat, mere conjectures cannot work to
deprive employees of their means of livelihood. Thus, it must be concluded that Tongko was
illegally dismissed.
Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko
not being its employee is not entitled to such notices. Since we have ruled that Tongko is its
employee, however, Manulife clearly failed to afford Tongko said notices. Thus, on this
ground too, Manulife is guilty of illegal dismissal. In Quebec, Sr., we also stated:
Furthermore, not only does our legal system dictate that the reasons for dismissing a worker
must be pertinently substantiated, it also mandates that the manner of dismissal must be
properly done,otherwise, the termination itself is gravely defective and may be declared
unlawful.[30]
For breach of the due process requirements, Manulife is liable to Tongko in the amount of
PhP 30,000 as indemnity in the form of nominal damages.[31]
Finally, Manulife raises the issue of the correctness of the computation of the award to
Tongko made by the NLRC by claiming that Songco v. National Labor Relations
Commission[32] is inapplicable to the instant case, considering that Songco was dismissed on
the ground of retrenchment.
An examination of Songco reveals that it may be applied to the present case. In that case, Jose
Songco was a salesman of F.E. Zuellig (M), Inc. which terminated the services of Songco on
the ground of retrenchment due to financial losses. The issue raised to the Court, however,
was whether commissions are considered as part of wages in order to determine separation
pay. Thus, the fact that Songco was dismissed due to retrenchment does not hamper the
application thereof to the instant case. What is pivotal is that we ruled in Songco that
commissions are part of wages for the determination of separation pay.
Article 279 of the Labor Code on security of tenure pertinently provides that:
In cases of regular employment the employer shall not terminate the services of an employee
except for a just cause or when authorized by this Title. An employee who is unjustly
dismissed from work shall be entitled to reinstatement without loss of seniority rights and
other privileges and to his full backwages, inclusive of allowances, and to his other benefits or
their monetary equivalent computed from the time his compensation was withheld from him
up to the time of his actual reinstatement.

Page

As the law now stands, an illegally dismissed employee is entitled to two reliefs, namely:
backwages and reinstatement. These are separate and distinct from each other. However,
separation pay is granted where reinstatement is no longer feasible because of strained
relations between the employee and the employer. In effect, an illegally dismissed employee
is entitled to either reinstatement, if viable, or separation pay if reinstatement is no longer
viable and backwages.[33]

336

In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an illegally
dismissed employee shall be entitled to backwages and separation pay, if reinstatement is no
longer viable:

Taking into consideration the cases of Songco and Triad, we find correct the computation of
the NLRC that the monthly gross wage of Tongko in 2001 was PhP 518,144.76. For having
been illegally dismissed, Tongko is entitled to reinstatement with full backwages under Art.
279 of the Labor Code. Due to the strained relationship between Manulife and Tongko,
reinstatement, however, is no longer advisable. Thus, Tongko will be entitled to backwages
from January 2, 2002 (date of dismissal) up to the finality of this decision. Moreover,
Manulife will pay Tongko separation pay of one (1) month salary for every year of service
that is from 1977 to 2001 amounting to PhP 12,435,474.24, considering that reinstatement is
not feasible. Tongko shall also be entitled to an award of attorney's fees in the amount of ten
percent (10%) of the aggregate amount of the above awards.
WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of
the CA in CA-G.R. SP No. 88253 is REVERSED and SET ASIDE. The Decision dated
September 27, 2004 of the NLRC is REINSTATED with the following modifications:
Manulife shall pay Tongko the following:
(1) Full backwages, inclusive of allowances and other benefits or their monetary equivalent
from January 2, 2002 up to the finality of this Decision;
(2) Separation pay of one (1) month salary for every year of service from 1977 up to 2001
amounting to PhP 12,435,474.24;
(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process
requirements; and
(4) Attorney's fees equivalent to ten percent (10%) of the aforementioned backwages and
separation pay.
Costs against respondent Manulife.

Page

337

SO ORDERED.

[ G.R. No. 182877, August 09, 2010 ]

SCA HYGIENE PRODUCTS CORPORATION EMPLOYEES ASSOCIATION-FFW,
PETITIONER, VS. SCA HYGIENE PRODUCTS CORPORATION, RESPONDENT.
DECISION
PEREZ, J.:
For review on certiorari are the Decision[1] dated 19 February 2008 and the Resolution[2]
dated 5 May 2008 of the Court of Appeals in CA-G.R. SP No. 100308, which reversed the
Resolution[3] dated 2 August 2007 of Voluntary Arbitrator Renato Q. Bello in V.A. Case No.
013-06.
The undisputed facts are as follows:
Respondent SCA Hygiene Products Corporation is a domestic corporation engaged in the
manufacture, sale and distribution of industrial paper, tissue and allied products. It has
existing Collective Bargaining Agreements (CBAs) with SCA Hygiene Products Corporation
Monthly Employees Union-FSM (Monthly Employees Union) and petitioner SCA Hygiene
Products Corporation Employees Association-FFW (Daily Employees Union), which
represent the monthly and daily paid rank-and-file employees, respectively.
Both CBAs of the Monthly Employees Union and the Daily Employees Union contain
provisions on Job Evaluation which state that:
ARTICLE VIII
JOB EVALUATION
SECTION 1. The Management (COMPANY) will conduct Job Evaluation when deemed
necessary. A third party consultant may be tasked to conduct the program. The COMPANY
agrees to maintain the practice of involving the incumbent employee member of the UNION
in writing the Job Description which serves as input in the Job Evaluation Program. The third
party consultant will conduct an orientation to both Union and Management of the Job
Evaluation Process.
xxxx
ARTICLE VIII
JOB EVALUATION
SECTION 1. The COMPANY and the UNION agrees to abide by the result of the Job
Evaluation (JE) conducted by the COMPANY's third party consultants. The UNION may
participate in this activity in the form of consultations and suggestions.

In February 2004, Mercer Human Resource Consulting, Inc. informed respondent of the result
of the job evaluation which led respondent to adopt eight new job grade levels:[5]

Page

Sometime in 2003, respondent conducted a company-wide job evaluation through an

independent consultant, Mercer Human Resource Consulting, Inc. As provided for in the
CBAs, respondent conducted an orientation on the job evaluation process. All covered
employees executed written job descriptions which were used in the job evaluation of their
respective positions.

338

SECTION 2. The COMPANY agrees to advise the individual members of the UNION of the
result of the JE concerning their respective positions and shall furnish the employee a copy of
his/her job description.[4]

Job Grade Level

Employee[s'] Category

Executive

Executive

Department Manager

Unit Manager

Unit Manager

Management Team Member

Rank-and-File

Rank-and-File

In a Letter dated 24 February 2004,[6] respondent informed 22 daily paid rank-and-file

employees that their positions had been classified as Job Grade Level 2.
As a result, the Monthly Employees Union demanded that the 22 daily paid rank-and-file
employees be given conversion increase, promotion increase as well as retroactive salary
increase from the time the job evaluation was completed on the ground that their positions had
been converted into a higher job grade level which amounted to a promotion. Likewise, the
Daily Employees Union asked for the adjustment of said employees' compensation since the
conversion warranted their entitlement to the benefits, status and privileges of a monthly paid
rank-and-file employee.
As respondent failed to respond, both unions submitted their grievances for mediation. When
the parties failed to reach an amicable settlement, they submitted the case for voluntary
arbitration.

On 2 August 2007, Voluntary Arbitrator Renato Q. Bello ruled in favor of the unions and
awarded conversion increase and attorney's fees to the 22 daily paid rank-and-file employees.

Page

The company countered that the job evaluation was merely a process of determining the
relative contribution and value of the positions in its operations and does not provide for any
adjustment in the salaries of the covered employees. The subject employees cannot be
converted to monthly paid rank-and-file employees and given a conversion increase since
they continue to occupy the same positions that they were occupying prior to the job
evaluation. They are not entitled to any promotion increase since they were never promoted
to a higher position as a Job Grade Level 2 position does not involve any increase in their
duties and responsibilities. The company added that those employees converted to Job Grade
Level 3 positions are entitled to salary and benefits increase since they are classified as
managerial employees. On the other hand, those holding Job Grade Level 2 positions
remained rank-and-file employees.

339

The unions claimed that the 22 daily paid rank-and-file employees were entitled to conversion
increase since Job Grade Level 2 positions are meant for monthly paid rank-and-file
employees and along with the conversion, said employees were given additional job
descriptions. They were also entitled to promotion increase since such is the company
practice everytime an employee's rank is converted to a higher job grade level. The unions
added that the company violated their CBAs by refusing to implement the result of the job
evaluation considering that those converted from Job Grade Level 2 positions to Job Grade
Level 3 positions were granted the benefits concomitant to their new positions.

In so ruling, he noted that said employees were performing the duties and responsibilities of a
monthly paid rank-and-file employee. The only difference was that there was no clear
classification of their positions.
The dispositive portion of the resolution provides:
WHEREFORE, in view of the foregoing, this Voluntary Arbitrator promulgates the
following:

Positions

1. Julius M. Concepcion

Shift Mechanical Technician

2. Rolando C. Miel

Shift Mechanical Technician

3. Leonilo T. Sabinada

Electro Mechanical Technician

4. Danilo T. Maningas

Electrical Technician

5. Rulen A. Acosta

Back Tender

6. Luisito P. Diaz

Back Tender

7. Reynaldo M. Legario

Back Tender

8. Arnel T. Limbaring

Back Tender

9. Arlon Sison

Back Tender

10. Roberto dela Cruz

Preventive Mechanical Technician

11. Elaido V. Agbayani

Preventive Mechanical Technician

12. Charlie M. Manaois

Mechanical Technician

13. Nelio E. Bejosano

Warehouse Custodian

14. Inventor V. Florada, Jr.

Mechanical Technician

15. Paulo B. Romero

Electrical

16. Dennis A. Ligue

Production Operator

17. Samuel F. Villosimo

Boiler Tender

18. Marian F. Perolino

Boiler Tender

19. Renante Anding

Boiler Tender

20. Gemar de Leola Electro

Mechanical Technician

21. Julius Cellona Electro

Mechanical Technician

22. Wenceslao B. Codizal

Instrumentation Technician

2. Denying the Union's claim for retroactive payment of promotional increase for lack of
merit; and

Page

Names

340

1. Declaring that the following employees are now deemed monthly paid rank-and-file
employees and thus are entitled to conversion increase equivalent to ten per cent (10%) of
their current basic salary as daily paid rank-and-file employees, retroactive from 24 February
2006 up to the time that full payment thereof is made by the Company:

3. Dismissing the Unions' claim for damages also for lack of merit and awarding ten per cent
(10%) attorney's fees to the Unions based on the total computed conversion increase due the
twenty two (22) employees. For this purpose, the management of the Company and the duly
authorized officers of the Unions are enjoined to sit down and discuss the mechanics of the
actual implementation of this judgment award.[7]
On appeal, the Court of Appeals ruled in favor of respondent. First, it held that the job
evaluation was conducted as a reorganization process to standardize the company's
organizational set-up. It was not designed to provide any conversion or adjustment to the
salaries of the employees. The CBAs merely provided the procedure for the implementation
of the job evaluation. It did not specifically state that the covered employees are entitled to
any salary adjustment after the job evaluation. Hence, in the absence of any law or agreement
between the parties, any conversion much less promotion is left entirely to respondent's sound
discretion. Second, the appellate court did not give credence to the unions' claim that the
grant of conversion/promotion increase was respondent's long-standing practice. To be
considered a regular practice, the grant of such increase should have been done over a long
period of time and must be shown to be consistent and deliberate. In this case, there was no
evidence that respondent agreed to continue giving the benefits knowing fully well that its
employees are not covered by the law requiring payment thereof. Third, the appellate court
noted that those employees converted to Job Grade Level 3 positions were given salary and
benefits increase since they became managerial employees after the job evaluation. The same
could not be said with regard to those holding Job Grade Level 2 positions since they
remained rank-and-file employees.
The decretal portion of the decision provides:
WHEREFORE, the petition for review is GRANTED and the Resolution dated August 2,
2007 of the voluntary arbitrator is NULLIFIED and SET ASIDE.[8]
Hence, the instant petition raising the following issues:
I.
THE HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT DECIDED THE
CASE IN UTTER DISREGARD OF THE SUBSTANTIATED FACTS THAT A
PROMOTION TOOK PLACE WHEN THE TWENTY-TWO (22) DAILY PAID
EMPLOYEES, WHO WERE PREVIOUSLY OCCUPYING JOB LEVEL I POSITIONS,
WERE SUBSEQUENTLY CONVERTED INTO OR PROMOTED TO JOB LEVEL 2
POSITIONS AFTER THE RESULT OF THE JOB EVALUATION ON FEBRUARY 24,
2004.
II.

Page

Briefly, the key issues in this petition are: (1) Were the 22 daily paid rank-and-file employees
promoted after their positions have been converted from Job Grade Level 1 to Job Grade
Level 2?; and (2) if so, are they entitled to conversion increase equivalent to 10% of their
current basic salary?

341

THE HONORABLE COURT OF APPEALS GROSSLY ERRED WHEN IT DECIDED THE

CASE IN UTTER DISREGARD OF THE SUBSTANTIATED FACTS AND THE
EVIDENCE ADDUCED TO THE EFFECT THAT THERE WAS A LONG-STANDING
[COMPANY PRACTICE] THAT EVERYTIME THERE IS A CHANGE IN THE JOB
LEVEL POSITION OF AN EMPLOYEE, THE COMPANY GRANTS A
CORRESPONDING CONVERSION INCREASE OF TEN [PERCENT] (10%), BASED ON
THE EMPLOYEE'S CURRENT BASIC SALARY.[9]

Petitioner contends that the 22 daily paid rank-and-file employees were promoted after the job
evaluation. In fact, they have been performing the duties and responsibilities of a monthly
paid rank-and-file employee occupying a Job Grade Level 2 position even before the job
evaluation. Petitioner adds that said employees are entitled to conversion increase since such
has been the company practice everytime an employee's rank is converted to a higher job
grade level.
Respondent counters that the job evaluation was merely a process of determining the relative
contribution and value of the positions in its operations and does not provide for any
adjustment in the salaries of the covered employees. It adds that the 22 daily paid rank-andfile employees were not promoted since they continue to occupy the same positions that they
were occupying prior to the job evaluation. They also perform the same functions and have
the same responsibilities.
The petition has no merit.
It is a well-settled rule that labor laws do not authorize interference with the employer's
judgment in the conduct of its business. The Labor Code and its implementing rules do not
vest managerial authority in the labor arbiters or in the different divisions of the National
Labor Relations Commission or in the courts. The hiring, firing, transfer, demotion, and
promotion of employees have been traditionally identified as a management prerogative
subject to limitations found in the law, a collective bargaining agreement, or in general
principles of fair play and justice. This is a function associated with the employer's inherent
right to control and manage effectively its enterprise. Even as the law is solicitous of the
welfare of employees, it must also protect the right of an employer to exercise what are
clearly management prerogatives. The free will of management to conduct its own business
affairs to achieve its purpose cannot be denied. Accordingly, this Court has recognized and
affirmed the prerogative of management to implement a job evaluation program or a reorganization for as long as it is not contrary to law, morals or public policy.[10]
In the case at bar, petitioner has miserably failed to convince this Court that respondent acted
in bad faith in implementing the job evaluation program. There is no showing that it was
intended to circumvent the law and deprive the 22 daily paid rank-and-file employees of the
benefits they are supposed to receive.
The job evaluation program was undertaken to streamline respondent's operations and to place
its employees in their proper positions or groupings. A perusal of the CBAs of the parties
showed that, as correctly ruled by the Court of Appeals, it merely provided the procedure for
the implementation of the job evaluation and did not guarantee any adjustment in the salaries
of the employees.

Page

There is also no evidence to show that Job Grade Levels 1 and 2 positions are confined only
to daily and monthly paid rank-and-file employees, respectively, such that when a conversion
from Job Grade Level 1 to Job Grade Level 2 takes place, a promotion automatically ensues.
The pronouncement of Voluntary Arbitrator Renato Q. Bello that Job Grade Level 2 positions
are mostly occupied by monthly paid rank-and-file employees implies that some daily paid
rank-and-file employees also occupy that position.[12] Thus, a mere conversion from Job

342

We are not prepared to grant any conversion or promotion increase to the 22 daily paid rankand-file employees since what transpired was only a promotion in nomenclature. Of
primordial consideration is not the nomenclature or title given to the employee, but the nature
of his functions.[11] Based on the eight new job grade levels which respondent adopted after
the job evaluation, Job Grade Levels 1 and 2 positions are both categorized as rank-and-file
employees. Said employees continued to occupy the same positions they were occupying
prior to the job evaluation. Moreover, their job titles remained the same and they were not
given additional duties and responsibilities.

Grade Level 1 position to Job Grade Level 2 position does not, of course, make a daily paid
rank-and- filer a monthly paid one with a concomitant conversion and promotion increase.
Petitioner also failed to substantiate its allegation that it has been a long-standing company
practice to grant a conversion or promotion increase everytime an employee's rank is
converted to a higher job grade level. The instances which petitioner cited showed clear
intent on respondent's part to promote the employees concerned. The job titles and positions
held by such employees have changed following the fact that they have assumed additional
duties and responsibilities.
Finally, we see why petitioners cannot make common cause with those whose positions were
converted from Job Grade Level 2 to Job Grade Level 3 and were, thereby, given the benefits
concomitant to the higher level. Those who were elevated to Job Grade Level 3 positions
were rightfully given the additional benefits since they have become managerial employees,
specifically Management Team Members, and not merely rank-and-file employees. The same
cannot be said of the twenty-two (22) daily paid rank-and-file employees involved in the case
at bar.
WHEREFORE, the petition is DENIED. The Decision dated 19 February 2008 and the
Resolution dated 5 May 2008 of the Court of Appeals in CA-G.R. SP No. 100308 are
AFFIRMED.

Page

343

SO ORDERED.

[ G.R. No. 182848, October 05, 2011 ]

EMIRATE SECURITY AND MAINTENANCE SYSTEMS, INC. AND ROBERTO A.
YAN, PETITIONERS, VS. GLENDA M. MENESE, RESPONDENT.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari[1] which assails the decision[2] and the
resolution[3] of the Court of Appeals (CA) rendered on February 28, 2008 and May 14, 2008,
respectively, in CA-G.R. SP. No. 100073.[4]
The Antecedents
The facts of the case are summarized below.
On June 5, 2001, respondent Glenda M. Menese (Menese) filed a complaint for constructive
dismissal; illegal reduction of salaries and allowances; separation pay; refund of contribution
to cash bond; overtime, holiday, rest day and premium pay; damages; and attorney's fees
against the petitioners, Emirate Security and Maintenance Systems, Inc. (agency) and its
General Manager, Robert A. Yan (Yan).
Menese alleged in the compulsory arbitration proceedings that on April 1, 1999, the agency
engaged her services as payroll and billing clerk. She was assigned to the agency's security
detachment at the Philippine General Hospital (PGH). She was given a monthly salary of
P9,200.00 and an allowance of P2,500.00, for a total of P11,700.00 in compensation.
Effective May 2001, her allowance was allegedly reduced to P1,500.00 without notice, and
P100.00 was deducted from her salary every month as her contribution to a cash bond which
lasted throughout her employment. She was required to work seven (7) days a week, from
8:00 a.m. to 5:00 p.m. She was also required to report for work on holidays, except on New
Year's Day and Christmas. She claimed that she was never given overtime, holiday, rest day
and premium pay.
Menese further alleged that on May 4, 2001, she started getting pressures from the agency for
her to resign from her position because it had been committed to a certain Amy Claro, a
protge of Mrs. Violeta G. Dapula (Dapula) the new chief of the Security Division of the
University of the Philippines (UP) Manila and PGH. Menese raised the matter with Yan who
told her that the agency was in the process of establishing goodwill with Dapula, so it had to
sacrifice her position to accommodate Dapula's request to hire Claro.

Page

Menese alleged that at this juncture, Claro reported at the agency's PGH detachment and
performed the functions she was doing. She bewailed that thereafter she continuously
received harassment calls and letters. She was also publicly humiliated and badly treated at
the detachment. The agency, through Security Officer Alton Acab, prohibited her from using
the office computer. On May 18, 2001, Jose Dante Chan, the agency's PGH detachment
commander, arrogantly told her to leave PGH. Again on May 25, 2001, Chan shouted at her

344

Menese claimed that she was told not to worry because if she was still interested in working
with the agency, she could still be retained as a lady guard with a salary equivalent to the
minimum wage. She would then be detailed to another detachment because Dapula did not
like to see her around anymore. If the offer was acceptable to her, she should report to the
agency's personnel officer for the issuance of the necessary duty detail order. Menese thought
about the offer and soon realized that she was actually being demoted in rank and salary. She
eventually decided to decline the offer. She continued reporting to the PGH detachment and
performed her usual functions as if nothing happened.

and told her to pack her things and to leave immediately, and not to return to the detachment
anymore; otherwise, she would be physically driven out of the office.
Still not satisfied with what they did, the petitioners allegedly withheld her salary for May 1631, 2001. She claimed that the petitioners dismissed her from the service without just cause
and due process.
The petitioners, for their part, denied liability. They alleged that on May 8, 2001, Dapula
informed the agency in writing,[5] through Yan, that she had been receiving numerous
complaints from security guards and other agency employees about Menese's unprofessional
conduct. She told the petitioners that she was not tolerating Menese's negative work attitude
despite the fact that she is the wife of Special Police Major Divino Menese who is a member
of the UP Manila police force, and that as a matter of policy and out of delicadeza, she does
not condone nepotism in her division.
On the basis of Dapula's letter, Yan sent Menese a memorandum dated May 16, 2001,[6]
instructing her to report to the agency's head office and, there and then, discussed with her
Dapula's letter. Yan informed Menese that upon Dapula's request, she would be transferred to
another assignment which would not involve any demotion in rank or diminution in her salary
and other benefits. Although Menese said that she would think about the matter, the
petitioners were surprised to receive summons from the labor arbiter regarding the complaint.
The Compulsory Arbitration Rulings
In a decision dated March 14, 2002,[7] Labor Arbiter Jovencio LL. Mayor, Jr. declared
Menese to have been constructively dismissed. He found the petitioners wanting in good faith
in transferring Menese to another detachment as she would be suffering a demotion in rank
and a diminution in pay. Accordingly, he ordered the petitioners to immediately reinstate
Menese and, solidarily, to pay her full backwages of P83,443.75 (latest computation);
P66,924.00 in monetary benefits; P50,000.00 and P20,000.00 in moral and exemplary
damages, respectively; and attorney's fees of P15,036.74.
The petitioners appealed to the National Labor Relations Commission (NLRC). On September
30, 2003, the NLRC Second Division issued a resolution[8] granting the appeal and reversing
the labor arbiter's decision. It ruled that Menese was not constructively dismissed but was
merely transferred to another detachment. It opined that the transfer was a valid exercise of
the petitioners' management prerogative. However, it ruled that despite Menese's refusal to
accept the transfer, she cannot be made liable for abandonment as her refusal was based on
her honest belief that she was being constructively dismissed. The NLRC ordered Menese, at
her option, to immediately report to the agency's head office and the agency to accept her
back to work. It absolved Yan from liability, and deleted the award of backwages, overtime
pay and damages.
On October 28, 2003, Menese filed a partial motion for reconsideration[9] of the NLRC
resolution and later (on June 17, 2005), a motion to recall the entry of judgment of October
31, 2003. On June 1, 2007, the NLRC rendered a resolution[10] setting aside the entry of
judgment and denying Menese's partial motion for reconsideration.

Page

Menese elevated her case to the CA through a petition for certiorari[11] under Rule 65 of the
Rules of Court. In the main, she argued that the agency was in bad faith when it issued the
memoranda dated May 16, 2001,[12] May 22, 2001[13] and May 28, 2001,[14] ordering her
transfer from the PGH detachment to the agency's head office. She posited that it was a ploy
to create a vacancy in the detachment to accommodate the entry of Claro, Dapula's protge.
She regarded the transfer as a removal from her position at PGH -- a constructive dismissal.

345

The Petition for Certiorari

The agency, in rebuttal, posited that Menese was not illegally dismissed, but was merely
transferred to its head office in response to the request of the new head of the UP-PGH
security division for the transfer. The action, it maintained, was a valid exercise of its
management prerogative. Thus, Menese was guilty of abandoning her employment when she
refused to report for work at her new posting.
The CA Decision
The CA granted the petition in its decision of February 28, 2008.[15] It set aside the assailed
resolutions of the NLRC and reinstated the March 14, 2002 decision of the labor arbiter.
As the labor arbiter did, the CA found Menese to have been constructively, and therefore
illegally, dismissed. It noted that the memoranda[16] on Menese's transfer were prompted by
Dacula's letter, dated May 8, 2001,[17] to Yan, which contained allegations on Menese's
supposed unprofessional conduct and involvement in nepotism. It further noted that when Yan
asked Dapula in writing[18] to provide the agency with documents/evidence that would support
her allegations, she failed to do so. The CA thus concluded that the reasons for Menese's
transfer did not exist or that no substantial evidence was presented in that regard.
The CA brushed aside the petitioners' argument that it was their prerogative to transfer
Menese from the agency's PGH detachment to its head office at Ortigas Avenue,
Mandaluyong City. Relying on applicable jurisprudence, the appellate court pointed out that
while it is the management's prerogative to transfer an employee from one office to another
within the business establishment, it is not without limitation. It must be exercised in such a
way that there is no demotion in rank or diminution in pay, benefits and other privileges.
Otherwise, the transfer amounts to a constructive dismissal, as correctly pointed out by the
labor arbiter in his decision of March 14, 2002.[19] In this light, the CA held that the
petitioners failed to prove that Menese abandoned her employment.
The CA sustained all the other findings of the labor arbiter. On the whole, it ruled that the
NLRC misappreciated the evidence in the case. The petitioners moved for reconsideration,
but the CA denied the motion in its resolution of May 14, 2008.[20]
The Petitioners' Case
Aside from the petition itself,[21] the petitioners filed a reply to Menese's comment[22] and a
memorandum[23] where they asked for a reversal of the assailed CA rulings on the ground that
the CA gravely erred in:
(1) Affirming the labor arbiter's findings that Menese was constructively dismissed;
(2) Holding Yan solidarily liable with the agency for damages; and
(3) Sustaining the award of backwages, damages and attorney's fees, as well as overtime pay.

Page

Moreover, the petitioners regard Menese's continued refusal to report to the agency's head
office as an act of gross insubordination constituting a just cause for termination under Article
282(a) of the Labor Code. They argue that under this law, an employer may terminate an
employment for serious misconduct or willful disobedience by the employee of the lawful
orders of his employer or his representative in connection with his work.

346

The petitioners insist that Menese was not illegally dismissed. They argue that it was Menese
who deliberately and unjustifiably refused to work despite several notices[24] to her after she
was validly relieved from her current work assignment due to a client's request. They
maintain that since Menese chose not to return to work, she must be considered either to have
resigned from or to have abandoned her employment. They further maintain that nothing on
record shows any positive or overt act of the agency in dismissing Menese.

The petitioners posit that she is not entitled to reinstatement and backwages since she failed to
comply with the reinstatement option stated in the NLRC resolution. Neither is she entitled to
overtime pay because she did not work beyond the eight (8)-hour working period; her one (1)
hour time off from twelve noon to 1:00 p.m. is not compensable. Neither is Menese entitled to
moral and exemplary damages because the evidence on record does not show any malice or
bad faith on their part to justify the award.
The petitioners likewise take exception to the award of attorney's fees as the labor arbiter's
decision and the NLRC's resolution failed to state the justification for the award. They further
contend that the CA gravely erred in upholding the labor arbiter's ruling that Yan is solidarily
liable with the agency, as Yan was merely acting in his capacity as the agency's general
manager, and that there is no showing that Yan acted maliciously or in bad faith when he
ordered Menese's transfer. They also point out that Menese did not challenge before the CA
the NLRC ruling absolving Yan from any liability.
The Case for Menese
By way of her comment[25] and memorandum,[26] Menese asks that the appeal be denied for
lack of merit.
She claims that at the arbitration stage, the petitioners readily admitted the fact of her
removal, manifesting in open session their lack of interest to settle the case amicably as they
have a strong evidence to support their defense of her dismissal for cause. She observed
during the hearing that the petitioners were very confident about their case, because according
to them, they had Dapula's letter asking for her immediate removal.[27]
Menese further claims that the petitioners realized that they did not have the necessary
evidence, so Yan wrote Dapula a letter asking her for proof of the complaints or grievances of
the security guards against Menese.[28] Dapula did not produce or present the evidence they
asked for resulting in their failure to substantiate their defense of dismissal for cause. Menese
contends that the petitioners then revised their theory of the case and made it appear that she
was not actually dismissed but was merely transferred, purportedly in the exercise of their
management prerogative.
She posits that her transfer was motivated by ill will and bad faith, as it was done to facilitate
the entry of a favored applicant to the PGH detachment. She intimates that the labor arbiter
resolved the case correctly when he found her to have been constructively or illegally
dismissed. She bewails the NLRC's surprising reversal of the labor arbiter's decision, but feels
vindicated when the CA set aside the NLRC ruling.

Page

In a different vein, Menese assails the NLRC's exclusion of the one-hour meal break as
overtime work, for it erroneously assumed that her employer had been giving its employees a
60 minute time-off for regular meals and that she was not performing work during the period.
She argues that this was not the actual practice in the workplace, contending that she
continued working even during the one-hour meal break.

347

Menese submits that the CA is correct in nullifying the NLRC's reversal of her illegal
dismissal case because the labor tribunal closed its eyes to the fact that bad faith attended her
transfer. She points out that the petitioners' twin directives, vis--vis her transfer upon which
the NLRC based its ruling, "were both issued for a selfish and immoral purpose;"[29] the first,
dated May 16, 2001,[30] was issued for the purpose of creating a vacancy, and the second,
dated May 22, 2001,[31] was intended to cover up the wrongdoing that was earlier committed.
In other words, the directives were tainted with malice and ill will. On the matter of Yan's
liability, Menese maintains that the NLRC committed a serious error in allowing him to get
away with his wrongdoing considering the injustice done to her as a result of her
unceremonious dismissal.

Finally, Menese maintains that the CA correctly reinstated the labor arbiter's award of
attorney's fees and the imposition of solidary liability on Yan and the agency. She posits that
in her quest for justice because of her unceremonious dismissal, she was constrained to
engage the services of a counsel to handle her case.
The Court's Ruling
We deny the petition for lack of merit. The evidence of Menese's unwarranted, unjustified
and, in her own language, "unceremonious" dismissal is so glaring that to ignore it is to
commit, as the NLRC did, grave abuse of discretion.
We note as a starting point that at the time material to the case, Menese ceased to be the
agency's payroll and billing clerk at its PGH detachment. The position was taken away from
her as she had been transferred to the agency's main office on Ortigas Avenue, Mandaluyong
City, upon the request of Dapula, the new chief of the UP-PGH Security Division. The
transfer was to be carried out through a memorandum dated May 16, 2001[32] issued by Yan; a
second memorandum dated May 22, 2001[33] issued by Personnel Officer Edwin J. Yabes,
reminding Menese of Yan's instruction for her to report to the main office; and a third
memorandum dated May 28, 2001,[34] also issued by Yabes informing Menese that it was her
second notice to assume her work detail at the main office. Yabes instructed her to report for
work on May 30, 2001.
Citing Mendoza v. Rural Bank of Lucban,[35] the petitioners argue that the transfer was
undertaken in the exercise of management prerogative in the pursuit of their legitimate
interests. They submit that Menese refused to comply with the valid transfer orders they
issued, making her liable for abandonment and insubordination. They argue that nothing on
record shows that she was illegally dismissed as no dismissal had been imposed on her.
On a superficial consideration, the petitioners' position looks unassailable as indeed an
employer can regulate, generally without restraint and according to its own discretion and
judgment, every aspect of its business, including work assignments and transfer of employees,
subject only to limitations imposed by law.[36] This submission, however, glossed over or
suppressed a crucial factor in the present labor controversy. We refer to Dapula's letter to Yan
in early May 2001,[37] asking for Menese's transfer allegedly due to numerous complaints
from security guards and co-workers regarding her unprofessionalism and because of
nepotism; Menese is the wife of a member of the UP Manila police force.

Page

As Menese noted, the petitioners did not submit as annex to the petition Yan's letter to
Dapula, and the reason appears to be obvious -- they were trying to avoid calling attention to
the absence of proof of Menese's alleged unprofessionalism and her involvement in nepotism.
Evidently, the basis for Dapula's request did not exist. We thus find credible Menese's
contention that her transfer was a ploy to remove her from the PGH detachment to
accommodate the entry of Dapula's protge. In short, the agency wanted to create a vacancy
for Claro, the protge. Confronted with this clear intent of the petitioners, we cannot see
how Menese's transfer could be considered a valid exercise of management prerogative. As

348

Had Yan inquired into Dapula's claim of Menese's alleged unprofessionalism, ideally through
an administrative investigation, he could have been provided with a genuine reason -assuming proof of Dapula's accusation existed -- for Menese's transfer or even for her
dismissal, if warranted. That the agency did not get into the bottom of Dapula's letter before it
implemented Menese's transfer is indicative of the sheer absence of an objective justification
for the transfer. The most that the agency did was to write Dapula a letter, through Yan,
asking her to provide documents/evidence in support of her request for Menese's transfer.[38]
Significantly, Yan's request came after the labor arbiter's summons to Yan regarding Menese's
complaint. Dapula never responded to Yan's letter and neither did she provide the evidence
needed for the agency's defense in the complaint.

Menese rightly put it, her transfer was arbitrarily done, motivated no less by ill will and bad
faith.
In Blue Dairy Corporation v. NLRC,[39] the Court stressed as a matter of principle that the
managerial prerogative to transfer personnel must be exercised without abuse of discretion,
bearing in mind the basic elements of justice and fair play. Having the right should not be
confused with the manner in which that right is exercised. Thus, it should not be used as a
subterfuge by the employer to get rid of "an undesirable worker." Measured against this basic
precept, the petitioners undoubtedly abused their discretion or authority in transferring
Menese to the agency's head office. She had become "undesirable" because she stood in the
way of Claro's entry into the PGH detachment. Menese had to go, thus the need for a pretext
to get rid of her. The request of a client for the transfer became the overriding command that
prevailed over the lack of basis for the transfer.
We cannot blame Menese for refusing Yan's offer to be transferred. Not only was the transfer
arbitrary and done in bad faith, it would also result, as Menese feared, in a demotion in rank
and a diminution in pay. Although Yan informed Menese that "based on the request of the
client, she will be transferred to another assignment which however will not involve any
demotion in rank nor diminution in her salaries and other benefits,"[40] the offer was such as to
invite reluctance and suspicion as it was couched in a very general manner. We find credible
Menese's submission on this point, i.e., that under the offered transfer: (1) she would hold the
position of lady guard and (2) she would be paid in accordance with the statutory minimum
wage, or from P11,720.00 to P7,500.00.
In these lights, Menese's transfer constituted a constructive dismissal as it had no justifiable
basis and entailed a demotion in rank and a diminution in pay for her. For a transfer not to be
considered a constructive dismissal, the employer must be able to show that the transfer is for
a valid reason, entails no diminution in the terms and conditions of employment, and must be
unreasonably inconvenient or prejudicial to the employee. If the employer fails to meet these
standards, the employee's transfer shall amount, at the very least, to constructive dismissal. [41]
The petitioners, unfortunately for them, failed to come up to these standards.
In declaring Menese's transfer to be in the valid exercise of the petitioners' management
prerogative, the NLRC grossly misappreciated the evidence and, therefore, gravely abused its
discretion in closing its eyes to the patent injustice committed on Menese. It completely
disregarded the obvious presence of bad faith in Menese's transfer. Labor justice demands that
Menese be awarded moral and exemplary damages[42] and, for having been constrained to
litigate in order to protect her rights, attorney's fees.[43]
Yan's solidary liability
Yan had been aware all the time of the utter lack of a valid reason for Menese's transfer. He
had been aware all the time that Dapula's charges against Menese -- the ostensible reason for
the transfer -- were nonexistent as Dapula failed to substantiate the charges. He was very
much a part of the flagrant and duplicitous move to get rid of Menese to give way to Claro,
Dapula's protge.
Based on the facts, Yan is as guilty as the agency in causing the transfer that was undertaken
in bad faith and in a wanton and oppressive manner. Thus, he should be solidarily liable with
the agency for Menese's monetary awards.

Page

While the labor arbiter declared that Menese's claim for overtime pay is unrebutted[44] and,
indeed, nowhere in the petitioners' position paper did they controvert Menese's claim, we hold
that the claim must still be substantiated. In Global Incorporated v. Commissioner Atienza,[45]

349

The overtime pay award

a claim for overtime pay will not be granted for want of factual and legal basis. In this respect,
the records indicate that the labor arbiter granted Menese's claim for holiday pay, rest day and
premium pay on the basis of payrolls.[46] There is no such proof in support of Menese's claim
for overtime pay other than her contention that she worked from 8:00 a.m. up to 5:00 p.m. She
presented no evidence to show that she was working during the entire one hour meal break.
We thus find the NLRC's deletion of the overtime pay award in order.
Also, the NLRC noted that the award of P2,600.00 for the refund of the cash bond deposit is
overstated and should be adjusted to P600.00 only, as indicated by the payrolls. We likewise
find the adjustment in order.
All told, except for the above clarifications on the overtime pay award and the refund of the
cash bond deposit, we reiterate and so declare the petition to be devoid of merit.
WHEREFORE, premises considered, except for the overtime pay award and the refund of
deposit for the cash bond, the petition is DENIED for lack of merit. The assailed decision and
resolution of the Court of Appeals are AFFIRMED, with the following modifications:
1) The deletion of the overtime pay award; and
2) Adjustment of the refund of the cash or surety bond deposit award from P2,500.00 to
P600.00.
Costs against the petitioners.

Page

350

SO ORDERED.

[ G.R. No. 139013, September 17, 2002 ]

ZEL T. ZAFRA AND EDWIN B. ECARMA, PETITIONERS, VS. HON. COURT OF
APPEALS, PHILIPPINE LONG DISTANCE TELEPHONE CO., INC., AUGUSTO
COTELO, AND ERIBERTO MELLIZA, RESPONDENTS.
DECISION
QUISUMBING, J.:
For review on certiorari is the decision[1] of the Court of Appeals dated December 22, 1998, in
CA-G.R. SP. No. 48578, reversing that of the voluntary arbitrator which ordered respondent
Philippine Long Distance Telephone Co. (PLDT) to reinstate petitioners. Also impugned is
the resolution dated May 24, 1999, denying petitioners motion for reconsideration.
The undisputed facts, as set forth in the decision of the Court of Appeals, are as follows:
Petitioner Zel T. Zafra was hired by PLDT on October 1, 1984 as Operations Analyst II with a
monthly salary of P14,382 while co-petitioner Edwin B. Ecarma was hired as Junior
Operations Analyst I on September 16, 1987 at a monthly rate of P12,032. Both were regular
rank-and-file employees assigned at the Regional Operations and Maintenance Control Center
(ROMCC) of PLDTs Cebu Provincial Division. They were tasked to maintain the operations
and maintenance of the telephone exchanges in the Visayas and Mindanao areas.[2]
In March 1995, petitioners were chosen for the OMC Specialist and System Software
Acceptance Training Program in Germany in preparation for ALCATEL 1000 S12, a World
Bank-financed PLDT project in line with its Zero Backlog Program. ALCATEL, the foreign
supplier, shouldered the cost of their training and travel expenses. Petitioners left for Germany
on April 10, 1995 and stayed there until July 21, 1995.[3]
On July 12, 1995, while petitioners were in Germany, a certain Mr. R. Relucio, SwitchNet
Division Manager, requested advice, through an inter-office memorandum, from the Cebu and
Davao Provincial Managers if any of the training participants were interested to transfer to the
Sampaloc ROMCC to address the operational requirements therein. The transfer was to be
made before the ALCATEL exchanges and operations and maintenance center in Sampaloc
would become operational.
Upon petitioners return from Germany, a certain Mr. W.P. Acantillado, Senior Manager of
the PLDT Cebu Plant, informed them about the memorandum. They balked at the idea, but
PLDT, through an inter-office memorandum dated December 21, 1995, proceeded to transfer
petitioners to the Sampaloc ROMCC effective January 3, 1996.[4]

Page

On September 11, 1996, petitioners filed a complaint with the National Labor Relations
Commission Regional Arbitration Branch No. 7 for alleged constructive dismissal and nonpayment of benefits under the Collective Bargaining Agreement.[5] In an order dated
November 10, 1996, the presiding labor arbiter referred the complaint to the National
Conciliation and Mediation Board, Cebu City, for appropriate action.[6] On January 17, 1997,
the parties agreed to designate lawyer Rolando M. Lim as their voluntary arbitrator.[7]

351

Petitioners left Cebu for Manila on December 27, 1995 to air their grievance to PLDT and to
seek assistance from their union head office in Mandaluyong. PLDT ordered petitioners to
report for work on January 16, 1996, but they asked for a deferment to February 1, 1996.
Petitioners reported for work at the Sampaloc office on January 29, 1996. Meanwhile PLDT
moved the effectivity date of their transfer to March 1, 1996. On March 13, 1996, petitioners
again appealed to PLDT to no avail. And, because all their appeals fell on deaf ears,
petitioners, while in Manila, tendered their resignation letters on March 21, 1996.
Consequently, the expenses for their training in Germany were deducted from petitioners
final pay.

In their complaint, petitioners prayed that their dismissal from employment be declared
illegal. They also asked for reinstatement with full backwages, refund of unauthorized
deductions from their final pay, including damages, costs of litigation, and attorneys fees.[8]
Respondent PLDT, for its part, averred that petitioners agreed to accept any assignment
within PLDT in their application for employment[9] and also in the undertaking[10] they
executed prior to their training in Germany. It prayed that petitioners complaint be dismissed.
After submission of their respective position papers and admission of facts, the case was set
for hearing. Petitioners presented their witnesses and made their formal offer of documentary
evidence. PLDT, however, requested for a re-setting of the hearing from October 9 and 10,
1997 to November 10 and 11, 1997.[11] But on those dates PLDT did not appear. Nor did it
file any notice of postponement or motion to cancel the hearings.[12]
Upon petitioners motion and pursuant to Article 262-A of the Labor Code,[13] the voluntary
arbitrator issued an order admitting all documentary exhibits offered in evidence by
petitioners and submitting the case for resolution.[14] In said order, PLDT was declared to
have waived its right to present evidence on account of its unjustified failure to appear in the
November 10 to 11 hearings.
On December 1, 1997, the voluntary arbitrator issued a decision which reads: \
IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered in
the above case, in favor of complainants Zel Zafra and Edwin Ecarma and against respondent
PLDT, as follows:
1. Declaring that complainants were illegally dismissed by reason of the forced resignations
or constructive discharge from their respective employment with PLDT;
2. Ordering the reinstatement of complainants without loss of seniority rights and other
privileges, and granting the award of full backwages from April 22, 1996, inclusive of
allowances granted in the CBA or their monetary equivalent computed from the time
complainants compensation were withheld up to the time of their actual reinstatement, or in
lieu thereof, ordering the payment of separation pay with full backwages;
3. Ordering the refund of P35,721.81 to complainant Zafra and P24,186.67 to complainant
Ecarma, which amounts constitute as unauthorized deductions from their final pay;
4. Ordering payment of P50,000.00 as moral damages; P20,000.00 as exemplary damages and
P20,000.00 as refund for litigation expenses;
5. Ordering payment of 10% Attorneys Fees computed on all adjudicated claims.
SO ORDERED.[15]
PLDTs motion for reconsideration of the above decision was denied on July 10, 1998.[16] On
August 7, 1998, PLDT initiated a special civil action for certiorari with the Court of
Appeals,[17] which was treated as a petition for review.[18] On December 22, 1998, the CA
ruled in favor of PLDT and reversed the voluntary arbitrators decision, in this wise:
WHEREFORE, the instant petition is hereby given due course. Accordingly, the assailed
Order is hereby REVERSED with the exception of the refund, which is hereby ordered, of the
amount of P35,721.81 to respondent Zafra and P24,186.67 to respondent Ecarma representing
unauthorized deductions from their final pay.
SO ORDERED.[19]
Zafra and Ecarma as respondents below moved for reconsideration of the CA decision which,
however, was denied on May 24, 1999.[20]
Petitioners now anchor their petition on the following grounds:

Page

A. THE COURT A QUO, INSTEAD OF RESOLVING ERRORS OF

JURISDICTION ALLEGED IN THE RESPONDENTS PETITION ERRED IN
RENDERING THE DECISION ON ITS MERITS, IN EFFECT NOT ACCORDING
RESPECT AND SETTING ASIDE THE VOLUNTARY ARBITRATORS

352

I. THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN THE

RESPONDENTS PETITION IN A WAY PROBABLY NOT IN ACCORD WITH THE
LAW OR THE APPLICABLE DECISIONS OF THE SUPREME COURT.

EVALUATION OF THE EVIDENCE AND FACTUAL FINDINGS BASED

THEREON.
B. THE COURT A QUO, IN GIVING DUE COURSE TO THE RESPONDENTS
PETITION ERRED IN PROCEEDING TO RESOLVE THE SAME ON THE
MERITS, WITHOUT FIRST REVIEWING THE ENTIRE RECORD OF THE
PROCEEDINGS OF THE VOLUNTARY ARBITRATOR.
II. THE COURT OF APPEALS HAS DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS, AS TO CALL FOR AN EXERCISE OF THE
HONORABLE SUPREME COURTS SUPERVISION.
A. THE COURT A QUO COMMITTED GRAVE ABUSE OF DISCRETION IN
RENDERING THE DECISION THROUGH ITS UTTER DISREGARD OF THE
APPROPRIATE MODE OF APPEAL TO BE TAKEN BY THE RESPONDENTS
FROM THE JUDGMENT OF THE VOLUNTARY ARBITRATOR.
B. THE COURT A QUO COMMITTED GRAVE ABUSE OF ITS DISCRETION IN
TREATING JOINTLY THE RESPONDENTS PETITION EITHER AS AN
APPEAL UNDER RULE 43, OR IN THE ALTERNATIVE, A SPECIAL CIVIL
ACTION FOR CERTIORARI UNDER RULE 65.
C. THE COURT A QUO COMMITTED GRAVE ABUSE OF ITS DISCRETION IN
FAILING TO DISMISS THE RESPONDENTS PETITION FOR CERTIORARI
OUTRIGHTLY FOR FAILURE TO COMPLY WITH THE STRICT
REQUIREMENTS IN THE FILING THEREOF.[21]
Briefly, the issues in this case may be restated as follows: (1) whether or not the CA erred in
treating the special civil action for certiorari filed by respondent as a petition for review, and
(2) whether or not the CA erred in its appreciation of facts and the decision it rendered.
Petitioners invoke Luzon Development Bank vs. Association of Luzon Development Bank
Employees, et al.[22] and Rule 43 of the 1997 Rules of Civil Procedure[23] in arguing that an
appeal and not a petition for certiorari should be the proper remedy to question the decision or
award of the voluntary arbitrator. Even assuming that Rule 65 applies, petitioners argue that
PLDT, nevertheless, erred in not including the voluntary arbitrator as one of the respondents
in the petition and in not serving him a copy thereof.[24] These procedural flaws, they aver,
merit the outright dismissal by the CA of the petition.[25]
A perusal of the petition before the CA shows that the mode chosen by PLDT was a petition
for review under Rule 43 and not a special civil action for certiorari under Rule 65. While it
was captioned as a petition for certiorari, it is not the caption of the pleading but the
allegations therein that determine the nature of the action.[26] The appellate court was not
precluded from granting relief as warranted by PLDTs allegations in the petition and the
evidence it had presented to support the petition.

Page

Moreover, contrary to petitioners contention that the voluntary arbitrator was not furnished a
copy of the petition, the records reveal otherwise. Attached to the petition filed before the
appellate court was a registry receipt of the copy sent to the voluntary arbitrator.[29]

353

A perusal of the petition before the CA discloses the following: First, under the heading
Nature of the Action, the PLDT averred it was a petition for review on certiorari of the
Decision dated December 1, 1997 and Order dated July 10, 1998 of Voluntary Arbitrator
Atty. Rolando M. Lim.[27] Second, while the assigned errors alleged that the voluntary
arbitrator acted with grave abuse of discretion, nevertheless, the issue set forth was whether or
not there existed sufficient evidence to show that complainants [herein petitioners] were
constructively dismissed, and whether they were entitled to reinstatement, back wages and
other monetary awards.[28] Clearly, the issue was factual and not limited to questions of
jurisdiction and grave abuse of discretion. Third, the petition was filed within the 15-day
period to perfect an appeal and did not implead the voluntary arbitrator as a respondent. All of
these indicate that the petition below was indeed one for review.

Coming now to the substantive merits of the petition before us. Considering that the CAs
findings of fact clash with those of the voluntary arbitrator, with contradictory results, this
Court is compelled to go over the records of the case as well as the submissions of the parties.
Having done so carefully, we are not convinced that the voluntary arbitrator erred in his
factual conclusions so as to justify reversal thereof by the appellate court. We are persuaded
to rule in favor of the complaining workers, herein petitioners, following the well-established
doctrine in labor-management relations that in case of doubt, labor should prevail.
The fact that petitioners, in their application for employment,[30] agreed to be transferred or
assigned to any branch[31] should not be taken in isolation, but rather in conjunction with the
established company practice in PLDT.
The standard operating procedure in PLDT is to inform personnel regarding the nature and
location of their future assignments after training abroad. This prevailing company practice is
evidenced by the inter-office memorandum[32] of a certain PLDTs First Vice President
(Reyes), dated May 3, 1996 to PLDTs Chief Operating Officer (Perez), duly-acknowledged
by private respondents:
xxx
To
:
Atty. E.D. Perez, SEVP & COO
Thru
:
J.P. de Jesus, EVP - Meet Demand Group
From
:
FVP - Program Planning & Engineering Sector
Subject: NON-ASSIGNABLE TRAINED PERSONNEL
=====================================================
During the Group Heads Meeting on 03 April 1996, Mr. R.R. Zarate reported on the case of
some provincial personnel who had foreign training for functions intended for Manila
Operations but refused to be relocated and assigned to Manila, and who eventually resigned
on account of the said transfer. In view of this situation, two (2) issues were raised as follows:
1. Network Services to be involved in the planning of facilities, specially when this involves
trainees from Network.
2. Actual training to be undertaken only after the sites where such training will be utilized
have been determined.
xxx
A total of 53 slots (for the Exchange O&M, System Software/Acceptance Engineering and
OMC Specialist Courses) were allocated to Network Services by the Steering Committee
composed of representatives from ProgPlan and TechTrain. The O&M slots were equally
distributed to Provincial Operations on the basis where Alcatel switches will be
geographically installed. With regards to NSC, since the contract has defined its location to be
in Sampaloc and considering that its monitoring function would focus on provincial
exchanges, slots were opened both for Provincial and Metro Manila Operations. Please note
that all these relevant informations were disseminated to concerned parties as inputs, to enable
them to recommend the appropriate training participants.
The choice of trainees were made by Network and, therefore, it is incumbent upon them to
brief the participants or trainees they selected on the nature and assignment of their
employment after training.

Page

The want of notice of transfer to petitioners was the subject of another inter-office
memorandum dated November 24, 1995, from one Mr. Relucio, SwitchNet Division
Manager, to a certain Mr. Albania, First Vice President-Regional & Toll Network. It states:
As the cheaper option is to relocate personnel who have attended the training already, we
have solicited the desire of the Cebu and Davao-based provincial personnel to transfer to

354

To prevent similar instances in the future, we strongly recommend the following:

1. Prior to the training, all concerned groups should conform with the standard practice of
informing personnel regarding the nature and/or location of their future assignments after the
training.
2. The contractual obligation of the trainees should include a provision on their willingness
and commitment to perform the related training functionalities required by the company.
x x x (Underscoring supplied.)

SwitchNet Sampaloc ROMCC which they declined, x x x We should note that these personnel
were not made aware prior to start of training, that they will be transferred to Manila.[33]
A third inter-office memorandum dated November 29, 1995 confirmed this procedural flaw,
thus:
Alternative 1: Require the four Jones and Davao ROMCC personnel to transfer [to] the
Sampaloc ROMCC, as service requirement. This is the least cost alternative. x x x We should
note however, that these personnel were not aware that they would relocate after training. [34]
Under these circumstances, the need for the dissemination of notice of transfer to employees
before sending them abroad for training should be deemed necessary and later to have ripened
into a company practice or policy that could no longer be peremptorily withdrawn,
discontinued, or eliminated by the employer. Fairness at the workplace and settled
expectations among employees require that we honor this practice and commend this policy.
The appellate courts justification that petitioners transfer was a management prerogative did
not quite square with the preceding evidence on record, which are not disputed. To say that
petitioners were not constructively dismissed inasmuch as the transfer was effected without
demotion in rank or diminution of salary benefits is, to our mind, inaccurate. It is well to
remember that constructive dismissal does not always involve forthright dismissal or
diminution in rank, compensation, benefits, and privileges. For an act of clear discrimination,
insensibility, or disdain by an employer may become so unbearable on the part of the
employee that it could foreclose any choice by him except to forego his continued
employment.[35] The insensibility of private respondents is at once deducible from the
foregoing circumstances.
Despite their knowledge that the lone operations and maintenance center of the 33 ALCATEL
1000 S12 Exchanges would be homed in Sampaloc,[36] PLDT officials neglected to disclose
this vital piece of information to petitioners before they acceded to be trained abroad. On
arriving home, they did not give complaining workers any other option but placed them in an
either/or straightjacket, that appeared too oppressive for those concerned.
As pointed out in the abovementioned inter-office memorandum by Mr. Reyes:
All sites where training will be utilized are already pre-determined and pinpointed in the
contract documents and technical protocols signed by PLDT and the contractor. Hence, there
should be no reason or cause for the misappointment of the training participants.[37]
Needless to say, had they known about their pre-planned reassignments, petitioners could
have declined the foreign training intended for personnel assigned to the Manila office. The
lure of a foreign trip is fleeting while a reassignment from Cebu to Manila entails major and
permanent readjustments for petitioners and their families.

SO ORDERED

Page

WHEREFORE, this petition for review is GRANTED. The decision of the Court of Appeals
in CA-G.R. SP No. 48578, dated December 22, 1998, is REVERSED and SET ASIDE. The
decision of the Voluntary Arbitrator dated December 1, 1997, is REINSTATED. No
pronouncement as to costs.

355

We are not unaware that the transfer of an employee ordinarily lies within the ambit of
management prerogatives. However, a transfer amounts to constructive dismissal when the
transfer is unreasonable, inconvenient, or prejudicial to the employee, and involves a
demotion in rank or diminution of salaries, benefits, and other privileges.[38] In the present
case, petitioners were unceremoniously transferred, necessitating their families relocation
from Cebu to Manila. This act of management appears to be arbitrary without the usual notice
that should have been done even prior to their training abroad. From the employees
viewpoint, such action affecting their families are burdensome, economically and
emotionally. It is no exaggeration to say that their forced transfer is not only unreasonable,
inconvenient, and prejudicial, but to our mind, also in defiance of basic due process and fair
play in employment relations.

[ G.R. No. 152057, September 29, 2003 ]

PHILIPPINE TELEGRAPH & TELEPHONE CORPORATION, PETITIONER, VS.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PT&T
PROGRESSIVE WORKERS UNION-NAFLU-KMU, CRISTINA RODIEL, JESUS
PARACALE, ROMEO TEE, BENJAMIN LAKANDULA, AVELINO ACHA,
IGNACIO DELA CERNA AND GUILLLERMO DOMEGILLO, RESPONDENTS.
DECISION
CALLEJO, SR., J.:
This is a petition for review filed by petitioner Philippine Telegraph and Telephone
Corporation (PT&T) of the Decision[1] of the Court of Appeals in CA-G.R. SP No. 54346
promulgated on June 15, 2001 affirming the resolution of the National Labor Relations
Commission (NLRC) promulgated on May 31, 1999 reversing the decision of the Labor
Arbiter, and its Resolution dated February 6, 2002 denying the petitioner's motion for
reconsideration.
The petitioner is a domestic corporation engaged in the business of providing telegraph and
communication services thru its branches all over the country. It employed various
employees, among whom were the following:
1. Cristina Rodiel, initially as a Probationary Junior Counter- Clerk on July 1, 1995 at
the Cabanatuan Branch, regularized on November 28, 1995;
2. Jesus Paracale as a Probationary Junior CW Operator in Padada, Davao del Sur on
November 16, 1988, regularized on April 15, 1990, transferred to Malita, Davao
Branch on November 16, 1990, to Makar, South Cotabato Branch on September 1,
1994 and to Kiamba, South Cotabato Branch on April 1, 1995;
3. Romeo Tee as Counter-Clerk at the Zamboanga Branch on January 16, 1982, as a TTY
Operator on November 16, 1986, promoted as TTY Operator General on November 1,
1989 and designated as TRITY Operator Regions on July 1, 1997;
4. Benjamin Lakandula as a Counter-Clerk at the Iligan City Branch on January 16,
1982;
5. Avelino Acha as Probationary Junior Counter at the Naga City Branch, regularized on
June 10, 1983, transferred to Legaspi City Branch on November 16, 1989;
6. Ignacio Dela Cerna as a Probationary Junior CW-Operator in at the Pagadian City
Branch regularized on March 15, 1986 and designated as TR/TTY Operator Regions
on July 1, 1993 at the Pagadian City Branch, and
7. Guillermo Demigillo as Clerk.[2]
Sometime in 1997, after conducting a series of studies regarding the profitability of its retail
operations, its existing branches and the number of employees, the petitioner came up with a
Relocation and Restructuring Program designed to (a) sustain its (PT&T's) retail operations;
(b) decongest surplus workforce in some branches, to promote efficiency and productivity; (c)
lower expenses incidental to hiring and training new personnel; and (d) avoid retrenchment of
employees occupying redundant positions.[3]

Page

The petitioner offered benefits/allowances to those employees who would agree to be

transferred under its new program, thus:
EXISTING
SPECIAL
FLAT
MOVING
RELOCATION
RELOCATION
RELOCATION
EXPENSES
ALLOWANCE
ALLOWANCE
ALLOWANCE
(FREIGHT)

356

On August 11, 1997, private respondents Cristina Rodiel, Jesus Paracale, Romeo Tee,
Benjamin Lakandula, Avelino Acha, Ignacio Dela Cerna and Guillermo Demigillo received
separate letters from the petitioner, giving them the option to choose the branch to which they
could be transferred. Thereafter through HRAG Bulletin No. 97-06-16, the private
respondents and other petitioner's employees were directed to "relocate" to their new PT&T
Branches. The affected employees were directed to report to their respective relocation
assignments in a Letter dated September 16, 1997.

1.

2.

Temporary
relocation - per
diem
of
P260.00/day

2.1 Married employee

bringing along his
family

P17,500.00

P15,000

Permanent
relocation - a flat
monthly
allowance
of
P5,100.00

2.2 Married employee

not bringing along
his family

P10,000.00

N/A

P10,000.00

P15,000

2.3 Single employee

bringing along his
qualified
dependent/s

2.4 Single employee

not bringing along
his dependent/s
P7,000.00
N/A[4]
Moreover, the employees who would agree to the transfers would be considered promoted,
thus:
FROM
TO
NAME

POSITION/JG*WORK
POSITION
WORK
LOCATION
LOCATION
1. ACHA, AVELINO
Jr.
Counter-Legaspi (Br)
Courier - JG3 Romblon/
JG2
Odiongan (SL)
2. RODIEL, CRISTINA Jr.
CounterCabanatuan
Clerk-JG4
Baguio (NWL)
Clerk-JG2
(CL)
3. DELA
CERNA,Jr.
CWCotabato
CityClerk-JG4
Kidapawan
IGNACIO
Operator-JG2 (CM)
(CM)
4. DEMIGILLO
Jr.
CWMidsayap
Courier-JG3 Lebak (CM)
GUILLERMO
Operator-JG2 North
5. LAKANDULA,
Counter-JG3 Iligan (NM)
Clerk - JG4
Butuan (EM)
BENJAMIN
6. PARACALE, JESUS Jr.
CWMakar,
Gen.Clerk - JG4
Butuan (EM)
Operator-JG2 Santos (SM)
7. TEE, ROMEO
TTY
Zamboanga
Clerk - JG4
Jolo (WM)[5]
Operator-Gen. City (WM)
JG4
The private respondents rejected the petitioner's offer. On October 2, 1997, the petitioner sent
letters to the private respondents requiring them to explain in writing why no disciplinary
action should be taken against them for their refusal to be transferred/relocated.[6]

Page

The same holds true with the other complainants. Romeo Tee for instance, will have to take
an overnight boat trip from his previous assignment in Zamboanga to his new assignment in
Jolo, Sulu. He would have to part with his family and resettle to Jolo in connection with his
transfer. Cristina Rodiel on the other hand, would be transferred to Baguio City which is
quite distant from her previous workbase and residence at Cabanatuan. Jesus Paracale finds
himself in the same difficult situation as he would be transferred from General Santos City at
the Southern tip of Mindanao to Butuan City, almost a day's travel by bus and located at the

357

In their respective replies to the petitioner's letters, the private respondents explained that:
The transfers imposed by the management would cause enormous difficulties on the
individual complainants. For one, their new assignment involve distant places which would
require their separation from their respective families. For instance, in the case of Avelino
Acha who would be coming from Bicol Region, he would have to take a boat in going to his
new assignment in Odiongan, Romblon. The voyage would take a considerable period of
time and it would be imperative for him to relocate to Romblon to be able to attend to his new
assignment.

northernmost tip of the island. Benjamin Lakandula and Guillermo Demigillo, are also in the
same situation as their new assignments are quite distant from their previous places of work.[7]
Dissatisfied with this explanation, the petitioner considered the private respondents' refusal as
insubordination and willful disobedience to a lawful order; hence, the private respondents
were dismissed from work.[8] They forthwith filed their respective complaints against the
petitioner before the appropriate sub-regional branches of the NLRC.[9]
Subsequently, the private respondents' bargaining agent, PT&T Workers Union-NAFLUKMU, filed a complaint against the petitioner for illegal dismissal and unfair labor practice
for and in behalf of the private respondents, including Ignacio Dela Cerna, before the
arbitration branch of the NLRC.[10]
In their position paper, the complainants (herein private respondents) declared that their
refusal to transfer could not possibly give rise to a valid dismissal on the ground of willful
disobedience, as their transfer was prejudicial and inconvenient; thus unreasonable. The
complainants further asserted that since they were active union members, the petitioner was
clearly guilty of unfair labor practice[11] especially considering their new work stations:
1. Jesus Paracale, from General Santos Branch to Butuan City Branch;
2. Romeo Tee, from Zamboanga Branch to Jolo Branch;
3. Benjamin Lakandula, from Iligan City to Butuan City;
4. Avelino Acha, from Legaspi City Branch to Odiongan Branch;
5. Ignacio Dela Cerna, from Pagadian City Branch to Butuan Branch; and
6. Guillermo Demigillo, from Midsayap to Lebak Cotabato Branch.[12]
For its part, the petitioner (respondent therein) alleged that the private respondent's transfers
were made in the lawful exercise of its management prerogative and were done in good faith.
The transfers were aimed at decongesting surplus employees and detailing them to a more
demanding branch.
In their reply to the petitioner's position paper, the private respondents opined that since their
respective transfers resulted in their promotion, they had the right to refuse or decline the
positions being offered to them. Resultantly, the refusal to accept the transfer could not have
amounted to insubordination or willful disobedience to the "lawful orders of the employer."
After the parties filed their respective pleadings, the Honorable Labor Arbiter Celenito N.
Daing rendered a Decision on September 25, 1998 dismissing the complaint for lack of
merit.[13]
The labor arbiter ratiocinated that an employer, in the exercise of his management
prerogative, may cause the transfer of his employees provided that the same is not attended by
bad faith nor would result in the demotion of the transferred employees. The labor arbiter
ruled in favor of the petitioner, finding that the aforesaid transfers indeed resulted in the
private respondents' promotion, and that the complaint for unfair labor practice was not fully
substantiated and supported by evidence.

Page

On May 31, 1999, the NLRC issued a Resolution which reversed and set aside the decision of
the labor arbiter. The NLRC ruled that the petitioner illegally dismissed the private
respondents, thus:
WHEREFORE, premises considered, the Appeal is hereby GRANTED. Accordingly, the
Decision appealed from is REVERSED and SET ASIDE and a new one entered declaring
respondent-appellee guilty of illegal dismissal and ordering Philippine Telegraph and
Telephone Corporation to reinstate individual complainants-appellants to their former
positions without loss of seniority rights and other privileges and to pay them full backwages
from the date of their dismissal up to the date of their actual reinstatement, computed as
follows ...[14]
The NLRC interpreted the said transfers of the respondents as a promotion; that the
movement was not merely lateral but of scalar ascent, considering the movement of the job
grades, and the corresponding increase in salaries. As such, the respondents had the right to
accept or refuse the said promotions. The NLRC concluded that in the exercise of their right
to refuse the promotion given them, they could not be dismissed.

358

Aggrieved, the private respondents appealed that aforesaid decision to the NLRC.

Without filing a motion for reconsideration, the petitioner filed a petition for certiorari under
Rule 65 of the 1997 Rules of Civil Procedure before the Court of Appeals, assailing the May
31, 1999 Resolution of the NLRC. The petitioner raised the following errors:
4.1
PUBLIC RESPONDENT COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHEN IT RULED AGAINST PRIVATE
RESPONDENTS' DISMISSAL ON THE GROUND OF INSUBORDINATION FOR
REFUSING TO HEED TO THE TRANSFER ORDER OR THE PETITIONER.
4.2
PUBLIC RESPONDENT COMMITTEE GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHEN IT SUSTAINED PRIVATE
RESPONDENT'S CONTENTION THAT THEY WERE IN FAC BEING PROMOTED
AND NOT TRANSFERRED, THUS RENDERING THE LATTER'S DISOBEDIENCE
JUSTIFIED.
PUBLIC RESPONDENTS (SIC) COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHEN IT RULED THAT PRIVATE
RESPONDENTS ARE ENTITLED TO REINSTATEMENT WITHOUT LOSS OF
SENIORITY RIGHTS AND OTHER PRIVILEGES, AS WELL AS PAYMENT OF FULL
BACKWAGES FROM DATE OF DISMISSAL UP TO DATE OF ACTUAL
REINSTATEMENT.[15]
On June 15, 2001, the Court of Appeals rendered a Decision affirming the resolution of the
NLRC, the dispositive portion of which reads:
WHEREFORE, finding no grave abuse of discretion on the part of the respondent
commission, the petition is hereby DISMISSED for lack of merit. The assailed May 31, 1999
Resolution of the National Labor Relations Commission, Third Division is hereby
AFFIRMED IN TOTO.[16]
The petitioner filed a motion for reconsideration. On February 6, 2002, the CA issued a
Resolution denying the motion.[17]

Page

PUBLIC RESPONDENT COURT OF APPEALS COMMITTED GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT ISSUED THE
ORDERS DATED JUNE 15, 2001 AND FEBRUAR 6, 2002 AFFIRMING THE ORDER
DATED MAY 31, 1999 OF THE THIRD DIVISION OF THE NATIONAL LABOR
RELATIONS COMMISSION, CONSIDERING THAT:
a. THE ORDER DATED MAY 31, 1999 OF THE NATIONAL LABOR RELATIONS
COMMISSION IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE;
b. THE PETITIONER DID NOT ADMIT IN ITS POSITION PAPER FILED BEFORE
THE LABOR ARBITER THAT THE PRIVATE RESPONDENTS WERE BEING
PROMOTED. ON THE CONTRARY, IT HAS ALWAYS BEEN THE
CONTENTION OF THE PETITIONER THAT THE PRIVATE RESPONDENTS
WERE SIMPLY ORDERED TRANSFERRED TO OTHER WORK STATIONS
WITHOUT DEMOTION IN RANK AND DIMINUTION IN SALARY;
c. THE PRIVATE RESPONDENTS WERE LEGALLY TERMINATED FOR JUST
AND AUTHORIZED CAUSE FOR WILFULL DISOBEDIENCE TO THE
LAWFUL ORDERS OF THE PETITIONER (TRANSFER ORDER PURSUANT TO
ITS RELOCATION AND RESTRUCTURING PROGRAM), AFTER AFFORDING
THEM DUE PROCESS OF LAW AND THUS NOT ENTITLED TO
REINSTATEMENT; AND
d. PETITIONER ACTED IN GOOD FAITH IN IMPLEMENTING ITS RELOCATION
AND RESTRUCTUTING PROGRAM WHICH RESULTED IN THE
TERMINATION OF THE PRIVATE RESPONDENTS. AND AS SUCH, THE
PRIVATE RESPONDENTS ARE NOT ENTITLED TO THE PAYMENT OF ANY
BACKWAGES.[18]

359

Dissatisfied, the petitioner filed its petition for review assailing the decision and resolution of
the CA, insisting that:
I

In their Comment, the private respondents argue that the petition should be dismissed for the
following reasons: (a) that a petition for review under Ruler 45 is limited to questions of law;
(b) the private respondents were promoted and not only transferred as established by the
evidence on record; and (b) private respondents could not be penalized with dismissal for
declining their promotions.
The petition is denied due course.
As has been enunciated in numerous cases, the issues that can be delved into a petition for
review under Rule 45 are limited to questions of law. Thus, the Court is not tasked to
calibrate and assess the probative weight of evidence adduced by the parties during trial all
over again.[19] The test of whether the question is one of law or of fact is whether the appellate
court can determine the issue raised without reviewing or evaluating the evidence, in which
case, it is a question of law; otherwise, it is a question of fact.[20]
In the case at bar, the petitioner would want this Court to ascertain whether or not the findings
of NLRC, as affirmed by the CA, are substantiated by the evidence on record; hence,
requiring a review involving questions of facts. For this reason alone, this case should be
dismissed.
Even if the Court were to review the instant case on its merits, the dismissal of the petition is
inevitable.
Section 3, Rule V of the NLRC provides that:
Section 3. Submission of Position Papers/Memorandum - Should the parties fail to agree
upon an amicable settlement, either in whole or in part, during the conferences, the Labor
Arbiter shall issue an order stating therein the matters taken up and agree upon during the
conferences and directing the parties to simultaneously file their respective verified position
papers.
These verified position papers shall cover only those claims and causes of action raised in the
complaint excluding those that may have been amicably settled, and shall be accompanied by
all supporting documents including the affidavits of their respective witnesses which shall
take the place of the latter's direct testimony. The parties shall thereafter not be allowed to
allege facts, or present evidence to prove facts, not referred to and any cause or causes of
action not included in the complaint or position papers. Without prejudice to the provisions of
Section 2 of this Rule, the Labor Arbiter shall direct both parties to submit simultaneously
their position papers with supporting documents and affidavits within an inextendible period
of ten (10) days from notice of termination of the mandatory conciliation. mediation
conference.
In its position with the labor arbiter, the petitioner adverted that when the private respondents
were transferred, they were also promoted, thus:

Page

Indeed, the increase in the respondents' responsibility can be ascertained from the scalar
ascent of their job grades. With or without a corresponding increase in salary, the respective
transfer of the private respondents were in fact promotions, following the ruling enunciated in
Homeowners Savings and Loan Association, Inc. v. NLRC:[22]

360

Clearly, the transfer of the complainants is not unreasonable nor does it involve demotion in
rank. They are being moved to branches where the complainants will function with maximum
benefit to the company and they were in fact promoted not demoted from a lower job-grade to
a higher job-grade and receive even higher salaries than before. Thus, transfer of the
complainants would not also result in diminution in pay benefit and privilege since the
salaries of the complainant would be receiving a bigger salary if not the same salary plus
additional special relocation package. Although the increase in the pay is not significant this
however would be translated into an increase rather than decrease in their salary because the
complainants who were transferred from the city to the province would greatly benefit
because it is of judicial notice that the cost of living in the province is much lower than in the
city. This would mean a higher purchasing power of the same salary previously being
received by the complainants.[21]

... [P]romotion, as we defined in Millares v, Subido, is "the advancement from one position to
another with an increase in duties and responsibilities as authorized by law, and usually
accompanied by an increase in salary." Apparently, the indispensable element for there to be a
promotion is that there must be an "advancement from one position to another" or an upward
vertical movement of the employee's rank or position. Any increase in salary should only be
considered incidental but never determinative of whether or not a promotion is bestowed upon
an employee. This can be likened to the upgrading of salaries of government employees
without conferring upon the, the concomitant elevation to the higher positions....[23]
The admissions of the petitioner are conclusive on it. An employee cannot be promoted, even
if merely as a result of a transfer, without his consent. A transfer that results in promotion or
demotion, advancement or reduction or a transfer that aims to `lure the employee away from
his permanent position cannot be done without the employees' consent.[24]
There is no law that compels an employee to accept a promotion for the reason that a
promotion is in the nature of a gift or reward, which a person has a right to refuse.[25] Hence,
the exercise by the private respondents of their right cannot be considered in law as
insubordination, or willful disobedience of a lawful order of the employer. As such, there was
no valid cause for the private respondents' dismissal.
As the questioned dismissal is not based on any of the just or valid grounds under Article 282
of the Labor Code, the NLRC correctly ordered the private respondents' reinstatement without
loss of seniority rights and the payment of backwages from the time of their dismissal up to
their actual reinstatement.
IN LIGHT OF THE ALL THE FOREGOING, the Decision of the Court of Appeals dated
June 15, 2001 is hereby AFFIRMED.

Page

361

SO ORDERED.

[ G.R. No. 163554, April 23, 2010 ]

DANNIE M. PANTOJA, PETITIONER, VS. SCA HYGIENE PRODUCTS
CORPORATION, RESPONDENT.
DECISION
DEL CASTILLO, J.:
Once again, we uphold the employer's exercise of its management prerogative because it was
done for the advancement of its interest and not for the purpose of defeating the lawful rights
of an employee.
This petition for review on certiorari[1] assails the Decision[2] dated January 30, 2004 and
Resolution[3] dated May 13, 2004 of the Court of Appeals (CA) in CA-G.R. SP No. 73076,
which affirmed the May 30, 2002 Decision[4] of the National Labor Relations Commission
(NLRC) and reinstated the Labor Arbiter's dismissal of the illegal dismissal complaint filed
by petitioner Dannie M. Pantoja against respondent SCA Hygiene Products Corporation.
Factual Antecedents
Respondent, a corporation engaged in the manufacture, sale and distribution of industrial
paper and tissue products, employed petitioner as a utility man on March 15, 1987. Petitioner
was eventually assigned at respondent's Paper Mill No. 4, the section which manufactures the
company's industrial paper products, as a back tender in charge of the proper operation of the
section's machineries.
In a Notice of Transfer dated March 27, 1999,[5] respondent informed petitioner of its
reorganization plan and offered him a position at Paper Mill No. 5 under the same terms and
conditions of employment in anticipation of the eventual closure and permanent shutdown of
Paper Mill No. 4 effective May 5, 1999. The closure and concomitant reorganization is in line
with respondent's decision to streamline and phase out the company's industrial paper
manufacturing operations due to financial difficulties brought about by the low volume of
sales and orders for industrial paper products.
However, petitioner rejected respondent's offer for his transfer. Thus, a notice of
termination[6] of employment effective May 5, 1999 was sent to petitioner as his position was
declared redundant by the closure of Paper Mill No. 4. He then received his separation pay
equivalent to two months pay for every year of service in the amount of P356,335.20 and
thereafter executed a release and quitclaim[7] in favor of respondent. On April 5, 1999,
respondent informed the Department of Labor and Employment (DOLE) of its reorganization
and partial closure by submitting with the said office an Establishment Termination Report[8]
together with the list[9] of 31 terminated employees.

Page

In its defense, respondent refuted petitioner's claim of illegal dismissal. It argued that
petitioner has voluntarily separated himself from service by opting to avail of the separation
benefits of the company instead of accepting reassignment/transfer to another position of
equal rank and pay. According to respondent, petitioner's discussion on the alleged
resumption of operation of Paper Mill No. 4 is rendered moot by the fact of petitioner's
voluntary separation.

362

On June 20, 2000, petitioner filed a complaint for illegal dismissal against respondent
assailing his termination as without any valid cause. He averred that the alleged redundancy
never occurred as there was no permanent shutdown of Paper Mill No. 4 due to its continuous
operation since his termination. A co-employee, Nestor Agtang, confirmed this fact and
further attested that several contractual workers were employed to operate Paper Mill No.
4.[10] Petitioner also presented in evidence documents pertaining to the actual and continuous
operation of Paper Mill No. 4 such as the Paper Mill Personnel Schedule for July 2-8, 2000[11]
and 23-29, 2000[12] and Paper Machine No. 4 Production Report and Operating Data dated
April 28, 2000[13] and May 18, 2000.[14]

Ruling of the Labor Arbiter

On March 23, 2001, the Labor Arbiter rendered a Decision[15] dismissing petitioner's
complaint for lack of merit. The Labor Arbiter ruled that inasmuch as petitioner rejected the
position offered to him, opted to receive separation pay and executed a release and quitclaim
releasing the company from any claim or demand in connection with his employment,
petitioner's claim that he was illegally dismissed must perforce fail.
Ruling of the National Labor Relations Commission
Upon appeal by petitioner, the NLRC reversed the Labor Arbiter's Decision by finding
petitioner's separation from employment illegal. The NLRC gave credence to petitioner's
evidence of Paper Mill No. 4's continuous operation and consequently opined that the feigned
shutdown of operations renders respondent's redundancy program legally infirm. According
to the NLRC, petitioner's refusal to be transferred to an equal post in Paper Mill No. 5 is of no
consequence since he would not have had the need to make a choice where the situation, in
the first place, never called for it. The NLRC further disregarded the validity of the quitclaim
because its execution cannot be considered as having been done voluntarily by petitioner there
being fraud and misrepresentation on the part of respondent. The dispositive portion of the
NLRC Decision reads:
WHEREFORE, premises considered, the decision under review is hereby REVERSED and
SET ASIDE, and another entered, declaring complainant's dismissal from employment as
ILLEGAL.
Accordingly, respondent is ordered to REINSTATE the complainant to his former position
without loss of seniority rights and pay him FULL BACKWAGES in the amount
corresponding to the period when he was actually dismissed until actual reinstatement, less
the sum of THREE HUNDRED FIFTY SIX THOUSAND THREE HUNDRED THIRTY
FIVE & 20/100 Pesos (P356,335.20) representing his separation pay.
Respondent is further ordered to pay the complainant, by way of attorney's fees, ten percent
(10%) of the total net amount due as backwages.
SO ORDERED.[16]
Respondent sought reconsideration of the NLRC's ruling. It denied the fact that Paper Mill
No. 4 continued to be fully operational in 1999. Respondent asseverated that when Paper Mill
No. 4 was shut down in 1999 due to its low production output as certified in an affidavit[17]
executed by SCA's VP-Tissue Manufacturing Director, there was a necessity to occasionally
run from time to time the machines in Paper Mill No. 4 only for the purpose of maintaining
and preserving the same and does not mean that Paper Mill No. 4 continued to be operational.
It was only in 2000 that Paper Mill No. 4 was subsequently reopened due to a more favorable
business climate, which decision is recognized as a rightful exercise of management
prerogative. Moreover, respondent maintained that this is a case of voluntary separation and
not illegal dismissal.
In a Resolution[18] dated August 22, 2002, respondent's motion was denied.
Ruling of the Court of Appeals

Page

Petitioner filed a motion for reconsideration but it was denied.

363

Aggrieved, respondent filed a petition for certiorari with the CA. On January 30, 2004, the
CA reversed the NLRC's Decision and reinstated the Labor Arbiter's Decision dismissing the
compliant. It ruled that there was no illegal dismissal as the act of petitioner in rejecting the
transfer and accepting the separation pay constitutes a valid basis for the separation from
employment. Respondent's Motion to Annul the NLRC's Entry of Judgment was granted by
the CA.

Issue
The lone issue in this petition for review on certiorari is whether or not respondent is guilty of
illegal dismissal.\
Petitioner contends that respondent's streamlining of operations which resulted in the
reduction of personnel was a mere scheme to get rid of regular employees whose security of
tenure is protected by law. As there was evident bad faith in the implementation of a flawed
retrenchment program, petitioner argued that his separation from employment due to his
decision to accept separation pay is illegal since respondent has no valid basis to give him an
option either to be transferred or be separated. Further, neither can the quitclaim he executed
stamp legality to his precipitate separation.
Our Ruling
The petition lacks merit.
Respondent's right of management prerogative was exercised in good faith.
Respondent presented evidence of the low volume of sales and orders for the production of
industrial paper in 1999 which inevitably resulted to the company's decision to streamline its
operations. This fact was corroborated by respondent's VP-Tissue Manufacturing Director and
was not disputed by petitioner. Exercising its management prerogative and sound business
judgment, respondent decided to cut down on operational costs by shutting down one of its
paper mill. As held in International Harvester Macleod, Inc. v. Intermediate Appellate
Court,[19] the determination of the need to phase out a particular department and consequent
reduction of personnel and reorganization as a labor and cost saving device is a recognized
management prerogative which the courts will not generally interfere with.
In this case, the abolishment of Paper Mill No. 4 was undoubtedly a business judgment
arrived at in the face of the low demand for the production of industrial paper at the time.
Despite an apparent reason to implement a retrenchment program as a cost-cutting measure,
respondent, however, did not outrightly dismiss the workers affected by the closure of Paper
Mill No. 4 but gave them an option to be transferred to posts of equal rank and pay. As can be
seen, retrenchment was utilized by respondent only as an available option in case the affected
employee would not want to be transferred. Respondent did not proceed directly to retrench.
This, to our mind, is an indication of good faith on respondent's part as it exhausted other
possible measures other than retrenchment. Besides, the employer's prerogative to bring down
labor costs by retrenching must be exercised essentially as a measure of last resort, after less
drastic means have been tried and found wanting. Giving the workers an option to be
transferred without any diminution in rank and pay specifically belie petitioner's allegation
that the alleged streamlining scheme was implemented as a ploy to ease out employees, thus,
the absence of bad faith. Apparently, respondent implemented its streamlining or
reorganization plan with good faith, not in an arbitrary manner and without prejudicing the
tenurial rights of its employees.

Page

364

Petitioner harps on the fact that there was no actual shutdown of Paper Mill No. 4 but that it
continued to be operational. No evidence, however, was presented to prove that there was
continuous operation after the shutdown in the year 1999. What the records reveal is that
Paper Mill No. 4 resumed its operation in 2000 due to a more favorable business climate. The
resumption of its industrial paper manufacturing operations does not, however, make
respondent's streamlining/reorganization plan illegal because, again, the abolishment of Paper
Mill No. 4 in 1999 was a business judgment arrived at to prevent a possible financial drain at
that time. As long as no arbitrary or malicious action on the part of an employer is shown, the
wisdom of a business judgment to implement a cost saving device is beyond this court's
determination. After all, the free will of management to conduct its own business affairs to
achieve its purpose cannot be denied.[20]

Petitioner's voluntary separation from employment renders his claim of illegal dismissal
unfounded and baseless.
Petitioner claims that he had no choice but to resign on the belief that Paper Mill No. 4 will be
permanently closed as misrepresented by respondent and thus can invalidate the release and
quitclaim executed by him.
We find this contention untenable.
We held that work reassignment of an employee as a genuine business necessity is a valid
management prerogative.[21] After being given an option to be transferred, petitioner rejected
the offer for reassignment to Paper Mill No. 5 even though such transfer would not involve
any diminution of rank and pay. Instead, he opted and preferred to be separated by executing
a release and quitclaim in consideration of which he received separation pay in the amount of
P356,335.20 equal to two months pay for every year of service plus other accrued benefits.
Clearly, petitioner freely and voluntarily consented to the execution of the release and
quitclaim. Having done so apart from the fact that the consideration for the quitclaim is
credible and reasonable, the waiver represents a valid and binding undertaking.[22] As aptly
concluded by the CA, the quitclaim was not executed under force or duress and that petitioner
was given a separation pay more than what the law requires from respondent.
WHEREFORE, the petition is DENIED. The assailed January 30, 2004 Decision of the Court
of Appeals in CA-G.R. SP No. 73076 dismissing petitioner Dannie M. Pantoja's complaint for
illegal dismissal and the May 13, 2004 Resolution denying the Motion for Reconsideration
are AFFIRMED.

Page

365

SO ORDERED.

[ G.R. No. 184885, March 07, 2012 ]

ERNESTO G. YMBONG, PETITIONER, VS. ABS-CBN BROADCASTING
CORPORATION, VENERANDA SY AND DANTE LUZON, RESPONDENTS.
DECISION
VILLARAMA, JR., J.:
Before us is a Rule 45 Petition seeking to set aside the August 22, 2007 Decision[1] and
September 18, 2008 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 86206
declaring petitioner to have resigned from work and not illegally dismissed.
The antecedent facts follow:
Petitioner Ernesto G. Ymbong started working for ABS-CBN Broadcasting Corporation
(ABS-CBN) in 1993 at its regional station in Cebu as a television talent, co-anchoring Hoy
Gising and TV Patrol Cebu. His stint in ABS-CBN later extended to radio when ABS-CBN
Cebu launched its AM station DYAB in 1995 where he worked as drama and voice talent,
spinner, scriptwriter and public affairs program anchor.
Like Ymbong, Leandro Patalinghug also worked for ABS-CBN Cebu. Starting 1995, he
worked as talent, director and scriptwriter for various radio programs aired over DYAB.
On January 1, 1996, the ABS-CBN Head Office in Manila issued Policy No. HR-ER-016 or
the Policy on Employees Seeking Public Office. The pertinent portions read:
1. Any employee who intends to run for any public office position, must file his/her letter
of resignation, at least thirty (30) days prior to the official filing of the certificate of
candidacy either for national or local election.
xxxx
3. Further, any employee who intends to join a political group/party or even with no
political affiliation but who intends to openly and aggressively campaign for a
candidate or group of candidates (e.g. publicly speaking/endorsing candidate,
recruiting campaign workers, etc.) must file a request for leave of absence subject to
managements approval. For this particular reason, the employee should file the leave
request at least thirty (30) days prior to the start of the planned leave period.
x x x[3] [Emphasis and underscoring supplied.]
Because of the impending May 1998 elections and based on his immediate recollection of the
policy at that time, Dante Luzon, Assistant Station Manager of DYAB issued the following
memorandum:
TO : ALL CONCERNED
FROM : DANTE LUZON
DATE : MARCH 25, 1998
SUBJECT : AS STATED
Please be informed that per company policy, any employee/talent who wants to run for any
position in the coming election will have to file a leave of absence the moment he/she files
his/her certificate of candidacy.

Luzon, however, admitted that upon double-checking of the exact text of the policy and
subsequent confirmation with the ABS-CBN Head Office, he saw that the policy actually

Page

For strict compliance.[4] [Emphasis and underscoring supplied.]

366

The services rendered by the concerned employee/talent to this company will then be
temporarily suspended for the entire campaign/election period.

required suspension for those who intend to campaign for a political party or candidate and
resignation for those who will actually run in the elections.[5]
After the issuance of the March 25, 1998 Memorandum, Ymbong got in touch with Luzon.
Luzon claims that Ymbong approached him and told him that he would leave radio for a
couple of months because he will campaign for the administration ticket. It was only after the
elections that they found out that Ymbong actually ran for public office himself at the
eleventh hour. Ymbong, on the other hand, claims that in accordance with the March 25,
1998 Memorandum, he informed Luzon through a letter that he would take a few months
leave of absence from March 8, 1998 to May 18, 1998 since he was running for councilor of
Lapu-Lapu City.
As regards Patalinghug, Patalinghug approached Luzon and advised him that he will run as
councilor for Naga, Cebu. According to Luzon, he clarified to Patalinghug that he will be
considered resigned and not just on leave once he files a certificate of candidacy. Thus,
Patalinghug wrote Luzon the following letter on April 13, 1998:
Dear Mr. Luzon,
Im submitting to you my letter of resignation as your Drama Production Chief and Talent due
to your companys policy that every person connected to ABS-CBN that should seek an
elected position in the government will be forced to resigned (sic) from his position. So
herewith Im submitting my resignation with a hard heart. But Im still hoping to be
connected again with your prestigious company after the election[s] should you feel that Im
still an asset to your drama production department. Im looking forward to that day and Im
very happy and proud that I have served for two and a half years the most stable and the most
prestigious Radio and TV Network in the Philippines.
As a friend[,] wish me luck and Pray for me. Thank you.
Very Truly Yours,
(Sgd.
Leandro Boy Patalinghug[6]
Unfortunately, both Ymbong and Patalinghug lost in the May 1998 elections.
Later, Ymbong and Patalinghug both tried to come back to ABS-CBN Cebu. According to
Luzon, he informed them that they cannot work there anymore because of company policy.
This was stressed even in subsequent meetings and they were told that the company was not
allowing any exceptions. ABS-CBN, however, agreed out of pure liberality to give them a
chance to wind up their participation in the radio drama, Nagbabagang Langit, since it was
rating well and to avoid an abrupt ending. The agreed winding-up, however, dragged on for
so long prompting Luzon to issue to Ymbong the following memorandum dated September
14, 1998:
TO : NESTOR YMBONG
FROM : DANTE LUZON
SUBJECT : AS STATED
DATE : 14 SEPT. 1998
Please be reminded that your services as drama talent had already been automatically
terminated when you ran for a local government position last election.

Page

It has been decided therefore that all your drama participation shall be terminated effective
immediately. However, your involvement as drama spinner/narrator of the drama
NAGBA[BA]GANG LANGIT continues until its writer/director Mr. Leandro Patalinghug
wraps it up one week upon receipt of a separate memo issued to him.[7]

367

The Management however gave you more than enough time to end your drama participation
and other involvement with the drama department.

Ymbong in contrast contended that after the expiration of his leave of absence, he reported
back to work as a regular talent and in fact continued to receive his salary. On September 14,
1998, he received a memorandum stating that his services are being terminated immediately,
much to his surprise. Thus, he filed an illegal dismissal complaint[8] against ABS-CBN,
Luzon and DYAB Station Manager Veneranda Sy. He argued that the ground cited by ABSCBN for his dismissal was not among those enumerated in the Labor Code, as amended. And
even granting without admitting the existence of the company policy supposed to have been
violated, Ymbong averred that it was necessary that the company policy meet certain
requirements before willful disobedience of the policy may constitute a just cause for
termination. Ymbong further argued that the company policy violates his constitutional right
to suffrage.[9]
Patalinghug likewise filed an illegal dismissal complaint[10] against ABS-CBN.
ABS-CBN prayed for the dismissal of the complaints arguing that there is no employeremployee relationship between the company and Ymbong and Patalinghug. ABS-CBN
contended that they are not employees but talents as evidenced by their talent contracts.
However, notwithstanding their status, ABS-CBN has a standing policy on persons connected
with the company whenever they will run for public office.[11]
On July 14, 1999, the Labor Arbiter rendered a decision[12] finding the dismissal of Ymbong
and Patalinghug illegal, thus:
WHEREFORE, in the light of the foregoing, judgment is rendered finding the dismissal of the
two complainants illegal. An order is issued directing respondent ABS[-]CBN to immediately
reinstate complainants to their former positions without loss of seniority rights plus the
payment of backwages in the amount of P200,000.00 to each complainant.
All other claims are dismissed.
SO ORDERED.[13]

Page

In its memorandum of appeal[14] before the National Labor Relations Commission (NLRC),
ABS-CBN contended that the Labor Arbiter has no jurisdiction over the case because there is
no employer-employee relationship between the company and Ymbong and Patalinghug,
and that Sy and Luzon mistakenly assumed that Ymbong and Patalinghug could just file a
leave of absence since they are only talents and not employees. In its Supplemental
Appeal,[15] ABS-CBN insisted that Ymbong and Patalinghug were engaged as radio talents for
DYAB dramas and personality programs and their contract is one between a self-employed
contractor and the hiring party which is a standard practice in the broadcasting industry. It
also argued that the Labor Arbiter should not have made much of the provisions on Ymbongs
attendance and punctuality since such requirement is a dictate of the programming of the
station, the slating of shows at regular time slots, and availability of recording studios not an
attempt to exercise control over the manner of his performance of the contracted anchor work
within his scheduled spot on air. As for the pronouncement that the company policy has
already been superseded by the March 25, 1998 Memorandum issued by Luzon, the latter
already clarified that it was the very policy he sought to enforce. This matter was relayed by
Luzon to Patalinghug when the latter disclosed his plans to join the 1998 elections while
Ymbong only informed the company that he was campaigning for the administration ticket
and the company had no inkling that he will actually run until the issue was already moot and
academic. ABS-CBN further contended that Ymbong and Patalinghugs reinstatement is

368

The Labor Arbiter found that there exists an employer-employee relationship between ABSCBN and Ymbong and Patalinghug considering the stipulations in their appointment
letters/talent contracts. The Labor Arbiter noted particularly that the appointment
letters/talent contracts imposed conditions in the performance of their work, specifically on
attendance and punctuality, which effectively placed them under the control of ABS-CBN.
The Labor Arbiter likewise ruled that although the subject company policy is reasonable and
not contrary to law, the same was not made known to Ymbong and Patalinghug and in fact
was superseded by another one embodied in the March 25, 1998 Memorandum issued by
Luzon. Thus, there is no valid or authorized cause in terminating Ymbong and Patalinghug
from their employment.

legally and physically impossible as the talent positions they vacated no longer exist. Neither
is there basis for the award of back wages since they were not earning a monthly salary but
paid talent fees on a per production/per script basis. Attached to the Supplemental Appeal is a
Sworn Statement[16] of Luzon.
On March 8, 2004, the NLRC rendered a decision[17] modifying the labor arbiters decision.
The fallo of the NLRC decision reads:
WHEREFORE, premises considered, the decision of Labor Arbiter Nicasio C. Aninon dated
14 July 1999 is MODIFIED, to wit:
Ordering respondent ABS-CBN to reinstate complainant Ernesto G. Ymbong and to pay his
full backwages computed from 15 September 1998 up to the time of his actual reinstatement.
SO ORDERED.[18]
The NLRC dismissed ABS-CBNs Supplemental Appeal for being filed out of time. The
NLRC ruled that to entertain the same would be to allow the parties to submit their appeal on
piecemeal basis, which is contrary to the agencys duty to facilitate speedy disposition of
cases. The NLRC also held that ABS-CBN wielded the power of control over Ymbong and
Patalinghug, thereby proving the existence of an employer-employee relationship between
them.
As to the issue of whether they were illegally dismissed, the NLRC treated their cases
differently. In the case of Patalinghug, it found that he voluntarily resigned from employment
on April 21, 1998 when he submitted his resignation letter. The NLRC noted that although
the tenor of the resignation letter is somewhat involuntary, he knew that it is the policy of the
company that every person connected therewith should resign from his employment if he
seeks an elected position in the government. As to Ymbong, however, the NLRC ruled
otherwise. It ruled that the March 25, 1998 Memorandum merely states that an employee
who seeks any elected position in the government will only merit the temporary suspension of
his services. It held that under the principle of social justice, the March 25, 1998
Memorandum shall prevail and ABS-CBN is estopped from enforcing the September 14,
1998 memorandum issued to Ymbong stating that his services had been automatically
terminated when he ran for an elective position.
ABS-CBN moved to reconsider the NLRC decision, but the same was denied in a Resolution
dated June 21, 2004.[19]
Imputing grave abuse of discretion on the NLRC, ABS-CBN filed a petition for certiorari[20]
before the CA alleging that:
I.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AND
SERIOUSLY MISAPPRECIATED THE FACTS IN NOT HOLDING THAT
RESPONDENT YMBONG IS A FREELANCE RADIO TALENT AND MEDIA
PRACTITIONERNOT A REGULAR EMPLOYEE OF PETITIONERTO WHOM
CERTAIN PRODUCTION WORK HAD BEEN OUTSOURCED BY ABS-CBN CEBU
UNDER AN INDEPENDENT CONTRACTORSHIP SITUATION, THUS RENDERING
THE LABOR COURTS WITHOUT JURISDICTION OVER THE CASE IN THE
ABSENCE OF EMPLOYMENT RELATIONS BETWEEN THE PARTIES.

Page

RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN

DECLARING RESPONDENT YMBONG TO BE A REGULAR EMPLOYEE OF
PETITIONER AS TO CREATE A CONTRACTUAL EMPLOYMENT RELATION
BETWEEN THEM WHEN NONE EXISTS OR HAD BEEN AGREED UPON OR
OTHERWISE INTENDED BY THE PARTIES.

369

II.

III.
EVEN ASSUMING THE ALLEGED EMPLOYMENT RELATION TO EXIST FOR THE
SAKE OF ARGUMENT, RESPONDENT NLRC IN ANY CASE COMMITTED A GRAVE
ABUSE OF DISCRETION IN NOT SIMILARLY UPHOLDING AND APPLYING
COMPANY POLICY NO. HR-ER-016 IN THE CASE OF RESPONDENT YMBONG AND
DEEMING HIM AS RESIGNED AND DISQUALIFIED FROM FURTHER
ENGAGEMENT AS A RADIO TALENT IN ABS-CBN CEBU AS A CONSEQUENCE OF
HIS CANDIDACY IN THE 1998 ELECTIONS, AS RESPONDENT NLRC HAD DONE IN
THE CASE OF PATALINGHUG.
IV.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION AND
DENIED DUE PROCESS TO PETITIONER IN REFUSING TO CONSIDER ITS
SUPPLEMENTAL APPEAL, DATED OCTOBER 18, 1999, FOR BEING FILED OUT OF
TIME CONSIDERING THAT THE FILING OF SUCH A PLEADING IS NOT IN ANY
CASE PROSCRIBED AND RESPONDENT NLRC IS AUTHORIZED TO CONSIDER
ADDITIONAL EVIDENCE ON APPEAL; MOREOVER, TECHNICAL RULES OF
EVIDENCE DO NOT APPLY IN LABOR CASES.
V.
RESPONDENT NLRC COMMITTED A GRAVE ABUSE OF DISCRETION IN
GRANTING THE RELIEF OF REINSTATEMENT AND BACKWAGES TO
RESPONDENT YMBONG SINCE HE NEVER OCCUPIED ANY REGULAR
POSITION IN PETITIONER FROM WHICH HE COULD HAVE BEEN ILLEGALLY
DISMISSED, NOR ARE ANY OF THE RADIO PRODUCTIONS IN WHICH HE HAD
DONE TALENT WORK FOR PETITIONER STILL EXISTING. INDEED, THERE IS NO
BASIS WHATSOEVER FOR THE AWARD OF BACKWAGES TO RESPONDENT
YMBONG IN THE AMOUNT OF P200,000.00 CONSIDERING THAT, AS SHOWN BY
THE UNCONTROVERTED EVIDENCE, HE WAS NOT EARNING A MONTHLY
SALARY OF P20,000.00, AS HE FALSELY CLAIMS, BUT WAS PAID TALENT
FEES ON A PER PRODUCTION/PER SCRIPT BASIS WHICH AVERAGED LESS
THAN P10,000.00 PER MONTH IN TALENT FEES ALL IN ALL.[21]
On August 22, 2007, the CA rendered the assailed decision reversing and setting aside the
March 8, 2004 Decision and June 21, 2004 Resolution of the NLRC. The CA declared
Ymbong resigned from employment and not to have been illegally dismissed. The award of
full back wages in his favor was deleted accordingly.

Page

The CA likewise held that the subject company policy is the controlling guideline and
therefore, Ymbong should be considered resigned from ABS-CBN. While Luzon has policymaking power as assistant radio manager, he had no authority to issue a memorandum that
had the effect of repealing or superseding a subsisting policy. Contrary to the findings of the
Labor Arbiter, the subject company policy was effective at that time and continues to be valid
and subsisting up to the present. The CA cited Patalinghugs resignation letter to buttress this
conclusion, noting that Patalinghug openly admitted in his letter that his resignation was in
line with the said company policy. Since ABS-CBN applied Policy No. HR-ER-016 to
Patalinghug, there is no reason not to apply the same regulation to Ymbong who was on a
similar situation as the former. Thus, the CA found that the NLRC overstepped its area of
discretion to a point of grave abuse in declaring Ymbong to have been illegally terminated.

370

The CA ruled that ABS-CBN is estopped from claiming that Ymbong was not its employee
after applying the provisions of Policy No. HR-ER-016 to him. It noted that said policy is
entitled Policy on Employees Seeking Public Office and the guidelines contained therein
specifically pertain to employees and did not even mention talents or independent
contractors. It held that it is a complete turnaround on ABS-CBNs part to later argue that
Ymbong is only a radio talent or independent contractor and not its employee. By applying
the subject company policy on Ymbong, ABS-CBN had explicitly recognized him to be an
employee and not merely an independent contractor.

The CA concluded that there is no illegal dismissal to speak of in the instant case as Ymbong
is considered resigned when he ran for an elective post pursuant to the subject company
policy.
Hence, this petition.
Petitioner argues that the CA gravely erred: (1) in upholding Policy No. HR-ER-016; (2) in
upholding the validity of the termination of Ymbongs services; and (3) when it reversed the
decision of the NLRC 4th Division of Cebu City which affirmed the decision of Labor Arbiter
Nicasio C. Anion.[22]
Ymbong argues that the subject company policy is a clear interference and a gross violation of
an employees right to suffrage. He is surprised why it was easy for the CA to rule that
Luzons memorandum ran counter to an existing policy while on the other end, it did not see
that it was in conflict with the constitutional right to suffrage. He also points out that the
issuance of the March 25, 1998 Memorandum was precisely an exercise of the management
power to which an employee like him must respect; otherwise, he will be sanctioned for
disobedience or worse, even terminated. He was not in a position to know which between the
two issuances was correct and as far as he is concerned, the March 25, 1998 Memorandum
superseded the subject company policy. Moreover, ABS-CBN cannot disown acts of its
officers most especially since it prejudiced his property rights.[23]
As to the validity of his dismissal, Ymbong contends that the ground relied upon by ABSCBN is not among the just and authorized causes provided in the Labor Code, as amended.
And even assuming the subject company policy passes the test of validity under the pretext of
the right of the management to discipline and terminate its employees, the exercise of such
right is not without bounds. Ymbong avers that his automatic termination was a blatant
disregard of his right to due process. He was never asked to explain why he did not tender his
resignation before he ran for public office as mandated by the subject company policy.[24]
Ymbong likewise asseverates that both the Labor Arbiter and the NLRC were consistent in
their findings that he was illegally dismissed. It is settled that factual findings of labor
administrative officials, if supported by substantial evidence, are accorded not only great
respect but even finality.[25]
ABS-CBN, for its part, counters that the validity of policies such as Policy No. HR-ER-016
has long been upheld by this Court which has ruled that a media company has a right to
impose a policy providing that employees who file their certificates of candidacy in any
election shall be considered resigned.[26] Moreover, case law has upheld the validity of the
exercise of management prerogatives even if they appear to limit the rights of employees as
long as there is no showing that management prerogatives were exercised in a manner
contrary to law.[27] ABS-CBN contends that being the largest media and entertainment
company in the country, its reputation stems not only from its ability to deliver quality
entertainment programs but also because of neutrality and impartiality in delivering news.[28]

Page

ABS-CBN likewise opposes Ymbongs claim that he was terminated. ABS-CBN argues that
on the contrary, Ymbongs unilateral act of filing his certificate of candidacy is an overt act
tantamount to voluntary resignation on his part by virtue of the clear mandate found in Policy
No. HR-ER-016. Ymbong, however, failed to file his resignation and in fact misled his
superiors by making them believe that he was going on leave to campaign for the
administration candidates but in fact, he actually ran for councilor. He also claims to have

371

ABS-CBN further argues that nothing in the company policy prohibits its employees from
either accepting a public appointive position or from running for public office. Thus, it
cannot be considered as violative of the constitutional right of suffrage. Moreover, the
Supreme Court has recognized the employers right to enforce occupational qualifications as
long as the employer is able to show the existence of a reasonable business necessity in
imposing the questioned policy. Here, Policy No. HR-ER-016 itself states that it was issued
to protect the company from any public misconceptions and [t]o preserve its objectivity,
neutrality and credibility. Thus, it cannot be denied that it is reasonable under the
circumstances.[29]

fully apprised Luzon through a letter of his intention to run for public office, but he failed to
adduce a copy of the same.[30]
As to Ymbongs argument that the CA should not have reversed the findings of the Labor
Arbiter and the NLRC, ABS-CBN asseverates that the CA is not precluded from making its
own findings most especially if upon its own review of the case, it has been revealed that the
NLRC, in affirming the findings of the Labor Arbiter, committed grave abuse of discretion
amounting to lack or excess of jurisdiction when it failed to apply the subject company policy
in Ymbongs case when it readily applied the same to Patalinghug.[31]
Essentially, the issues to be resolved in the instant petition are: (1) whether Policy No. HRER-016 is valid; (2) whether the March 25, 1998 Memorandum issued by Luzon superseded
Policy No. HR-ER-016; and (3) whether Ymbong, by seeking an elective post, is deemed to
have resigned and not dismissed by ABS-CBN.
Policy No. HR-ER-016 is valid.
This is not the first time that this Court has dealt with a policy similar to Policy No. HR-ER016. In the case of Manila Broadcasting Company v. NLRC,[32] this Court ruled:
What is involved in this case is an unwritten company policy considering any employee who
files a certificate of candidacy for any elective or local office as resigned from the company.
Although 11(b) of R.A. No. 6646 does not require mass media commentators and
announcers such as private respondent to resign from their radio or TV stations but only to go
on leave for the duration of the campaign period, we think that the company may nevertheless
validly require them to resign as a matter of policy. In this case, the policy is justified on the
following grounds:
Working for the government and the company at the same time is clearly disadvantageous and
prejudicial to the rights and interest not only of the company but the public as well. In the
event an employee wins in an election, he cannot fully serve, as he is expected to do, the
interest of his employer. The employee has to serve two (2) employers, obviously detrimental
to the interest of both the government and the private employer.
In the event the employee loses in the election, the impartiality and cold neutrality of an
employee as broadcast personality is suspect, thus readily eroding and adversely affecting the
confidence and trust of the listening public to employers station.[33]
ABS-CBN, like Manila Broadcasting Company, also had a valid justification for Policy No.
HR-ER-016. Its rationale is embodied in the policy itself, to wit:
Rationale:
ABS-CBN BROADCASTING CORPORATION strongly believes that it is to the best
interest of the company to continuously remain apolitical. While it encourages and supports
its employees to have greater political awareness and for them to exercise their right to
suffrage, the company, however, prefers to remain politically independent and unattached to
any political individual or entity.
Therefore, employees who [intend] to run for public office or accept political appointment
should resign from their positions, in order to protect the company from any public
misconceptions. To preserve its objectivity, neutrality and credibility, the company reiterates
the following policy guidelines for strict implementation.

Page

We have consistently held that so long as a companys management prerogatives are

exercised in good faith for the advancement of the employers interest and not for the purpose
of defeating or circumventing the rights of the employees under special laws or under valid
agreements, this Court will uphold them.[35] In the instant case, ABS-CBN validly justified
the implementation of Policy No. HR-ER-016. It is well within its rights to ensure that it

372

x x x x[34] [Emphasis supplied.]

maintains its objectivity and credibility and freeing itself from any appearance of impartiality
so that the confidence of the viewing and listening public in it will not be in any way eroded.
Even as the law is solicitous of the welfare of the employees, it must also protect the right of
an employer to exercise what are clearly management prerogatives. The free will of
management to conduct its own business affairs to achieve its purpose cannot be denied.[36]
It is worth noting that such exercise of management prerogative has earned a stamp of
approval from no less than our Congress itself when on February 12, 2001, it enacted
Republic Act No. 9006, otherwise known as the Fair Election Act. Section 6.6 thereof
reads:
6.6. Any mass media columnist, commentator, announcer, reporter, on-air correspondent or
personality who is a candidate for any elective public office or is a campaign volunteer for or
employed or retained in any capacity by any candidate or political party shall be deemed
resigned, if so required by their employer, or shall take a leave of absence from his/her work
as such during the campaign period: Provided, That any media practitioner who is an official
of a political party or a member of the campaign staff of a candidate or political party shall
not use his/her time or space to favor any candidate or political party. [Emphasis and
underscoring supplied.]
Policy No. HR-ER-016 was not superseded by the March 25, 1998 Memorandum
The CA correctly ruled that though Luzon, as Assistant Station Manager for Radio of ABSCBN, has policy-making powers in relation to his principal task of administering the
networks radio station in the Cebu region, the exercise of such power should be in accord
with the general rules and regulations imposed by the ABS-CBN Head Office to its
employees. Clearly, the March 25, 1998 Memorandum issued by Luzon which only requires
employees to go on leave if they intend to run for any elective position is in absolute
contradiction with Policy No. HR-ER-016 issued by the ABS-CBN Head Office in Manila
which requires the resignation, not only the filing of a leave of absence, of any employee who
intends to run for public office. Having been issued beyond the scope of his authority, the
March 25, 1998 Memorandum is therefore void and did not supersede Policy No. HR-ER016.
Also worth noting is that Luzon in his Sworn Statement admitted the inaccuracy of his
recollection of the company policy when he issued the March 25, 1998 Memorandum and
stated therein that upon double-checking of the exact text of the policy statement and
subsequent confirmation with the ABS-CBN Head Office in Manila, he learned that the
policy required resignation for those who will actually run in elections because the company
wanted to maintain its independence. Since the officer who himself issued the subject
memorandum acknowledged that it is not in harmony with the Policy issued by the upper
management, there is no reason for it to be a source of right for Ymbong.
Ymbong is deemed resigned when he ran for councilor.
As Policy No. HR-ER-016 is the subsisting company policy and not Luzons March 25, 1998
Memorandum, Ymbong is deemed resigned when he ran for councilor.

Page

In addition, we do not subscribe to Ymbongs claim that he was not in a position to know
which of the two issuances was correct. Ymbong most likely than not, is fully aware that the
subsisting policy is Policy No. HR-ER-016 and not the March 25, 1998 Memorandum and it
was for this reason that, as stated by Luzon in his Sworn Statement, he only told the latter that

373

We find no merit in Ymbongs argument that [his] automatic termination x x x was a blatant
[disregard] of [his] right to due process as he was never asked to explain why he did not
tender his resignation before he ran for public office as mandated by [the subject company
policy].[37] Ymbongs overt act of running for councilor of Lapu-Lapu City is tantamount to
resignation on his part. He was separated from ABS-CBN not because he was dismissed but
because he resigned. Since there was no termination to speak of, the requirement of due
process in dismissal cases cannot be applied to Ymbong. Thus, ABS-CBN is not duty-bound
to ask him to explain why he did not tender his resignation before he ran for public office as
mandated by the subject company policy.

he will only campaign for the administration ticket and not actually run for an elective post.
Ymbong claims he had fully apprised Luzon by letter of his plan to run and even filed a leave
of absence but records are bereft of any proof of said claim. Ymbong claims that the letter
stating his intention to go on leave to run in the election is attached to his Position Paper as
Annex A, a perusal of said pleading attached to his petition before this Court, however,
show that Annex A was not his letter to Luzon but the September 14, 1998 Memorandum
informing Ymbong that his services had been automatically terminated when he ran for a
local government position.
Moreover, as pointed out by ABS-CBN, had Ymbong been truthful to his superiors, they
would have been able to clarify to him the prevailing company policy and inform him of the
consequences of his decision in case he decides to run, as Luzon did in Patalinghugs case.
WHEREFORE, the petition for review on certiorari is DENIED for lack of merit.
With costs against petitioner.

Page

374

SO ORDERED.

[ G.R. No. 117055, March 29, 1996 ]

SAN MIGUEL CORPORATION, PETITIONER,VS. NATIONAL LABOR
RELATIONS COMMISSION, HON. QUINTIN B. CUETO III AND VIRGILIO
TORRES, RESPONDENTS.
DECISION
PANGANIBAN, J.:
Is an employee who was dismissed due to misappropriation of company funds entitled to
retirement benefits and/or financial benefits "as a matter of fairness, equity, humanitarian
consideration and compassion"? This is the main question brought in this petition for
certiorari to annul the following:
(a) Resolution[1] dated April 21, 1994 of the National Labor Relations Commission in NLRC
Case No. RAB 12-08-00220-88 and another Resolution[2] dated June 17, 1995 denying the
motion for reconsideration; and
(b) Decision[3] dated February 25, 1990 of the Labor Arbiter which was affirmed by the above
resolutions.
On October 2, 1995, the case was given due course by the Court. On October 23, 1995, the
First Division transferred this case to the Third. After careful deliberation on the petition, as
well as the Solicitor Generals and the private respondents comments, petitioners reply and
the memoranda of the parties, the Court assigned the writing of this Decision to the
undersigned ponente.
The Facts
Private respondent Virgilio S. Torres was employed by petitioner San Miguel Corporation
(SMC) on November 1, 1978 as a Route Salesman assigned in Midsayap, Cotabato. Having
been found guilty of multiple misappropriation of company funds in the sum of P12,898.00
and of borrowing money and merchandise from customers, he was dismissed effective on July
15, 1988. At the time of his dismissal, he was receiving a monthly salary of P5,180.00.
On August 16, 1988, Torres filed a complaint for illegal dismissal in the Regional Arbitration
Branch No. XII, NLRC, Cotabato City.
In resolving his complaint for illegal dismissal, the Labor Arbiter rendered the questioned
Decision, the dispositive portion[4] of which reads:
"WHEREFORE, with the above discussion and after thorough scrutiny of the records and
evidences of this above entitled case, this Executive Labor Arbiter hereby rules to DISMISS
the Complainants Complaint against Respondent San Miguel Corporation for lack of merit as
his termination is based on lawful and justifiable grounds.

In finding that the twin requirements for legal dismissal, namely just cause and due process,
were observed, the NLRC said:[5]

Page

"The other claims of the complainant are hereby DISMISSED for lack of merit."
From this decision, both petitioner and private respondents appealed but the NLRC dismissed
both appeals "for lack of merit" through the assailed Resolutions.

375

"That although it is decreed that the dismissal of the Complainant is valid, still by reason of
fairness, equity, humanitarian consideration and compassion, the Complainant with the
expectation that this will not happen again in his future endeavors and in consonance with the
previous offer made by Respondent to the Complainant as earlier discussed, it is hereby
ordered that the Respondent San Miguel Corporation should allow and grant Complainant the
privilege to retire from the company with the availment of 100% benefits as practiced by the
company, accruing from the time said offer was first made.

"Complainant contends that his dismissal was not founded on a just cause to terminate
employment.
"An examination of the records shows that the suspension of the complainant which led to his
termination was precipitated by the third of three (3) infractions he committed against the
company, the first and second of which occurring in 1982 and 1983, respectively, for which
he was likewise meted out the same penalty. While it is true that labor laws in this
jurisdiction have been enacted not only to favor the workingman, but also to recognize and
respect the rights of the employer, such a set-up does not provide the employees with the
green light to disregard the reasonable rules drawn up by management for harmonious
relations between labor and capital in the machinery of production. Success in any given
enterprise cannot be attained without industrial peace and harmony where discipline plays a
pivotal role. Thus, while employers are obliged to give their employees just compensation
and treatment, they have also the right to expect from their workers dedicated service,
diligence, honesty and good conduct.
"In the case at bench, complainants malpractice of collecting beer empties and receiving cash
without issuing the corresponding official receipts therefor to his customers has constrained
respondent to act in order to protect its interest. In pursuing its defensive stance, the
Commission recognizes the right of respondent to take punitive action against an employee
where there exists a just cause sufficient in law to authorize the exercise of such prerogative
inherent to its self-preservation and continued existence. For "(T)he law in protecting the
rights of the laborer authorizes neither the oppression nor self-destruction of the employer."
(Filipro, Inc. vs. NLRC, 145 SCRA 123).
"Complainant further contends that respondent committed unfair labor practice in terminating
his employment. The Commission however, on this score is not in accord with his theory that
because of his involvement in union activities, complainant provoked the ire of the
respondent, which was the reason why he was subjected to harassment ultimately leading to
his termination. The record is bereft of any persuasive evidence to this effect. On the contrary,
respondent, despite the malpractices and rampant violation of company rules and regulations
by the complainant, was even lenient to the latter, in that instead of dismissing him, he was
allowed to retire from the service and as a consequence the former was even willing to give
him 100% retirement benefits. But said offer was rejected by the complainant who instead
insisted on 150% retirement benefits which of course was denied by the respondent.
"Complainant furthermore raises the issue that he was not afforded due process during the
investigation conducted by the respondent. Said contention is untenable. Upon verification
from the records, it is very clear that complainant was given ample opportunity to answer the
charges imputed against him but instead of rebutting them, he filed a request to avail of an
early retirement as contained in his letter dated March 27, 1987. When told to file his
explanation within 72 hours he requested for 15 days within which to submit the same, but
even after the lapse of the period given no explanation was ever submitted by him. Due
process was observed in effecting the termination of the complainant. As could be seen, the
law lays down the procedure prior to the dismissal of an employee. It need not be observed to
the letter but at least it must be done in the natural sequence of notice, hearing and judgment.
(Ruffy vs. NLRC, 182 SCRA 365) "Due process as a constitutional precept does not always
and in all situations require a trial type proceeding" (Zalvidar vs. Gonzales,) G.R. No. 80598,
October 9, 1988). The essence of due process is simply an opportunity to be heard (Bermejo
vs. Barrios, 31 SCRA 764) and complainant was given all such opportunity."
In its Petition, SMC presents the following "justifications"[6]

Page

"The Labor Tribunals, in grave abuse of discretion amounting to lack or excess of jurisdiction,
capriciously, whimsically and arbitrarily ordered petitioner SMC to grant private respondent
Virgilio Torres 100% separation benefits knowing fully well that such award is contrary to
law and in utter disregard of prevailing jurisprudence as enunciated in the leading case of
Philippine Long Distance Telephone Co. (PLDT) vs. NLRC, 164 SCRA 671.

376

II
"The Labor Tribunals gravely abused their discretion amounting to lack or excess of
jurisdiction in ordering SMC to grant separation/retirement benefits to private respondent
considering that the assailed decisions are against public policy."
In his Memorandum, private respondent explains that the "Executive Labor Arbiter and the
National Labor Relations Commission, Fifth Division, did not commit any error when the
former ruled and affirmed by the latter, that Respondent San Miguel Corporation should allow
and grant Complainant Virgilio Torres the privilege to retire from the company with the
availment of 100% benefits as practiced by the company, accruing from the time said offer
was made."[7] Private respondent was referring to an offer made by SMC to him to settle the
case amicably which he rejected because he wanted "150% benefits," not 100%.
The Solicitor General, in his Comment which he adopted as his Memorandum, agreed with
the petitioner that the public respondent acted with grave abuse of discretion in ordering
payment of the benefit to the employee whose dismissal was found by such labor tribunals as
legal, there being sufficient cause and due process having been observed. Said the SolicitorGeneral:[8]
"Petitioners offer of 100% retirement benefit to private respondent was definitely not a done
deal. It imploded the moment private respondent rejected it. For public respondents Labor
Arbiter and NLRC to allow private respondent to collect yet on such mooted offer is to inflict
a grave and insensible injustice on the petitioner. Private respondent cannot, with fairness, be
allowed to take his bread and eat it too."
"Verily, were said offer considered still valid and subsisting despite its repudiation by private
respondent, petitioner SMC would be placed in a "no-win situation" where, even should it win
the illegal dismissal case, it would just the same be made to pay the offer. On the other hand,
private respondent Torres would be placed in a "no-lose situation" where, even should he lose
the illegal dismissal case, he could just the same collect on the offer. This would be the
height of unfairness and injustice.
"It would, moreover, create a bad precedent if petitioner were still made to pay the rejected
offer after the illegal dismissal case was thrown out on a finding of just and lawful cause for
private respondents separation from the service. Such a move will negate the reason for
compromise agreements, and brush aside the policy objective of extrajudicial settlement. As
correctly pointed out by the petitioner, it will encourage litigants to "gamble on the outcome
of cases, hoping against hope that the amounts offered in settlement x x x are the minimum
they could get" (vide: p. 17, Petition).
"Speaking of justice and fairness in the case at bar, these values should more appropriately
inure to petitioners favor whose compromise offer was declined and was thus forced to
litigate. After spending so much money, time and effort for its defense, and after having
proven the justness and legality of dismissing private respondent from the service, it would
now be most unjust and unfair to make petitioner spend even more for private respondents
alleged financial woes wrought by such dismissal for which he is solely to blame. Such
injustice and unfairness cannot be trivialized simply in the name of human consideration and
compassion."
The Issue

Page

377

Considering the above submissions of the parties, the issue here is: Did public respondents
NLRC and Labor Arbiter act with grave abuse of discretion in requiring petitioner to grant
private respondent the privilege to retire with availment of 100% benefits as "a matter of
fairness, equity, humanitarian consideration and compassion," despite the finding that the
dismissal was legal - there being sufficient cause found after observing due process?

The Courts Ruling

We rule for petitioner.
In Philippine Long Distance Telephone Company vs. NLRC, et al.,[9] we held that in the case
of employees separated from the service for just and valid cause due to "x x x an offense
involving moral turpitude x x x, the employer may not be required to give the dismissed
employee separation pay, or financial assistance, or whatever name it is called, on the ground
of social justice."
"We hold that henceforth separation pay shall be allowed as a measure of social justice only
in those instances where the employee is validly dismissed for causes other than serious
misconduct or those reflecting on his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like
theft or illicit sexual relations with a fellow worker, the employer may not be required to give
the dismissed employee separation pay, or financial assistance, or whatever other name it is
called, on the ground of social justice.
"A contrary rule would, as the petitioner correctly argues, have the effect of rewarding rather
than punishing the erring employee for his offense. And we do not agree that the punishment
is his dismissal only and that the separation pay has nothing to do with the wrong he has
committed. Of course it has. Indeed, if the employee who steals from the company is granted
separation pay even as he is validly dismissed, it is not unlikely that he will commit a similar
offense in his next employment because he thinks he can expect a like leniency if he is again
found out. This kind of misplaced compassion is not going to do labor in general any good as
it will encourage the infiltration of its ranks by those who do not deserve the protection and
concern of the Constitution.

Page

In the present case, the petitioner was dismissed due to multiple misappropriation of company
funds. Though private respondent disputed this, both the Labor Arbiter and the NLRC have
affirmed the factual basis of the cause advanced by petitioner. It is a well-entrenched rule in
this country that findings of facts of the NLRC are accorded great respect and even finality.[11]
In the instant case, we have no reason to deviate from this policy as private respondent failed
to convince us that the findings of the labor arbiter as affirmed by the NLRC are devoid of
basis or are otherwise capricious or arbitrary. "The NLRCs factual findings, if supported by
substantial evidence, are entitled to great respect and even finality, unless petitioner is able to
show that it simply and arbitrarily disregarded evidence before it or had misapprehended
evidence to such an extent as to compel a contrary conclusion if such evidence had been
properly appreciated."[12] Misappropriation is a species of dishonesty and is therefore an
offense involving moral turpitude. Certainly, a dishonest employee cannot be rewarded with
separation pay or any financial benefit after his culpability is established in two decisions by
competent labor tribunals, which decisions appear to be well-supported by the evidence. To
hold otherwise, even in the name of compassion, would be to send a wrong signal not only
that "crime pays" but also that one can enrich himself at the expense of another in the name of
social justice. And courts as well as quasi-judicial entities will be overrun by petitioners
mouthing dubious pleas for misplaced social justice. Indeed, before there can be an occasion
for compassion and mercy, there must first be justice for all. Otherwise, employees will be
encouraged to steal and misappropriate in the expectation that eventually, in the name of

378

"The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best it may mitigate the penalty but it certainly will not
condone the offense. Compassion for the poor is an imperative of every humane society but
only when the recipient is not a rascal claiming an undeserved privilege. Social justice cannot
be permitted to be refuge of scoundrels any more than can equity be an impediment to the
punishment of the guilty. Those who invoke social justice may do so only if their hands are
clean and their motives blameless and hot simply because they happen to be poor. This great
policy of our Constitution is not meant for the protection of those who have proved they are
not worthy of it, like the workers who have tainted the cause of labor with the blemishes of
their own character."
The above doctrine was affirmed in succeeding cases[10] thus evidencing its stability as a
rooted judicial pronouncement.

social justice and compassion, they will not be penalized but instead financially rewarded.
Verily, a contrary holding will merely encourage lawlessness, dishonesty and duplicity.
These are not the values that society cherishes; these are the habits that it abhors.
In his Memorandum, private respondent repeatedly argues that SMCs "offer to the private
respondent to retire from the company with the availment of 100% benefits is supported by
facts x x x records x x x and findings of the Executive Labor Arbiter" and affirmed by the
NLRC; and that it (SMC) "had approved the respondents application for optional retirement
benefits computed at 100% which is equivalent to one (1) month salary for every year of
service." He insists that he is asking for retirement benefits, not separation pay and "the grant
of retirement benefits, as a matter of practice, can never be considered contrary to law or
public policy." He adds that such benefits are due him "not purely on humanitarian or social
justice" considerations but on the basis of an offer by petitioner SMC which "unilaterally
affirmed it under existing company policy."
On the other hand, SMC steadfastly maintains in its own Memorandum[13] that it "was willing
to grant him (Torres) financial assistance, not retirement benefits (because as evidence clearly
shows he was not entitled thereto as a matter of right for not having served meritoriously for
15 years), in reply to his request for retirement; private respondent however spurned said
assistance. The counter-offer of financial assistance was made in good faith to avert litigation
which would be too costly and time-consuming and also to buy peace."
Indeed, the policy of the law is to encourage compromises.[14] That is why offers made to buy
peace and avoid litigations are never taken against the offeror. Otherwise, such laudable
policy would be negated as the parties will refrain from making any offer, knowing that even
if rejected, the same would later on be used against them and, worse, as in the instant case,
still be enforced after the opposing side has lost the very litigation sought to be avoided by the
offer.
Because of his intransigence in rejecting SMCs offer during the mandatory pre-trial before
the labor arbiter, and after SMC has spent time, money and resources in litigating the claims,
private respondent cannot - after losing such litigation - now arrogantly turn to the offeror and
defiantly demand the fulfillment of the pre-law suit offer. This would be totally unfair and
unjust in our system of legal advocacy.
WHEREFORE, the petition is partly GRANTED. The assailed Resolutions of the NLRC and
Decision of the Labor Arbiter are (a) MODIFIED by deleting entirely the award to private
respondent of "the privilege to retire from the company with the availment of 100% benefits
as practiced by the company, accruing from the time said offer was made", but (b)
AFFIRMED in all other respects.

Page

379

SO ORDERED.

[ G.R. NO. 164774, April 12, 2006 ]

STAR PAPER CORPORATION, JOSEPHINE ONGSITCO & SEBASTIAN CHUA,
PETITIONERS, VS. RONALDO D. SIMBOL, WILFREDA N. COMIA & LORNA E.
ESTRELLA, RESPONDENTS.
DECISION
PUNO, J.:
We are called to decide an issue of first impression: whether the policy of the employer
banning spouses from working in the same company violates the rights of the employee under
the Constitution and the Labor Code or is a valid exercise of management prerogative.
At bar is a Petition for Review on Certiorari of the Decision of the Court of Appeals dated
August 3, 2004 in CA-G.R. SP No. 73477 reversing the decision of the National Labor
Relations Commission (NLRC) which affirmed the ruling of the Labor Arbiter.
Petitioner Star Paper Corporation (the company) is a corporation engaged in trading principally of paper products. Josephine Ongsitco is its Manager of the Personnel and
Administration Department while Sebastian Chua is its Managing Director.
The evidence for the petitioners show that respondents Ronaldo D. Simbol (Simbol), Wilfreda
N. Comia (Comia) and Lorna E. Estrella (Estrella) were all regular employees of the
company.[1]
Simbol was employed by the company on October 27, 1993. He met Alma Dayrit, also an
employee of the company, whom he married on June 27, 1998. Prior to the marriage,
Ongsitco advised the couple that should they decide to get married, one of them should resign
pursuant to a company policy promulgated in 1995,[2] viz.:
1. New applicants will not be allowed to be hired if in case he/she has [a] relative, up to
[the] 3rd degree of relationship, already employed by the company.
2. In case of two of our employees (both singles [sic], one male and another female)
developed a friendly relationship during the course of their employment and then
decided to get married, one of them should resign to preserve the policy stated
above.[3]
Simbol resigned on June 20, 1998 pursuant to the company policy.[4]
Comia was hired by the company on February 5, 1997. She met Howard Comia, a coemployee, whom she married on June 1, 2000. Ongsitco likewise reminded them that
pursuant to company policy, one must resign should they decide to get married. Comia
resigned on June 30, 2000.[5]
Estrella was hired on July 29, 1994. She met Luisito Zuiga (Zuiga), also a co-worker.
Petitioners stated that Zuiga, a married man, got Estrella pregnant. The company allegedly
could have terminated her services due to immorality but she opted to resign on December 21,
1999.[6]

Page

Respondents offer a different version of their dismissal. Simbol and Comia allege that they
did not resign voluntarily; they were compelled to resign in view of an illegal company
policy. As to respondent Estrella, she alleges that she had a relationship with co-worker
Zuiga who misrepresented himself as a married but separated man. After he got her
pregnant, she discovered that he was not separated. Thus, she severed her relationship with
him to avoid dismissal due to the company policy. On November 30, 1999, she met an
accident and was advised by the doctor at the Orthopedic Hospital to recuperate for twentyone (21) days. She returned to work on December 21, 1999 but she found out that her name
was on-hold at the gate. She was denied entry. She was directed to proceed to the personnel

380

The respondents each signed a Release and Confirmation Agreement. They stated therein that
they have no money and property accountabilities in the company and that they release the
latter of any claim or demand of whatever nature.[7]

office where one of the staff handed her a memorandum. The memorandum stated that she
was being dismissed for immoral conduct. She refused to sign the memorandum because she
was on leave for twenty-one (21) days and has not been given a chance to explain. The
management asked her to write an explanation. However, after submission of the explanation,
she was nonetheless dismissed by the company. Due to her urgent need for money, she later
submitted a letter of resignation in exchange for her thirteenth month pay.[8]
Respondents later filed a complaint for unfair labor practice, constructive dismissal,
separation pay and attorney's fees. They averred that the aforementioned company policy is
illegal and contravenes Article 136 of the Labor Code. They also contended that they were
dismissed due to their union membership.
On May 31, 2001, Labor Arbiter Melquiades Sol del Rosario dismissed the complaint for lack
of merit, viz.:
[T]his company policy was decreed pursuant to what the respondent corporation perceived as
management prerogative. This management prerogative is quite broad and encompassing for
it covers hiring, work assignment, working method, time, place and manner of work, tools to
be used, processes to be followed, supervision of workers, working regulations, transfer of
employees, work supervision, lay-off of workers and the discipline, dismissal and recall of
workers. Except as provided for or limited by special law, an employer is free to regulate,
according to his own discretion and judgment all the aspects of employment.[9] (Citations
omitted.)
On appeal to the NLRC, the Commission affirmed the decision of the Labor Arbiter on
January 11, 2002. [10]
Respondents filed a Motion for Reconsideration but was denied by the NLRC in a
Resolution[11] dated August 8, 2002. They appealed to respondent court via Petition for
Certiorari.
In its assailed Decision dated August 3, 2004, the Court of Appeals reversed the NLRC
decision, viz.:
WHEREFORE, premises considered, the May 31, 2002 (sic)[12] Decision of the National
Labor Relations Commission is hereby REVERSED and SET ASIDE and a new one is
entered as follows:
(1) Declaring illegal, the petitioners' dismissal from employment and ordering private
respondents to reinstate petitioners to their former positions without loss of seniority rights
with full backwages from the time of their dismissal until actual reinstatement; and
(2) Ordering private respondents to pay petitioners attorney's fees amounting to 10% of the
award and the cost of this suit.[13]
On appeal to this Court, petitioners contend that the Court of Appeals erred in holding that:
1. X X X THE SUBJECT 1995 POLICY/REGULATION IS VIOLATIVE OF THE
CONSTITUTIONAL RIGHTS TOWARDS MARRIAGE AND THE FAMILY OF
EMPLOYEES AND OF ARTICLE 136 OF THE LABOR CODE; AND
2. X X X RESPONDENTS' RESIGNATIONS WERE FAR FROM VOLUNTARY.[14]
We affirm.
The 1987 Constitution[15] states our policy towards the protection of labor under the following
provisions, viz.:
Article II, Section 18. The State affirms labor as a primary social economic force. It shall
protect the rights of workers and promote their welfare.

Page

Article XIII, Sec. 3. The State shall afford full protection to labor, local and overseas,
organized and unorganized, and promote full employment and equality of employment
opportunities for all.

381

xxx

It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with
law. They shall be entitled to security of tenure, humane conditions of work, and a living
wage. They shall also participate in policy and decision-making processes affecting their
rights and benefits as may be provided by law.
The State shall promote the principle of shared responsibility between workers and
employers, recognizing the right of labor to its just share in the fruits of production and the
right of enterprises to reasonable returns on investments, and to expansion and growth.
The Civil Code likewise protects labor with the following provisions:
Art. 1700. The relation between capital and labor are not merely contractual. They are so
impressed with public interest that labor contracts must yield to the common good. Therefore,
such contracts are subject to the special laws on labor unions, collective bargaining, strikes
and lockouts, closed shop, wages, working conditions, hours of labor and similar subjects.
Art. 1702. In case of doubt, all labor legislation and all labor contracts shall be construed in
favor of the safety and decent living for the laborer.
The Labor Code is the most comprehensive piece of legislation protecting labor. The case at
bar involves Article 136 of the Labor Code which provides:
Art. 136. It shall be unlawful for an employer to require as a condition of employment or
continuation of employment that a woman employee shall not get married, or to stipulate
expressly or tacitly that upon getting married a woman employee shall be deemed resigned or
separated, or to actually dismiss, discharge, discriminate or otherwise prejudice a woman
employee merely by reason of her marriage.
Respondents submit that their dismissal violates the above provision. Petitioners allege that its
policy "may appear to be contrary to Article 136 of the Labor Code" but it assumes a new
meaning if read together with the first paragraph of the rule. The rule does not require the
woman employee to resign. The employee spouses have the right to choose who between
them should resign. Further, they are free to marry persons other than co-employees. Hence, it
is not the marital status of the employee, per se, that is being discriminated. It is only intended
to carry out its no-employment-for-relatives-within-the-third-degree-policy which is within
the ambit of the prerogatives of management.[16]
It is true that the policy of petitioners prohibiting close relatives from working in the same
company takes the nature of an anti-nepotism employment policy. Companies adopt these
policies to prevent the hiring of unqualified persons based on their status as a relative, rather
than upon their ability.[17] These policies focus upon the potential employment problems
arising from the perception of favoritism exhibited towards relatives.
With more women entering the workforce, employers are also enacting employment policies
specifically prohibiting spouses from working for the same company. We note that two types
of employment policies involve spouses: policies banning only spouses from working in the
same company (no-spouse employment policies), and those banning all immediate family
members, including spouses, from working in the same company (anti-nepotism employment
policies).[18]

On the other hand, to establish disparate impact, the complainants must prove that a facially
neutral policy has a disproportionate effect on a particular class. For example, although most

Page

In challenging the anti-nepotism employment policies in the United States, complainants

utilize two theories of employment discrimination: the disparate treatment and the disparate
impact. Under the disparate treatment analysis, the plaintiff must prove that an employment
policy is discriminatory on its face. No-spouse employment policies requiring an employee of
a particular sex to either quit, transfer, or be fired are facially discriminatory. For example, an
employment policy prohibiting the employer from hiring wives of male employees, but not
husbands of female employees, is discriminatory on its face.[22]

382

Unlike in our jurisdiction where there is no express prohibition on marital discrimination, [19]
there are twenty state statutes[20] in the United States prohibiting marital discrimination. Some
state courts[21] have been confronted with the issue of whether no-spouse policies violate their
laws prohibiting both marital status and sex discrimination.

employment policies do not expressly indicate which spouse will be required to transfer or
leave the company, the policy often disproportionately affects one sex.[23]
The state courts' rulings on the issue depend on their interpretation of the scope of marital
status discrimination within the meaning of their respective civil rights acts. Though they
agree that the term "marital status" encompasses discrimination based on a person's status as
either married, single, divorced, or widowed, they are divided on whether the term has a
broader meaning. Thus, their decisions vary.[24]
The courts narrowly[25] interpreting marital status to refer only to a person's status as married,
single, divorced, or widowed reason that if the legislature intended a broader definition it
would have either chosen different language or specified its intent. They hold that the relevant
inquiry is if one is married rather than to whom one is married. They construe marital status
discrimination to include only whether a person is single, married, divorced, or widowed and
not the "identity, occupation, and place of employment of one's spouse." These courts have
upheld the questioned policies and ruled that they did not violate the marital status
discrimination provision of their respective state statutes.
The courts that have broadly[26] construed the term "marital status" rule that it encompassed
the identity, occupation and employment of one's spouse. They strike down the no-spouse
employment policies based on the broad legislative intent of the state statute. They reason that
the no-spouse employment policy violate the marital status provision because it arbitrarily
discriminates against all spouses of present employees without regard to the actual effect on
the individual's qualifications or work performance.[27] These courts also find the no-spouse
employment policy invalid for failure of the employer to present any evidence of business
necessity other than the general perception that spouses in the same workplace might
adversely affect the business.[28] They hold that the absence of such a bona fide occupational
qualification[29] invalidates a rule denying employment to one spouse due to the current
employment of the other spouse in the same office.[30] Thus, they rule that unless the
employer can prove that the reasonable demands of the business require a distinction based on
marital status and there is no better available or acceptable policy which would better
accomplish the business purpose, an employer may not discriminate against an employee
based on the identity of the employee's spouse.[31] This is known as the bona fide occupational
qualification exception.
We note that since the finding of a bona fide occupational qualification justifies an employer's
no-spouse rule, the exception is interpreted strictly and narrowly by these state courts. There
must be a compelling business necessity for which no alternative exists other than the
discriminatory practice.[32] To justify a bona fide occupational qualification, the employer
must prove two factors: (1) that the employment qualification is reasonably related to the
essential operation of the job involved; and, (2) that there is a factual basis for believing that
all or substantially all persons meeting the qualification would be unable to properly perform
the duties of the job.[33]

Page

The requirement that a company policy must be reasonable under the circumstances to qualify
as a valid exercise of management prerogative was also at issue in the 1997 case of Philippine
Telegraph and Telephone Company v. NLRC.[36] In said case, the employee was dismissed in

383

The concept of a bona fide occupational qualification is not foreign in our jurisdiction. We
employ the standard of reasonableness of the company policy which is parallel to the bona
fide occupational qualification requirement. In the recent case of Duncan Association of
Detailman-PTGWO and Pedro Tecson v. Glaxo Wellcome Philippines, Inc.,[34] we passed on
the validity of the policy of a pharmaceutical company prohibiting its employees from
marrying employees of any competitor company. We held that Glaxo has a right to guard its
trade secrets, manufacturing formulas, marketing strategies and other confidential programs
and information from competitors. We considered the prohibition against personal or marital
relationships with employees of competitor companies upon Glaxo's employees reasonable
under the circumstances because relationships of that nature might compromise the interests
of Glaxo. In laying down the assailed company policy, we recognized that Glaxo only aims to
protect its interests against the possibility that a competitor company will gain access to its
secrets and procedures.[35]

violation of petitioner's policy of disqualifying from work any woman worker who contracts
marriage. We held that the company policy violates the right against discrimination afforded
all women workers under Article 136 of the Labor Code, but established a permissible
exception, viz.:
[A] requirement that a woman employee must remain unmarried could be justified as a "bona
fide occupational qualification," or BFOQ, where the particular requirements of the job would
justify the same, but not on the ground of a general principle, such as the desirability of
spreading work in the workplace. A requirement of that nature would be valid provided it
reflects an inherent quality reasonably necessary for satisfactory job performance.[37]
(Emphases supplied.)
The cases of Duncan and PT&T instruct us that the requirement of reasonableness must be
clearly established to uphold the questioned employment policy. The employer has the burden
to prove the existence of a reasonable business necessity. The burden was successfully
discharged in Duncan but not in PT&T.
We do not find a reasonable business necessity in the case at bar.
Petitioners' sole contention that "the company did not just want to have two (2) or more of its
employees related between the third degree by affinity and/or consanguinity"[38] is lame. That
the second paragraph was meant to give teeth to the first paragraph of the questioned rule[39] is
evidently not the valid reasonable business necessity required by the law.
It is significant to note that in the case at bar, respondents were hired after they were found fit
for the job, but were asked to resign when they married a co-employee. Petitioners failed to
show how the marriage of Simbol, then a Sheeting Machine Operator, to Alma Dayrit, then an
employee of the Repacking Section, could be detrimental to its business operations. Neither
did petitioners explain how this detriment will happen in the case of Wilfreda Comia, then a
Production Helper in the Selecting Department, who married Howard Comia, then a helper in
the cutter-machine. The policy is premised on the mere fear that employees married to each
other will be less efficient. If we uphold the questioned rule without valid justification, the
employer can create policies based on an unproven presumption of a perceived danger at the
expense of an employee's right to security of tenure.
Petitioners contend that their policy will apply only when one employee marries a coemployee, but they are free to marry persons other than co-employees. The questioned policy
may not facially violate Article 136 of the Labor Code but it creates a disproportionate effect
and under the disparate impact theory, the only way it could pass judicial scrutiny is a
showing that it is reasonable despite the discriminatory, albeit disproportionate, effect. The
failure of petitioners to prove a legitimate business concern in imposing the questioned policy
cannot prejudice the employee's right to be free from arbitrary discrimination based upon
stereotypes of married persons working together in one company.[40]
Lastly, the absence of a statute expressly prohibiting marital discrimination in our jurisdiction
cannot benefit the petitioners. The protection given to labor in our jurisdiction is vast and
extensive that we cannot prudently draw inferences from the legislature's silence[41] that
married persons are not protected under our Constitution and declare valid a policy based on a
prejudice or stereotype. Thus, for failure of petitioners to present undisputed proof of a
reasonable business necessity, we rule that the questioned policy is an invalid exercise of
management prerogative. Corollarily, the issue as to whether respondents Simbol and Comia
resigned voluntarily has become moot and academic.

Page

Estrella claims that she was pressured to submit a resignation letter because she was in dire
need of money. We examined the records of the case and find Estrella's contention to be more
in accord with the evidence. While findings of fact by administrative tribunals like the NLRC

384

As to respondent Estrella, the Labor Arbiter and the NLRC based their ruling on the singular
fact that her resignation letter was written in her own handwriting. Both ruled that her
resignation was voluntary and thus valid. The respondent court failed to categorically rule
whether Estrella voluntarily resigned but ordered that she be reinstated along with Simbol and
Comia.

are generally given not only respect but, at times, finality, this rule admits of exceptions,[42] as
in the case at bar.
Estrella avers that she went back to work on December 21, 1999 but was dismissed due to her
alleged immoral conduct. At first, she did not want to sign the termination papers but she was
forced to tender her resignation letter in exchange for her thirteenth month pay.
The contention of petitioners that Estrella was pressured to resign because she got
impregnated by a married man and she could not stand being looked upon or talked about as
immoral[43] is incredulous. If she really wanted to avoid embarrassment and humiliation, she
would not have gone back to work at all. Nor would she have filed a suit for illegal dismissal
and pleaded for reinstatement. We have held that in voluntary resignation, the employee is
compelled by personal reason(s) to dissociate himself from employment. It is done with the
intention of relinquishing an office, accompanied by the act of abandonment. [44] Thus, it is
illogical for Estrella to resign and then file a complaint for illegal dismissal. Given the lack of
sufficient evidence on the part of petitioners that the resignation was voluntary, Estrella's
dismissal is declared illegal.
IN VIEW WHEREOF, the Decision of the Court of Appeals in CA-G.R. SP No. 73477 dated
August 3, 2004 is AFFIRMED.

Page

385

SO ORDERED.

[ G. R. NO. 153674, December 20, 2006 ]

AVON COSMETICS, INCORPORATED, JOSE MARIE FRANCO, PETITIONERS,
VS. LETICIA H. LUNA, RESPONDENT.
DECISION
CHICO-NAZARIO, J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, seeking
to reverse and set aside the Decision[1] dated 20 May 2002 of the Court of Appeals in CAG.R. CV No. 52550, which affirmed in toto the Decision[2] dated 26 January 1996 of the
Regional Trial Court (RTC) of Makati City, Branch 138, in Civil Case No. 88-2595, in favor
of herein respondent Leticia H. Luna (Luna), rendered by the Honorable Ed Vicente S.
Albano, designated as the "assisting judge" pursuant to Supreme Court Administrative Order
No. 70-94, dated 16 June 1994.
The Facts
The facts of the case are not in dispute. As culled from the records, they are as follows:
The present petition stemmed from a complaint[3] dated 1 December 1988, filed by herein
respondent Luna alleging, inter alia, that she began working for Beautifont, Inc. in 1972, first
as a franchise dealer and then a year later, as a Supervisor.
Sometime in 1978, Avon Cosmetics, Inc. (Avon), herein petitioner, acquired and took over
the management and operations of Beautifont, Inc. Nonetheless, respondent Luna continued
working for said successor company.
Aside from her work as a supervisor, respondent Luna also acted as a make-up artist of
petitioner Avon's Theatrical Promotion's Group, for which she received a per diem for each
theatrical performance.
On 5 November 1985, petitioner Avon and respondent Luna entered into an agreement,
entitled Supervisor's Agreement, whereby said parties contracted in the manner quoted below:
The Company agrees:
xxxx
1) To allow the Supervisor to purchase at wholesale the products of the Company.
xxxx
The Supervisor agrees:

Page

The Company and the Supervisor mutually agree:

xxxx
2) That this agreement in no way makes the Supervisor an employee or agent of the
Company, therefore, the Supervisor has no authority to bind the Company in any contracts
with other parties.
3) That the Supervisor is an independent retailer/dealer insofar as the Company is concerned,
and shall have the sole discretion to determine where and how products purchased from the
Company will be sold. However, the Supervisor shall not sell such products to stores,
supermarkets or to any entity or person who sells things at a fixed place of business.
4) That this agreement supersedes any agreement/s between the Company and the Supervisor.

386

1) To purchase products from the Company exclusively for resale and to be responsible for
obtaining all permits and licenses required to sell the products on retail.
xxxx

5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company.
6) Either party may terminate this agreement at will, with or without cause, at any time upon
notice to the other.
x x x x.[4]
By virtue of the execution of the aforequoted Supervisor's Agreement, respondent Luna
became part of the independent sales force of petitioner Avon.
Sometime in the latter part of 1988, respondent Luna was invited by a former Avon employee
who was then currently a Sales Manager of Sandr Philippines, Inc., a domestic corporation
engaged in direct selling of vitamins and other food supplements, to sell said products.
Respondent Luna apparently accepted the invitation as she then became a Group Franchise
Director of Sandr Philippines, Inc. concurrently with being a Group Supervisor of petitioner
Avon. As Group Franchise Director, respondent Luna began selling and/or promoting Sandr
products to other Avon employees and friends. On 23 September 1988, she requested a law
firm to render a legal opinion as to the legal consequence of the Supervisor's Agreement she
executed with petitioner Avon. In response to her query, a lawyer of the firm opined that the
Supervisor's Agreement was "contrary to law and public policy."
Wanting to share the legal opinion she obtained from her legal counsel, respondent Luna
wrote a letter to her colleagues and attached mimeographed copies of the opinion and then
circulated them. The full text of her letter reads:
We all love our work as independent dealers and we all love to continue in this livelihood.
Because my livelihood is important to me, I have asked the legal opinion of a leading Makati
law office regarding my status as an independent dealer, I am sharing this opinion with you.
I have asked their advice on three specific things:
1) May the company legally change the conditions of the existing "Supervisor's Agreement"
without the Supervisor's consent? If I should refuse to sign the new Agreement, may the
company terminate my dealership?
On the first issue, my lawyers said that the company cannot change the existing "Agreement"
without my consent, and that it would be illegal if the company will compel me to sign the
new agreement.
2) Is Section 5 of the "Supervisor's Agreement" which says that a dealer may only sell
products sold by the company, legal?
My lawyers said that Section 5 of the Supervisors Agreement is NOT valid because it is
contrary to public policy, being an unreasonable restraint of trade.
3) Is Section 6 of the "Supervisor's Agreement" which authorizes the company to terminate
the contract at any time, with or without cause, legal?
My lawyer said Section 6 is NOT valid because it is contrary to law and public policy. The
company cannot terminate the "Supervisor's Agreement" without a valid cause.
Therefore, I can conclude that I don't violate Section 5 if I sell any product which is not in
direct competition with the company's products, and there is no valid reason for the company
to terminate my dealership contract if I sell a non-competitive product.

Page

I hope we will all stay together selling Avon products for a long time and at the same time
increase our earning opportunity by engaging in other businesses without being afraid to do
so.

387

Dear co-supervisor[s], let us all support the reasonable and legal policies of the company.
However, we must all be conscious of our legal rights and be ready to protect ourselves if
they are trampled upon.

In a letter[5] dated 11 October 1988, petitioner Avon, through its President and General
Manager, Jose Mari Franco, notified respondent Luna of the termination or cancellation of her
Supervisor's Agreement with petitioner Avon. Said letter reads in part:
In September, (sic) 1988, you brought to our attention that you signed up as Group Franchise
Director of another company, Sandr Philippines, Inc. (SPI).
Not only that. You have also sold and promoted products of SPI (please refer for example to
SPI Invoice No. 1695 dated Sept. 30, 1988). Worse, you promoted/sold SPI products even to
several employees of our company including Mary Arlene Nolasco, Regina Porter, Emelisa
Aguilar, Hermie Esteller and Emma Ticsay.
To compound your violation of the above-quoted provision, you have written letters to other
members of the Avon salesforce inducing them to violate their own contracts with our
company. x x x.
For violating paragraph 5 x x x, the Company, pursuant to paragraph 6 of the same
Agreement, is terminating and canceling its Supervisor's Agreement with you effective upon
your receipt of this notice. We regret having to do this, but your repeated disregard of the
Agreement, despite warnings, leaves (sic) the Company no other choice.
xxxx
Aggrieved, respondent Luna filed a complaint for damages before the RTC of Makati City,
Branch 138. The complaint was docketed as Civil Case No. 88-2595.
On 26 January 1996, after trial on the merits, the RTC rendered judgment in favor of
respondent Luna stating that:
WHEREFORE, in view of the foregoing premises, judgment is hereby rendered in favor of
the plaintiff, and against defendant, Avon, ordering the latter:
1) to pay moral damages to the plaintiff in the amount of P100,000.00 with interest from the
date of this judgment up to the time of complete payment;
2) to pay attorney's fees in the amount of P20,000.00;
3) to pay the costs.[6]
On 8 February 1996, petitioner Avon filed a Notice of Appeal dated the same day. In an
Order[7] dated 15 February 1996, the RTC gave due course to the appeal and directed its
Branch Clerk of Court to transmit the entire records of the case to the Court of Appeals,
which docketed the appeal as CA G.R. CV No. 52550.
On 20 May 2002, the Court of Appeals promulgated the assailed Decision, the dispositive part
of which states thus:
WHEREFORE, the foregoing premises considered, the decision appealed from is hereby
AFFIRMED in toto.[8]
The Issues
In predictable displeasure with the conclusions reached by the appellate court, petitioner Avon
now implores this Court to review, via a petition for review on certiorari under Rule 45 of the
Revised Rules of Court, the former's decision and to resolve the following assigned errors:[9]
I.

Page

II.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN HOLDING THAT
AVON HAD NO RIGHT TO TERMINATE OR CANCEL THE SUPERVIOSR'S
AGREEMENT;

388

THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN DECLARING THAT

THE SUPERVISOR'S AGREEMENT EXECUTED BETWEEN AVON AND
RESPONDENT LUNA AS NULL AND VOID FOR BEING AGAINST PUBLIC POLICY;

III.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN UPHOLDING THE
AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES IN FAVOR OF
RESPONDENT LUNA; and
IV.
THE COURT OF APPEALS COMMITTED SERIOUS ERROR IN NOT AWARDING
ATTORNEY'S FEES AND LITIGATION EXPENSES IN FAVOR OF PETITIONER.
The Court's Ruling
A priori, respondent Luna objects to the presentation, and eventual resolution, of the issues
raised herein as they allegedly involve questions of facts.
To be sure, questions of law are those that involve doubts or controversies on what the law is
on certain state of facts; and questions of fact, on the other hand, are those in which there is
doubt or difference as to the truth or falsehood of the alleged facts. One test, it has been held,
is whether the appellate court can determine the issue raised without reviewing or evaluating
the evidence, in which case it is a question of law, otherwise it will be a question of fact.[10]
In the present case, the threshold issues are a) whether or not paragraph 5 of the Supervisor's
Agreement is void for being violative of law and public policy; and b) whether or not
paragraph 6 of the Supervisor's Agreement which authorizes petitioner Avon to terminate or
cancel the agreement at will is void for being contrary to law and public policy. Certainly, it is
quite obvious that the foregoing issues are questions of law.
In affirming the decision of the RTC declaring the subject contract null and void for being
against public policy, the Court of Appeals ruled that the exclusivity clause, which states that:
The Company and the Supervisor mutually agree:
xxxx
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company. [Emphasis supplied.]
should be interpreted to apply solely to those products directly in competition with those of
petitioner Avon's, i.e., cosmetics and/or beauty supplies and lingerie products. Its declaration
is anchored on the fact that Avon products, at that time, were not in any way similar to the
products sold by Sandr Philippines, Inc. At that time, the latter was merely selling vitamin
products. Put simply, the products of the two companies do not compete with each other. The
appellate court ratiocinated that:
x x x If the agreement were interpreted otherwise, so as to include products that do not
directly compete with the products of defendant-appellant Avon, such would result in
absurdity. x x x [A]greements which prohibit a person from engaging in any enterprise
whether similar or not to the enterprise of the employer constitute an unreasonable restraint of
trade, thus, it is void as against public policy.[11]

Page

Moreover, petitioner Avon reasons that:

The exclusivity clause was directed against the supervisors selling other products utilizing
their training and experience, and capitalizing on Avon's existing network for the promotion
and sale of the said products. The exclusivity clause was meant to protect Avon from other

389

Petitioner Avon disputes the abovestated conclusion reached by the Court of Appeals. It
argues that the latter went beyond the literal and obvious intent of the parties to the subject
contract when it interpreted the abovequoted clause to apply only to those products that do not
compete with that of petitioner Avon's; and that the words "only and exclusively" need no
other interpretation other than the literal meaning that "THE SUPERVISORS CANNOT
SELL THE PRODUCTS OF OTHER COMPANIES WHETHER OR NOT THEY ARE
COMPETING PRODUCTS."[12]

companies, whether competitors or not, who would exploit the sales and promotions network
already established by Avon at great expense and effort.
xxxx
Obviously, Sandre Phils., Inc. did not have the (sic) its own trained personnel and network to
sell and promote its products. It was precisely why Sandre simply invited, and then and there
hired Luna and other Avon supervisors and dealers to sell and promote its products. They had
the training and experience, they also had a ready market for the other products the
customers to whom they had been selling the Avon products. It was easy to entice the
supervisors to sign up. The supervisors could continue to sell Avon products, and at the same
time earn additional income by selling other products.
This is most unfair to Avon. The other companies cannot ride on and exploit the training and
experience of the Avon sales force to sell and promote their own products. [Emphasis
supplied.]
On the other hand, in her Memorandum, respondent Luna counters that "there is no allegation
nor any finding by the trial court or the Court of Appeals of an 'existing nationwide sales and
promotions network established by Avon' or 'Avon's existing sales promotions network' or
'Avon's tried and tested sales and promotions network' nor the alleged damage caused to such
system caused by other companies." Further, well worth noting is the opinion of respondent
Luna's counsel which started the set off the series of events which culminated to the
termination or cancellation of the Supervisor's Agreement. In response to the query-letter[13]
of respondent Luna, the latter's legal counsel opined that, as allegedly held in the case of
Ferrazzini v. Gsell,[14] paragraph 5 of the subject Supervisor's Agreement "not only prohibits
the supervisor from selling products which compete with the company's product but restricts
likewise the supervisor from engaging in any industry which involves sales in general."[15]
Said counsel thereafter concluded that the subject provision in the Supervisor's Agreement
constitutes an unreasonable restraint of trade and, therefore, void for being contrary to public
policy.
At the crux of the first issue is the validity of paragraph 5 of the Supervisor's Agreement, viz:
The Company and the Supervisor mutually agree:
xxxx
5) That the Supervisor shall sell or offer to sell, display or promote only and exclusively
products sold by the Company. [Emphasis supplied.]
In business parlance, this is commonly termed as the "exclusivity clause." This is defined as
agreements which prohibit the obligor from engaging in "business" in competition with the
obligee.
This exclusivity clause is more often the subject of critical scrutiny when it is perceived to
collide with the Constitutional proscription against "reasonable restraint of trade or
occupation." The pertinent provision of the Constitution is quoted hereunder. Section 19 of
Article XII of the 1987 Constitution on the National Economy and Patrimony states that:
SEC. 19. The State shall regulate or prohibit monopolies when the public interest so requires.
No combinations in restraint of trade or unfair competition shall be allowed.
First off, restraint of trade or occupation embraces acts, contracts, agreements or combinations
which restrict competition or obstruct due course of trade.[16

Page

Thus, restrictions upon trade may be upheld when not contrary to public welfare and not
greater than is necessary to afford a fair and reasonable protection to the party in whose favor
it is imposed.[18] Even contracts which prohibit an employee from engaging in business in
competition with the employer are not necessarily void for being in restraint of trade.

390

Now to the basics. From the wordings of the Constitution, truly then, what is brought about to
lay the test on whether a given agreement constitutes an unlawful machination or combination
in restraint of trade is whether under the particular circumstances of the case and the nature of
the particular contract involved, such contract is, or is not, against public interest.[17]

In sum, contracts requiring exclusivity are not per se void. Each contract must be viewed vis-vis all the circumstances surrounding such agreement in deciding whether a restrictive
practice should be prohibited as imposing an unreasonable restraint on competition.
The question that now crops up is this, when is a restraint in trade unreasonable? Authorities
are one in declaring that a restraint in trade is unreasonable when it is contrary to public
policy or public welfare. As far back as 1916, in the case of Ferrazzini v. Gsell,[19] this Court
has had the occasion to declare that:
[T]here is no difference in principle between the public policy (orden pblico) in the in the
two jurisdictions (United States and the Philippine Islands) as determined by the Constitution,
laws, and judicial decisions.
In the United States it is well settled that contracts in undue or unreasonable restraint of trade
are unenforcible because they are repugnant to the established public policy in that country.
Such contracts are illegal in the sense that the law will not enforce them. The Supreme Court
in the United States, in Oregon Steam Navigation Co. vs. Winsor )20 Will., 64), quoted with
approval in Gibbs v. Consolidated gas Co. of Baltimore (130 U.S., 396), said:
"Cases must be judged according to their circumstances, and can only be rightly judged when
reason and grounds of the rule are carefully considered. There are two principle grounds on
which the doctrine is founded that a contract in restraint of trade is void as against public
policy. One is, the injury to the public by being deprived of the restricted party's industry; and
the other is, the injury to the party himself by being precluded from pursuing his occupation,
and thus being prevented from supporting himself and his family."
And what is public policy? In the words of the eminent Spanish jurist, Don Jose Maria
Manresa, in his commentaries of the Codigo Civil, public policy (orden pblico):
[R]epresents in the law of persons the public, social and legal interest, that which is
permanent and essential of the institutions, that which, even if favoring an individual in whom
the right lies, cannot be left to his own will. It is an idea which, in cases of the waiver of any
right, is manifested with clearness and force. [20]
As applied to agreements, Quintus Mucius Scaevola, another distinguished civilist gives the
term "public policy" a more defined meaning:
Agreements in violation of orden pblico must be considered as those which conflict with
law, whether properly, strictly and wholly a public law (derecho) or whether a law of the
person, but law which in certain respects affects the interest of society. [21]
Plainly put, public policy is that principle of the law which holds that no subject or citizen can
lawfully do that which has a tendency to be injurious to the public or against the public
good.[22] As applied to contracts, in the absence of express legislation or constitutional
prohibition, a court, in order to declare a contract void as against public policy, must find that
the contract as to the consideration or thing to be done, has a tendency to injure the public, is
against the public good, or contravenes some established interests of society, or is inconsistent
with sound policy and good morals, or tends clearly to undermine the security of individual
rights, whether of personal liability or of private property.[23]

Page

Applying the preceding principles to the case at bar, there is nothing invalid or contrary to
public policy either in the objectives sought to be attained by paragraph 5, i.e., the exclusivity
clause, in prohibiting respondent Luna, and all other Avon supervisors, from selling products
other than those manufactured by petitioner Avon. We quote with approval the determination
of the U.S. Supreme Court in the case of Board of Trade of Chicago v. U.S.[26] that "the

391

From another perspective, the main objection to exclusive dealing is its tendency to foreclose
existing competitors or new entrants from competition in the covered portion of the relevant
market during the term of the agreement.[24] Only those arrangements whose probable effect is
to foreclose competition in a substantial share of the line of commerce affected can be
considered as void for being against public policy. The foreclosure effect, if any, depends on
the market share involved. The relevant market for this purpose includes the full range of
selling opportunities reasonably open to rivals, namely, all the product and geographic sales
they may readily compete for, using easily convertible plants and marketing organizations.[25]

question to be determined is whether the restraint imposed is such as merely regulates and
perhaps thereby promotes competition, or whether it is such as may suppress or even destroy
competition."
Such prohibition is neither directed to eliminate the competition like Sandr Phils., Inc. nor
foreclose new entrants to the market. In its Memorandum, it admits that the reason for such
exclusion is to safeguard the network that it has cultivated through the years. Admittedly, both
companies employ the direct selling method in order to peddle their products. By direct
selling, petitioner Avon and Sandre, the manufacturer, forego the use of a middleman in
selling their products, thus, controlling the price by which they are to be sold. The limitation
does not affect the public at all. It is only a means by which petitioner Avon is able to protect
its investment.
It was not by chance that Sandr Philippines, Inc. made respondent Luna one of its Group
Franchise Directors. It doesn't take a genius to realize that by making her an important part of
its distribution arm, Sandr Philippines, Inc., a newly formed direct-selling business, would be
saving time, effort and money as it will no longer have to recruit, train and motivate
supervisors and dealers. Respondent Luna, who learned the tricks of the trade from petitioner
Avon, will do it for them. This is tantamount to unjust enrichment. Worse, the goodwill
established by petitioner Avon among its loyal customers will be taken advantaged of by
Sandre Philippines, Inc. It is not so hard to imagine the scenario wherein the sale of Sandr
products by Avon dealers will engender a belief in the minds of loyal Avon customers that the
product that they are buying had been manufactured by Avon. In other words, they will be
misled into thinking that the Sandr products are in fact Avon products. From the foregoing, it
cannot be said that the purpose of the subject exclusivity clause is to foreclose the
competition, that is, the entrance of Sandr products in to the market. Therefore, it cannot be
considered void for being against public policy. How can the protection of one's property be
violative of public policy? Sandr Philippines, Inc. is still very much free to distribute its
products in the market but it must do so at its own expense. The exclusivity clause does not in
any way limit its selling opportunities, just the undue use of the resources of petitioner Avon.
It has been argued that the Supervisor's Agreement is in the nature of a contract of adhesion;
but just because it is does not necessarily mean that it is void. A contract of adhesion is socalled because its terms are prepared by only one party while the other party merely affixes
his signature signifying his adhesion thereto.[27] Such contract is just as binding as ordinary
contracts. "It is true that we have, on occasion, struck down such contracts as void when the
weaker party is imposed upon in dealing with the dominant bargaining party and is reduced to
the alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
equal footing. Nevertheless, contracts of adhesion are not invalid per se and they are not
entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely, if
he adheres, he gives his consent."[28] In the case at bar, there was no indication that respondent
Luna was forced to sign the subject agreement. Being of age, financially stable and with vast
business experience, she is presumed to have acted with due care and to have signed the
assailed contract with full knowledge of its import. Under the premises, it would be difficult
to assume that she was morally abused. She was free to reject the agreement if she wanted to.

Page

The foregoing premises noted, the Court of Appeals, therefore, committed reversible error in
interpreting the subject exclusivity clause to apply merely to those products in direct
competition to those manufactured and sold by petitioner Avon. When the terms of the
agreement are clear and explicit, that they do not justify an attempt to read into any alleged
intention of the parties, the terms are to be understood literally just as they appear on the face
of the contract.[30] Thus, in order to judge the intention of the contracting parties, "the
circumstances under which it was made, including the situation of the subject thereof and of
the parties to it, may be shown, so that the judge may be placed in the position of those whose
language he is to interpret."[31] It has been held that once this intention of the parties has been
ascertained, it becomes an integral part of the contract as though it has been originally
expressed therein in unequivocal terms.[32]

392

Accordingly, a contract duly executed is the law between the parties, and they are obliged to
comply fully and not selectively with its terms. A contract of adhesion is no exception.[29]

Having held that the "exclusivity clause" as embodied in paragraph 5 of the Supervisor's
Agreement is valid and not against public policy, we now pass to a consideration of
respondent Luna's objections to the validity of her termination as provided for under
paragraph 6 of the Supervisor's Agreement giving petitioner Avon the right to terminate or
cancel such contract. The paragraph 6 or the "termination clause" therein expressly provides
that:
The Company and the Supervisor mutually agree:
xxxx
6) Either party may terminate this agreement at will, with or without cause, at any time upon
notice to the other. [Emphasis supplied.]
In the case of Petrophil Corporation v. Court of Appeals,[33] this Court already had the
opportunity to opine that termination or cancellation clauses such as that subject of the case at
bar are legitimate if exercised in good faith. The facts of said case likewise involved a
termination or cancellation clause that clearly provided for two ways of terminating the
contract, i.e., with or without cause. The utilization of one mode will not preclude the use of
the other. Therein, we stated that the finding that the termination of the contract was "for
cause," is immaterial. When petitioner terminated the contract "without cause," it was
required only to give x x x a 30-day prior written notice, which it did.
In the case at bar, the termination clause of the Supervisor's Agreement clearly provides for
two ways of terminating and/or canceling the contract. One mode does not exclude the other.
The contract provided that it can be terminated or cancelled for cause, it also stated that it can
be terminated without cause, both at any time and after written notice. Thus, whether or not
the termination or cancellation of the Supervisor's Agreement was "for cause," is immaterial.
The only requirement is that of notice to the other party. When petitioner Avon chose to
terminate the contract, for cause, respondent Luna was duly notified thereof.
Worth stressing is that the right to unilaterally terminate or cancel the Supervisor's Agreement
with or without cause is equally available to respondent Luna, subject to the same notice
requirement. Obviously, no advantage is taken against each other by the contracting parties.
WHEREFORE, in view of the foregoing, the instant petition is GRANTED. The Decision
dated 20 May 2002 rendered by the Court of Appeals in CA-G.R. CV No. 52550, affirming
the judgment of the RTC of Makati City, Branch 138, in Civil Case No. 88-2595, are hereby
REVERSED and SET ASIDE. Accordingly, let a new one be entered dismissing the
complaint for damages. Costs against respondent Leticia Luna.

Page

393

SO ORDERED.

[ G.R. NO. 163269, April 19, 2006 ]

ROLANDO C. RIVERA, PETITIONER, VS. PROMULGATED: SOLIDBANK
CORPORATION, RESPONDENT.
DECISION
CALLEJO, SR., J.:
Assailed in this Petition for Review on Certiorari is the Decision[1] of the Court of Appeals
(CA) in CA-G.R. CV No. 52235 as well as its Resolution[2] denying the Motion for Partial
Reconsideration of petitioner Rolando C. Rivera.
Petitioner had been working for Solidbank Corporation since July 1, 1977.[3] He was initially
employed as an Audit Clerk, then as Credit Investigator, Senior Clerk, Assistant Accountant,
and Assistant Manager. Prior to his retirement, he became the Manager of the Credit
Investigation and Appraisal Division of the Consumer's Banking Group. In the meantime,
Rivera and his brother-in-law put up a poultry business in Cavite.
n December 1994, Solidbank offered two retirement programs to its employees: (a) the
Ordinary Retirement Program (ORP), under which an employee would receive 85% of his
monthly basic salary multiplied by the number of years in service; and (b) the Special
Retirement Program (SRP), under which a retiring employee would receive 250% of the gross
monthly salary multiplied by the number of years in service.[4] Since Rivera was only 45 years
old, he was not qualified for retirement under the ORP. Under the SRP, he was entitled to
receive P1,045,258.95 by way of benefits.[5]
Deciding to devote his time and attention to his poultry business in Cavite, Rivera applied for
retirement under the SRP. Solidbank approved the application and Rivera was entitled to
receive the net amount of P963,619.28. This amount included his performance incentive
award (PIA), and his unearned medical, dental and optical allowances in the amount of
P1,666.67, minus his total accountabilities to Solidbank amounting to P106,973.00.[6] Rivera
received the amount and confirmed his separation from Solidbank on February 25, 1995.[7]
Subsequently, Solidbank required Rivera to sign an undated Release, Waiver and Quitclaim,
which was notarized on March 1, 1995.[8] Rivera acknowledged receipt of the net proceeds of
his separation and retirement benefits and promised that "[he] would not, at any time, in any
manner whatsoever, directly or indirectly engage in any unlawful activity prejudicial to the
interest of Solidbank, its parent, affiliate or subsidiary companies, their stockholders, officers,
directors, agents or employees, and their successors-in-interest and will not disclose any
information concerning the business of Solidbank, its manner or operation, its plans,
processes, or data of any kind."[9]

Page

On May 1, 1995, the Equitable Banking Corporation (Equitable) employed Rivera as

Manager of its Credit Investigation and Appraisal Division of its Consumers' Banking
Group.[12] Upon discovering this, Solidbank First Vice-President for Human Resources
Division (HRD) Celia J.L. Villarosa wrote a letter dated May 18, 1995, informing Rivera that
he had violated the Undertaking. She likewise demanded the return of all the monetary

394

Aside from acknowledging that he had no cause of action against Solidbank or its affiliate
companies, Rivera agreed that the bank may bring any action to seek an award for damages
resulting from his breach of the Release, Waiver and Quitclaim, and that such award would
include the return of whatever sums paid to him by virtue of his retirement under the SRP. [10]
Rivera was likewise required to sign an undated Undertaking as a supplement to the Release,
Waiver and Quitclaim in favor of Solidbank in which he declared that he received in full his
entitlement under the law (salaries, benefits, bonuses and other emoluments), including his
separation pay in accordance with the SRP. In this Undertaking, he promised that "[he] will
not seek employment with a competitor bank or financial institution within one (1) year from
February 28, 1995, and that any breach of the Undertaking or the provisions of the Release,
Waiver and Quitclaim would entitle Solidbank to a cause of action against him before the
appropriate courts of law.[11] Unlike the Release, Waiver and Quitclaim, the Undertaking was
not notarized.

benefits he received in consideration of the SRP within five (5) days from receipt; otherwise,
appropriate legal action would be taken against him.[13]
When Rivera refused to return the amount demanded within the given period, Solidbank filed
a complaint for Sum of Money with Prayer for Writ of Preliminary Attachment[14] before the
Regional Trial Court (RTC) of Manila on June 26, 1995. Solidbank, as plaintiff, alleged
therein that in accepting employment with a competitor bank for the same position he held in
Solidbank before his retirement, Rivera violated his Undertaking under the SRP. Considering
that Rivera accepted employment with Equitable barely three months after executing the
Undertaking, it was clear that he had no intention of honoring his commitment under said
deed.
Solidbank prayed that Rivera be ordered to return the net amount of P963,619.28 plus
interests therein, and attorney's fees, thus:
WHEREFORE, it is respectfully prayed that:
1. At the commencement of this action and upon the filing of a bond in such amount as
this Honorable Court may fix, a writ of preliminary attachment be forthwith issued
against the properties of the defendant as satisfaction of any judgment that plaintiff
may secure;
2. After trial, judgment be rendered ordering defendant to pay plaintiff the following
sums: NINE HUNDRED SIXTY-THREE THOUSAND SIX HUNDRED
NINETEEN AND 28/100 ONLY (P963,619.28) PESOS, Philippine Currency, as of
23 May 1995, plus legal interest of 12% per annum until fully paid;
3. Such sum equivalent to 10% of plaintiff's claims plus P2,000.00 for every appearance
by way of attorney's fees; and
4. Costs of suit.
PLAINTIFF prays for other reliefs just and equitable under the premises.[15]
Solidbank appended the Affidavit of HRD First Vice-President Celia Villarosa and a copy of
the Release, Waiver and Quitclaim and Undertaking which Rivera executed.[16]
In an Order dated July 6, 1995, the trial court issued a Writ of Preliminary Attachment[17]
ordering Deputy Sheriff Eduardo Centeno to attach all of Rivera's properties not exempt from
execution. Thus, the Sheriff levied on a parcel of land owned by Rivera.

Page

On August 15, 1995, Solidbank filed a Verified Motion for Summary Judgment, alleging
therein that Rivera raised no genuine issue as to any material fact in his Answer except as to
the amount of damages. It prayed that the RTC render summary judgment against Rivera.
Solidbank alleged that whether or not the employment ban provision contained in the
Undertaking is unreasonable, arbitrary, or oppressive is a question of law. It insisted that
Rivera signed the Undertaking voluntarily and for valuable consideration; and under the
Release, Waiver and Quitclaim, he was obliged to return the P963,619.28 upon accepting
employment from a competitor bank within the one-year proscribed period. Solidbank
appended to its motion the Affidavit of Villarosa, where she declared that Rivera was
employed by Equitable on May 1, 1995 for the same position he held before his retirement
from Solidbank.

395

In his Answer with Affirmative Defenses and Counterclaim, Rivera admitted that he received
the net amount of P963,619.28 as separation pay. However, the employment ban provision in
the Undertaking was never conveyed to him until he was made to sign it on February 28,
1995. He emphasized that, prior to said date, Solidbank never disclosed any condition to the
retirement scheme, nor did it impose such employment ban on the bank officers and
employees who had previously availed of the SRP. He alleged that the undertaking not to
"seek employment with any competitor bank or financial institution within one (1) year from
February 28, 1995" was void for being contrary to the Constitution, the law and public policy,
that it was unreasonable, arbitrary, oppressive, discriminatory, cruel, unjust, inhuman, and
violative of his human rights. He further claimed that the Undertaking was a contract of
adhesion because it was prepared solely by Solidbank without his participation; considering
his moral and economic disadvantage, it must be liberally construed in his favor and strictly
against the bank.

Rivera opposed the motion contending that, as gleaned from the pleadings of the parties as
well as Villarosa's Affidavit, there are genuine issues as to material facts which call for the
presentation of evidence. He averred that there was a need for the parties to adduce evidence
to prove that he did not sign the Undertaking voluntarily. He claimed that he would not have
been allowed to avail of the SRP if he had not signed it, and consequently, his retirement
benefits would not have been paid. This was what Ed Nallas, Solidbank Assistant VicePresident for HRD and Personnel, told him when he received his check on February 28, 1995.
Senior Vice-President Henry Valdez, his superior in the Consumers' Banking Group, also did
not mention that he would have to sign such Undertaking which contained the assailed
provision. Thus, he had no choice but to sign it. He insisted that the question of whether he
violated the Undertaking is a genuine issue of fact which called for the presentation of
evidence during the hearing on the merits of the case. He also asserted that he could not cause
injury or prejudice to Solidbank's interest since he never acquired any sensitive or delicate
information which could prejudice the bank's interest if disclosed.
Rivera averred that he had the right to adduce evidence to prove that he had been faithful to
the provisions of the Release, Waiver and Quitclaim, and the Undertaking, and had not
committed any act or done or said anything to cause injury to Solidbank.[18]
Rivera appended to his Opposition his Counter-Affidavit in which he reiterated that he had to
sign the Undertaking containing the employment ban provision, otherwise his availment of
the SRP would not push through. There was no truth to the bank's allegation that, "in
exchange for receiving the larger amount of P1,045,258.95 under the SRP, instead of the very
much smaller amount of P224,875.81 under the ORP, he agreed that he will not seek
employment in a competitor bank or financial institution within one year from February 28,
1995." It was the bank which conceived the SRP to streamline its organization and all he did
was accept it. He stressed that the decision whether to allow him to avail of the SRP belonged
solely to Solidbank. He also pointed out that the employment ban provision in the
Undertaking was not a consideration for his availment of the SRP, and that if he did not avail
of the retirement program, he would have continued working for Solidbank for at least 15
more years, earning more than what he received under the SRP. He alleged that he intended to
go full time into the poultry business, but after about two months, found out that, contrary to
his expectations, the business did not provide income sufficient to support his family. Being
the breadwinner, he was then forced to look for a job, and considering his training and
experience as a former bank employee, the job with Equitable was all he could find. He
insisted that he had remained faithful to Solidbank and would continue to do so despite the
case against him, the attachment of his family home, and the resulting mental anguish, torture
and expense it has caused them.[19]
In his Supplemental Opposition, Rivera stressed that, being a former bank employee, it was
the only kind of work he knew. The ban was, in fact, practically absolute since it applied to all
financial institutions for one year from February 28, 1995. He pointed out that he could not
work in any other company because he did not have the qualifications, especially considering
his age. Moreover, after one year from February 28, 1995, he would no longer have any
marketable skill, because by then, it would have been rendered obsolete by non-use and rapid
technological advances. He insisted that the ban was not necessary to protect the interest of
Solidbank, as, in the first place, he had no access to any "secret" information which, if
revealed would be prejudicial to Solidbank's interest. In any case, he was not one to reveal
whatever knowledge or information he may have acquired during his employment with said
bank.[20]

Page

On December 18, 1995, the trial court issued an Order of Summary Judgment.[22] The fallo of
the decision reads:

396

In its Reply, Solidbank averred that the wisdom of requiring the Undertaking from the 1995
SRP is purely a management prerogative. It was not for Rivera to question and decry the
bank's policy to protect itself from unfair competition and disclosure of its trade secrets. The
substantial monetary windfall given the retiring officers was meant to tide them over the oneyear period of hiatus, and did not prevent them from engaging in any kind of business or bar
them from being employed except with competitor banks/financial institutions.[21]

WHEREFORE, SUMMARY JUDGMENT is hereby rendered in favor of plaintiff and against

defendant ordering the latter to pay to plaintiff bank the amount of NINE HUNDRED
SIXTY-THREE THOUSAND SIX HUNDRED NINETEEN AND 28/100 (P963,619.28)
PESOS, Philippine Currency, as of May 23, 1995, plus legal interest at 12% per annum until
fully paid, and the costs of the suit
FURTHER, NEVERTHELESS, both parties are hereby encouraged as they are directed to
meet again and sit down to find out how they can finally end this rift and litigation, all in the
name of equity, for after all, defendant had worked for the bank for some 18 years.[23]
The trial court declared that there was no genuine issue as to a matter of fact in the case since
Rivera voluntarily executed the Release, Waiver and Quitclaim, and the Undertaking. He had
a choice not to retire, but opted to do so under the SRP, and, in fact, received the benefits
under it. According to the RTC, the prohibition incorporated in the Undertaking was not
unreasonable. To allow Rivera to be excused from his undertakings in said deed and, at the
same time, benefit therefrom would be to allow him to enrich himself at the expense of
Solidbank. The RTC ruled that Rivera had to return the P963,619.28 he received from
Solidbank, plus interest of 12% per annum from May 23, 1998 until fully paid.
Aggrieved, Rivera appealed the ruling to the CA which rendered judgment on June 14, 2002
partially granting the appeal. The fallo of the decision reads:
WHEREFORE, the appeal is PARTIALLY GRANTED. The decision appealed from is
AFFIRMED with the modification that the attachment and levy upon the family home
covered by TCT No. 51621 of the Register of Deeds, Las Pias, Metro Manila, is hereby SET
ASIDE and DISCHARGED.
SO ORDERED.[24]
The CA declared that there was no genuine issue regarding any material fact except as to the
amount of damages. It ratiocinated that the agreement between Rivera and Solidbank was the
law between them, and that the interpretation of the stipulations therein could not be left upon
the whims of Rivera. According to the CA, Rivera never denied signing the Release, Waiver,
and Quitclaim, including the Undertaking regarding the employment prohibition. He even
admitted joining Equitable as an employee within the proscribed one-year period. The alleged
defenses of Rivera, the CA declared, could not prevail over the admissions in his pleadings.
Moreover, Rivera's justification for taking the job with Equitable, "dire necessity," was not an
acceptable ground for annulling the Undertaking since there were no earmarks of coercion,
undue influence, or fraud in its execution. Having executed the said deed and thereafter
receiving the benefits under the SRP, he is deemed to have waived the rightto assail the same,
hence, is estopped from insisting or retaining the said amount of P963,619.28.
However, the CA ruled that the attachment made upon Rivera's family home was void, and,
pursuant to the mandate of Article 155, in relation to Article 153 of the Family Code, must be
discharged.
Hence, this recourse to the Court.
Petitioner avers that "
I.
THE COURT OF APPEALS ERRED IN UPHOLDING THE PROPRIETY OF THE
SUMMARY JUDGMENT RENDERED BY THE TRIAL COURT CONSIDERING THE
EXISTENCE OF GENUINE ISSUES AS TO MATERIAL FACTS WHICH CALL FOR
THE PRESENTATION OF EVIDENCE IN A TRIAL ON THE MERITS.

Page

THE COURT OF APPEALS ERRED IN NOT DECLARING THE ONE-YEAR

EMPLOYMENT BAN IMPOSED BY RESPONDENT SOLIDBANK UPON HEREIN
PETITIONER NULL AND VOID FOR BEING UNREASONABLE AND OPPRESSIVE
AND FOR CONSTITUTING RESTRAINT OF TRADE WHICH VIOLATES PUBLIC
POLICY AS ENUNCIATED IN OUR CONSTITUTION AND LAWS.

397

II.

III.
THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION
ORDERING HEREIN RESPONDENT TO PAY SOLIDBANK THE AMOUNT OF
P963,619.28 AS OF MAY 23, 1995, PLUS LEGAL INTEREST OF 12% PER ANNUM
UNTIL FULLY PAID.
IV.
MORE SPECIFICALLY, THE COURT OF APPEALS ERRED IN AFFIRMING THE
PORTION OF THE SUMMARY JUDGMENT ORDERING PETITIONER TO PAY
SOLIDBANK LEGAL INTEREST OF 12% PER ANNUM UNTIL FULLY PAID ON THE
AFOREMENTIONED SUM [OF] P963,619.28.[25]
The issues for resolution are: (1) whether the parties raised a genuine issue in their pleadings,
affidavits, and documents, that is, whether the employment ban incorporated in the
Undertaking which petitioner executed upon his retirement is unreasonable, oppressive,
hence, contrary to public policy; and (2) whether petitioner is liable to respondent for the
restitution of P963,619.28 representing his retirement benefits, and interest thereon at 12% per
annum as of May 23, 1995 until payment of the full amount.

On the last issue, petitioner alleges that the P1,045,258.95 he received was his retirement
benefit which he earned after serving the bank for 18 years. It was not a mere gift or gratuity

Page

Petitioner further maintains that respondent's management prerogative does not give it a
license to entice its employees to retire at a very young age and prohibit them from seeking
employment in a so-called competitor bank or financial institution, thus prevent them from
working and supporting their families (considering that banking is the only kind of work they
know). Petitioner avers that "management's prerogative must be without abuse of discretion.
A line must be drawn between management prerogative regarding business operations per se
and those which affect the rights of the employees. In treating its employees, management
should see to it that its employees are at least properly informed of its decision or modes of
action."

398

On the first issue, petitioner claims that, based on the pleadings of the parties, and the
documents and affidavits appended thereto, genuine issues as to matters of fact were raised
therein. He insists that the resolution of the issue of whether the employment ban is
unreasonable requires the presentation of evidence on the circumstances which led to
respondent bank's offer of the SRP and ORP, and petitioner's eventual acceptance and signing
of the Undertaking on March 1, 1995. There is likewise a need to adduce evidence on whether
the employment ban is necessary to protect respondent's interest, and whether it is an undue
restraint on petitioner's constitutional right to earn a living to support his family. He further
insists that respondent is burdened to prove that it sustained damage or injury by reason of his
alleged breach of the employment ban since neither the Release, Waiver and Quitclaim, and
Undertaking he executed contain any provision that respondent is automatically entitled to the
restitution of the P963,619.28. Petitioner points out that all the deeds provide is that, in case
of breach thereof, respondent is entitled to protection before the appropriate courts of law.
'
On the second issue, petitioner avers that the prohibition incorporated in the Release, Waiver
and Quitclaim barring him as retiree from engaging directly or indirectly in any unlawful
activity and disclosing any information concerning the business of respondent bank, as well as
the employment ban contained in the Undertaking he executed, are oppressive, unreasonable,
cruel and inhuman because of its overbreath. He reiterates that it is against public policy, an
unreasonable restraint of trade, because it prohibits him to work for one year in the
Philippines, ultimately preventing him from supporting his family. He points out that a
breadwinner in a family of four minor daughters who are all studying, with a wife who does
not work, one would have a very difficult time meeting the financial obligations even with a
steady, regular-paying job. He insists that the Undertaking deprives him of the means to
support his family, and ultimately, his children's chance for a good education and future. He
reiterates that the returns in his poultry business fell short of his expectations, and
unfortunately, the business was totally destroyed by typhoon "Rosing" in November 1995.

given by respondent bank, without the latter giving up something of value in return. On the
contrary, respondent bank received "valuable consideration," that is, petitioner quit his job at
the relatively young age of 45, thus enabling respondent to effect its reorganization plan and
forego the salary, benefits, bonuses, and promotions he would have received had he not
retired early.
Petitioner avers that, under the Undertaking, respondent would be entitled to a cause of action
against him before the appropriate courts of law if he had violated the employment ban. He
avers that respondent must prove its entitlement to the P963,619.28. The Undertaking
contains no provision that he would have to return the amount he received under the SRP;
much less does it provide that he would have to pay 12% interest per annum on said amount.
On the other hand, the Release, Waiver and Quitclaim does not contain the provision
prohibiting him from being employed with any competitor bank or financial institution within
one year from February 28, 1995. Petitioner insists that he acted in good faith when he
received his retirement benefits; hence, he cannot be punished by being ordered to return the
sum of P963,619.28 which was given to him for and in consideration of his early retirement.
Neither can petitioner be subjected to the penalty of paying 12% interest per annum on his
retirement pay of P963,619.28 from May 23, 1995, as it is improper and oppressive to him
and his family. As of July 3, 2002, the interest alone would amount to P822,609.67, thus
doubling the amount to be returned to respondent bank under the decision of the RTC and the
CA. The imposition of interest has no basis because the Release, Waiver and Quitclaim, and
the Undertaking do not provide for payment of interest. The deeds only state that breach
thereof would entitle respondent to bring an action to seek damages, to include the return of
the amount that may have been paid to petitioner by virtue thereof. On the other hand, any
breach of the Undertaking or the Release, Waiver and Quitclaim would only entitle
respondent to a cause of action before the appropriate courts of law. Besides, the amount
received by petitioner was not a loan and, therefore, should not earn interest pursuant to
Article 1956 of the Civil Code.
Finally, petitioner insists that he acted in good faith in seeking employment with another bank
within one year from February 28, 1995 because he needed to earn a living to support his
family and finance his children's education. Hence, the imposition of interest, which is a
penalty, is unwarranted.
By way of Comment on the petition, respondent avers that the Undertaking is the law between
it and petitioner. As such, the latter could not assail the deed after receiving the retirement
benefit under the SRP. As gleaned from the averments in his petition, petitioner admitted that
he executed the Undertaking after having been informed of the nature and consequences of
his refusal to sign the same, i.e., he would not be able to receive the retirement benefit under
the SRP.
Respondent maintains that courts have no power to relieve parties of obligations voluntarily
entered into simply because their contracts turned out to be disastrous deeds. Citing the ruling
of this Court in Eastern Shipping Lines, Inc. v. Court of Appeals,[26] respondent avers that
petitioner is obliged to pay 12% per annum interest of the P963,619.28 from judicial or
extrajudicial demand.
In reply, petitioner asserts that respondent failed to prove that it sustained damages, including
the amount thereof, and that neither the Release, Waiver and Quitclaim nor the Undertaking
obliged him to pay interest to respondent.

Page

Sections 1 and 3, Rule 34 of the Revised Rules of Civil Procedure provide:

Section 1. Summary judgment for claimant. - A party seeking to recover upon a claim,
counterclaim, or cross-claim or to obtain a declaratory relief may, at any time after the
pleading in answer thereto has been served, move with supporting affidavits, depositions or
admissions for a summary judgment in his favor upon all or any part thereof.

399

The petition is meritorious.

xxxx
Sec. 3. Motion and proceedings thereon. - The motion shall be served at least ten (10) days
before the time specified for the hearing. The adverse party may serve opposing affidavits,
depositions, or admissions at least three (3) days before the hearing. After the hearing, the
judgment sought shall be rendered forthwith if the pleadings, supporting affidavits,
depositions, and admissions on file, show that, except as to the amount of damages, there is
no genuine issue as to any material fact and that the moving party is entitled to a judgment as
a matter of law.
For a summary judgment to be proper, the movant must establish two requisites: (a) there
must be no genuine issue as to any material fact, except for the amount of damages; and (b)
the party presenting the motion for summary judgment must be entitled to a judgment as a
matter of law.[27] Where, on the basis of the pleadings of a moving party, including documents
appended thereto, no genuine issue as to a material fact exists, the burden to produce a
genuine issue shifts to the opposing party. If the opposing party fails, the moving party is
entitled to a summary judgment.[28]
A genuine issue is an issue of fact which requires the presentation of evidence as
distinguished from an issue which is a sham, fictitious, contrived or a false claim. The trial
court can determine a genuine issue on the basis of the pleadings, admissions, documents,
affidavits or counteraffidavits submitted by the parties. When the facts as pleaded appear
uncontested or undisputed, then there is no real or genuine issue or question as to any fact and
summary judgment called for. On the other hand, where the facts pleaded by the parties are
disputed or contested, proceedings for a summary judgment cannot take the place of a trial. [29]
The evidence on record must be viewed in light most favorable to the party opposing the
motion who must be given the benefit of all favorable inferences as can reasonably be drawn
from the evidence.[30]
Courts must be critical of the papers presented by the moving party and not of the
papers/documents in opposition thereto.[31] Conclusory assertions are insufficient to raise an
issue of material fact.[32] A party cannot create a genuine dispute of material fact through mere
speculations or compilation of differences.[33] He may not create an issue of fact through bald
assertions, unsupported contentions and conclusory statements.[34] He must do more than rely
upon allegations but must come forward with specific facts in support of a claim. Where the
factual context makes his claim implausible, he must come forward with more persuasive
evidence demonstrating a genuine issue for trial.[35]
Where there are no disputed material facts, the determination of whether a party breached a
contract is a question of law and is appropriate for summary judgment.[36] When interpreting
an ambiguous contract with extrinsic evidence, summary judgment is proper so long as the
extrinsic evidence presented to the court supports only one of the conflicting
interpretations.[37] Where reasonable men could differ as to the contentions shown from the
evidence, summary judgment might be denied.

Page

In this case, there is no dispute between the parties that, in consideration for his availment of
the SRP, petitioner executed the Release, Waiver and Quitclaim, and the Undertaking as
supplement thereto, and that he received retirement pay amounting to P963,619.28 from
respondent. On May 1, 1995, within the one-year ban and without prior knowledge of
respondent, petitioner was employed by Equitable as Manager of its Credit Investigation and

400

In United Rentals (North America), Inc. v. Keizer,[38] the U.S. Circuit Court of Appeals
resolved the issue of whether a summary judgment is proper in a breach of contract action
involving the interpretation of such contract, and ruled that:
[A] contract can be interpreted by the court on summary judgment if (a) the contract's terms
are clear, or (b) the evidence supports only one construction of the controverted provision,
notwithstanding some ambiguity. x x x If the court finds no ambiguity, it should proceed to
interpret the contract - and it may do so at the summary judgment stage. If, however, the court
discerns an ambiguity, the next step - involving an examination of extrinsic evidence becomes essential. x x x Summary judgment may be appropriate even if ambiguity lurks as
long as the extrinsic evidence presented to the court supports only one of the conflicting
interpretations.[39]

Appraisal Division, Consumers' Banking Group. Despite demands, petitioner failed to return
the P963,619.28 to respondent on the latter's allegation that he had breached the one-year ban
by accepting employment from Equitable, which according to respondent was a competitor
bank.
We agree with petitioner's contention that the issue as to whether the post-retirement
competitive employment ban incorporated in the Undertaking is against public policy is a
genuine issue of fact, requiring the parties to present evidence to support their respective
claims.
As gleaned from the records, petitioner made two undertakings. The first is incorporated in
the Release, Waiver and Quitclaim that he signed, to wit:
4. I will not, at any time, in any manner whatsoever, directly or indirectly engage in any
unlawful activity prejudicial to the interest of the BANK, its parent, affiliate or subsidiary
companies, their stockholders, officers, directors, agents or employees, and their successorsin-interest and will not disclose any information concerning the business of the BANK, its
manner or operation, its plans, processes or data of any kind.[40]
The second undertaking is incorporated in the Undertaking following petitioner's execution of
the Release, Waiver and Quitclaim which reads:
4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank on
FEBRUARY 28, 1995, I hereby expressly undertake that I will not seek employment with any
competitor bank or financial institution within one (1) year from February 28, 1995.[41]
In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring "an
action for damages which may include, but not limited to the return of whatever sums he may
have received from respondent under said deed if he breaks his undertaking therein."[42] On
the other hand, petitioner declared in the Undertaking that "any breach on his part of said
Undertaking or the terms and conditions of the Release, Waiver and Quitclaim will entitle
respondent to a cause of action against [petitioner] for protection before the appropriate courts
of law."[43]
Article 1306 of the New Civil Code provides that the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are
not contrary to law, morals, good customs, public order or public policy. The freedom of
contract is both a constitutional and statutory right.[44] A contract is the law between the
parties and courts have no choice but to enforce such contract as long as it is not contrary to
law, morals, good customs and against public policy.
The well-entrenched doctrine is that the law does not relieve a party from the effects of an
unwise, foolish or disastrous contract, entered into with full awareness of what he was doing
and entered into and carried out in good faith. Such a contract will not be discarded even if
there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the
contract entered into by and between the parties or to render a decision different therefrom.
They have no power to relieve parties from obligation voluntarily assailed, simply because
their contracts turned out to be disastrous deals.[45]
On the other hand, retirement plans, in light of the constitutional mandate of affording full
protection to labor, must be liberally construed in favor of the employee, it being the general
rule that pension or retirement plans formulated by the employer are to be construed against
it.[46] Retirement benefits, after all, are intended to help the employee enjoy the remaining
years of his life, releasing him from the burden of worrying for his financial support, and are a
form of reward for being loyal to the employer.[47]

Page

By "public policy," as defined by the courts in the United States and England, is intended that
principle of the law which holds that no subject or citizen can lawfully do that which has a
tendency to be injurious to the public or against the public good, which may be termed the
"policy of the law," or "public policy in relation to the administration of the law." (Words &
Phrases Judicially Defined, vol. 6, p. 5813, and cases cited.) Public policy is the principle

401

In Ferrazzini v. Gsell,[48] the Court defined public policy in civil law countries and in the
United States and the Philippines:

under which freedom of contract or private dealing is restricted by law for the good of the
public. (Id., Id.) In determining whether a contract is contrary to public policy the nature of
the subject matter determines the source from which such question is to be solved. (Hartford
Fire Ins. Co. v. Chicago, M. & St. P. Ry. Co., 62 Fed. 904, 906.)
The foregoing is sufficient to show that there is no difference in principle between the public
policy (orden publico) in the two jurisdictions (the United States and the Philippine Islands)
as determined by the Constitution, laws, and judicial decisions.[49]
The Court proceeded to define "trade" as follows:
x x x In the broader sense, it is any occupation or business carried on for subsistence or profit.
Anderson's Dictionary of Law gives the following definition: "Generally equivalent to
occupation, employment, or business, whether manual or mercantile; any occupation,
employment or business carried on for profit, gain, or livelihood, not in the liberal arts or in
the learned professions." In Abbott's Law Dictionary, the word is defined as "an occupation,
employment or business carried on for gain or profit." Among the definitions given in the
Encyclopaedic Dictionary is the following: "The business which a person has learnt, and
which he carries on for subsistence or profit; occupation; particularly employment, whether
manual or mercantile, as distinguished from the liberal arts or the learned professions and
agriculture." Bouvier limits the meaning to commerce and traffic, and the handicraft of
mechanics. (In re Pinkney, 47 Kan., 89.) We are inclined to adopt and apply the broader
meaning given by the lexicographers.[50]
In the present case, the trial court ruled that the prohibition against petitioner accepting
employment with a competitor bank or financial institution within one year from February 28,
1995 is not unreasonable. The appellate court held that petitioner was estopped from assailing
the post-retirement competitive employment ban because of his admission that he signed the
Undertaking and had already received benefits under the SRP.
The rulings of the trial court and the appellate court are incorrect.
There is no factual basis for the trial court's ruling, for the simple reason that it rendered
summary judgment and thereby foreclosed the presentation of evidence by the parties to prove
whether the restrictive covenant is reasonable or not. Moreover, on the face of the
Undertaking, the post-retirement competitive employment ban is unreasonable because it has
no geographical limits; respondent is barred from accepting any kind of employment in any
competitive bank within the proscribed period. Although the period of one year may appear
reasonable, the matter of whether the restriction is reasonable or unreasonable cannot be
ascertained with finality solely from the terms and conditions of the Undertaking, or even in
tandem with the Release, Waiver and Quitclaim.

Page

Respondent, as employer, is burdened to establish that a restrictive covenant barring an

employee from accepting a competitive employment after retirement or resignation is not an
unreasonable or oppressive, or in undue or unreasonable restraint of trade, thus, unenforceable
for being repugnant to public policy. As the Court stated in Ferrazzini v. Gsell,[52] cases
involving contracts in restraint of trade are to be judged according to their circumstances, to
wit:
x x x There are two principal grounds on which the doctrine is founded that a contract in
restraint of trade is void as against public policy. One is, the injury to the public by being
deprived of the restricted party's industry; and the other is, the injury to the party himself by
being precluded from pursuing his occupation, and thus being prevented from supporting
himself and his family.
And in Gibbs vs. Consolidated Gas Co. of Baltimore, supra, the court stated the rule thus:
Public welfare is first considered, and if it be not involved, and the restraint upon one party is
not greater than protection to the other party requires, the contract may be sustained. The

402

Undeniably, petitioner retired under the SRP and received P963,619.28 from respondent.
However, petitioner is not proscribed, by waiver or estoppel, from assailing the postretirement competitive employment ban since under Article 1409 of the New Civil Code,
those contracts whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy are inexistent or void from the beginning. Estoppel cannot give
validity to an act that is prohibited by law or one that is against public policy.[51]

question is, whether, under the particular circumstances of the case and the nature of the
particular contract involved in it, the contract is, or is not, unreasonable.[53]
In cases where an employee assails a contract containing a provision prohibiting him or her
from accepting competitive employment as against public policy, the employer has to adduce
evidence to prove that the restriction is reasonable and not greater than necessary to protect
the employer's legitimate business interests.[54] The restraint may not be unduly harsh or
oppressive in curtailing the employee's legitimate efforts to earn a livelihood and must be
reasonable in light of sound public policy.[55]
Courts should carefully scrutinize all contracts limiting a man's natural right to follow any
trade or profession anywhere he pleases and in any lawful manner. But it is just as important
to protect the enjoyment of an establishment in trade or profession, which its employer has
built up by his own honest application to every day duty and the faithful performance of the
tasks which every day imposes upon the ordinary man. What one creates by his own labor is
his. Public policy does not intend that another than the producer shall reap the fruits of labor;
rather, it gives to him who labors the right by every legitimate means to protect the fruits of
his labor and secure the enjoyment of them to himself.[56] Freedom to contract must not be
unreasonably abridged. Neither must the right to protect by reasonable restrictions that which
a man by industry, skill and good judgment has built up, be denied.[57]
The Court reiterates that the determination of reasonableness is made on the particular facts
and circumstances of each case.[58] In Esmerson Electric Co. v. Rogers,[59] it was held that the
question of reasonableness of a restraint requires a thorough consideration of surrounding
circumstances, including the subject matter of the contract, the purpose to be served, the
determination of the parties, the extent of the restraint and the specialization of the business of
the employer. The court has to consider whether its enforcement will be injurious to the
public or cause undue hardships to the employee, and whether the restraint imposed is greater
than necessary to protect the employer. Thus, the court must have before it evidence relating
to the legitimate interests of the employer which might be protected in terms of time, space
and the types of activity proscribed.[60]
Consideration must be given to the employee's right to earn a living and to his ability to
determine with certainty the area within which his employment ban is restituted. A provision
on territorial limitation is necessary to guide an employee of what constitutes as violation of a
restrictive covenant and whether the geographic scope is co-extensive with that in which the
employer is doing business. In considering a territorial restriction, the facts and circumstances
surrounding the case must be considered.[61]
Thus, in determining whether the contract is reasonable or not, the trial court should consider
the following factors: (a) whether the covenant protects a legitimate business interest of the
employer; (b) whether the covenant creates an undue burden on the employee; (c) whether the
covenant is injurious to the public welfare; (d) whether the time and territorial limitations
contained in the covenant are reasonable; and (e) whether the restraint is reasonable from the
standpoint of public policy.[62]

Page

We are not impervious of the distinction between restrictive covenants barring an employee to
accept a post-employment competitive employment or restraint on trade in employment
contracts and restraints on post-retirement competitive employment in pension and retirement
plans either incorporated in employment contracts or in collective bargaining agreements
between the employer and the union of employees, or separate from said contracts or
collective bargaining agreements which provide that an employee who accepts post retirement
competitive employment will forfeit retirement and other benefits or will be obliged to
restitute the same to the employer. The strong weight of authority is that forfeitures for
engaging in subsequent competitive employment included in pension and retirement plans are
valid even though unrestricted in time or geography. The raison d'etre is explained by the
United States Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester, Jr.:[64]

403

Not to be ignored is the fact that the banking business is so impressed with public interest
where the trust and interest of the public in general is of paramount importance such that the
appropriate standard of diligence must be very high, if not the highest degree of diligence.[63]

x x x The authorities, though, generally draw a clear and obvious distinction between
restraints on competitive employment in employment contracts and in pension plans. The
strong weight of authority holds that forfeitures for engaging in subsequent competitive
employment, included in pension retirement plans, are valid, even though unrestricted in time
or geography. The reasoning behind this conclusion is that the forfeiture, unlike the restraint
included in the employment contract, is not a prohibition on the employee's engaging in
competitive work but is merely a denial of the right to participate in the retirement plan if he
does so engage. A leading case on this point is Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at
p. 865, where, in passing on a forfeiture provision similar to that here, the Court said:
"A restriction in the contract which does not preclude the employee from engaging in
competitive activity, but simply provides for the loss of rights or privileges if he does so is not
in restraint of trade." (emphasis added)[65]
A post-retirement competitive employment restriction is designed to protect the employer
against competition by former employees who may retire and obtain retirement or pension
benefits and, at the same time, engage in competitive employment.[66]
We have reviewed the Undertaking which respondent impelled petitioner to sign, and find
that in case of failure to comply with the promise not to accept competitive employment
within one year from February 28, 1995, respondent will have a cause of action against
petitioner for "protection in the courts of law." The words "cause of action for protection in
the courts of law" are so broad and comprehensive, that they may also include a cause of
action for prohibitory and mandatory injunction against petitioner, specific performance plus
damages, or a damage suit (for actual, moral and/or exemplary damages), all inclusive of the
restitution of the P963,619.28 which petitioner received from respondent. The Undertaking
and the Release, Waiver and Quitclaim do not provide for the automatic forfeiture of the
benefits petitioner received under the SRP upon his breach of said deeds. Thus, the postretirement competitive employment ban incorporated in the Undertaking of respondent does
not, on its face, appear to be of the same class or genre as that contemplated in Rochester.
It is settled that actual damages or compensatory damages may be awarded for breach of
contracts. Actual damages are primarily intended to simply make good or replace the loss
covered by said breach.[67] They cannot be presumed. Even if petitioner had admitted to
having breached the Undertaking, respondent must still prove that it suffered damages and the
amount thereof.[68] In determining the amount of actual damages, the Court cannot rely on
mere assertions, speculations, conjectures or guesswork but must depend on competent proof
and on the best evidence obtainable regarding the actual amount of losses. [69] The benefit to
be derived from a contract which one of the parties has absolutely failed to perform is of
necessity to some extent a matter of speculation of the injured party.
On the assumption that the competitive employment ban in the Undertaking is valid,
petitioner is not automatically entitled to return the P963,619.28 he received from respondent.
To reiterate, the terms of the Undertaking clearly state that any breach by petitioner of his
promise would entitle respondent to a cause of action for protection in the courts of law; as
such, restitution of the P963,619.28 will not follow as a matter of course. Respondent is still
burdened to prove its entitlement to the aforesaid amount by producing the best evidence of
which its case is susceptible.[70]
IN LIGHT OF ALL THE FOREGOING, the petition is GRANTED. The Decision of the
Court of Appeals in CA-G.R. CV No. 52235 is SET ASIDE. Let this case be REMANDED to
the Regional Trial Court of Manila for further proceedings conformably with this decision of
the Court.

Page

404

SO ORDERED.

[ G.R. NO. 163512, February 28, 2007 ]

DAISY B. TIU, PETITIONER, VS. PLATINUM PLANS PHIL., INC., RESPONDENT.
DECISION
QUISUMBING, J.:
For review on certiorari are the Decision[1] dated January 20, 2004 of the Court of Appeals in
CA-G.R. CV No. 74972, and its Resolution[2] dated May 4, 2004 denying reconsideration.
The Court of Appeals had affirmed the decision[3] dated February 28, 2002 of the Regional
Trial Court (RTC) of Pasig City, Branch 261, in an action for damages, ordering petitioner to
pay respondent P100,000 as liquidated damages.
The relevant facts are as follows:
Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the preneed industry. From 1987 to 1989, petitioner Daisy B. Tiu was its Division Marketing
Director.
On January 1, 1993, respondent re-hired petitioner as Senior Assistant Vice-President and
Territorial Operations Head in charge of its Hongkong and Asean operations. The parties
executed a contract of employment valid for five years.[4]
On September 16, 1995, petitioner stopped reporting for work. In November 1995, she
became the Vice-President for Sales of Professional Pension Plans, Inc., a corporation
engaged also in the pre-need industry.
Consequently, respondent sued petitioner for damages before the RTC of Pasig City, Branch
261. Respondent alleged, among others, that petitioner's employment with Professional
Pension Plans, Inc. violated the non-involvement clause in her contract of employment, to
wit:
8. NON INVOLVEMENT PROVISION - The EMPLOYEE further undertakes that during
his/her engagement with EMPLOYER and in case of separation from the Company, whether
voluntary or for cause, he/she shall not, for the next TWO (2) years thereafter, engage in or be
involved with any corporation, association or entity, whether directly or indirectly, engaged in
the same business or belonging to the same pre-need industry as the EMPLOYER. Any
breach of the foregoing provision shall render the EMPLOYEE liable to the EMPLOYER in
the amount of One Hundred Thousand Pesos (P100,000.00) for and as liquidated damages.[5]
Respondent thus prayed for P100,000 as compensatory damages; P200,000 as moral damages;
P100,000 as exemplary damages; and 25% of the total amount due plus P1,000 per counsel's
court appearance, as attorney's fees.

Page

In upholding the validity of the non-involvement clause, the trial court ruled that a contract in
restraint of trade is valid provided that there is a limitation upon either time or place. In the
case of the pre-need industry, the trial court found the two-year restriction to be valid and
reasonable. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay the following:

405

Petitioner countered that the non-involvement clause was unenforceable for being against
public order or public policy: First, the restraint imposed was much greater than what was
necessary to afford respondent a fair and reasonable protection. Petitioner contended that the
transfer to a rival company was an accepted practice in the pre-need industry. Since the
products sold by the companies were more or less the same, there was nothing peculiar or
unique to protect. Second, respondent did not invest in petitioner's training or improvement.
At the time petitioner was recruited, she already possessed the knowledge and expertise
required in the pre-need industry and respondent benefited tremendously from it. Third, a
strict application of the non-involvement clause would amount to a deprivation of petitioner's
right to engage in the only work she knew.

1. the amount of One Hundred Thousand Pesos (P100,000.00) for and as damages, for
the breach of the non-involvement provision (Item No. 8) of the contract of
employment;
2. costs of suit.
There being no sufficient evidence presented to sustain the grant of attorney's fees, the Court
deems it proper not to award any.
SO ORDERED.[6]
On appeal, the Court of Appeals affirmed the trial court's ruling. It reasoned that petitioner
entered into the contract on her own will and volition. Thus, she bound herself to fulfill not
only what was expressly stipulated in the contract, but also all its consequences that were not
against good faith, usage, and law. The appellate court also ruled that the stipulation
prohibiting non-employment for two years was valid and enforceable considering the nature
of respondent's business.
Petitioner moved for reconsideration but was denied. Hence, this appeal by certiorari where
petitioner alleges that the Court of Appeals erred when:
A.
... [IT SUSTAINED] THE VALIDITY OF THE NON-INVOLVEMENT CLAUSE IN
PETITIONER'S CONTRACT CONSIDERING THAT THE PERIOD FIXED THEREIN IS
VOID FOR BEING OFFENSIVE TO PUBLIC POLICY
B.
... [IT SUSTAINED] THE AWARD OF LIQUIDATED DAMAGES CONSIDERING THAT
IT BEING IN THE NATURE OF A PENALTY THE SAME IS EXCESSIVE, INIQUITOUS
OR UNCONSCIONABLE[7]
Plainly stated, the core issue is whether the non-involvement clause is valid.
Petitioner avers that the non-involvement clause is offensive to public policy since the
restraint imposed is much greater than what is necessary to afford respondent a fair and
reasonable protection. She adds that since the products sold in the pre-need industry are more
or less the same, the transfer to a rival company is acceptable. Petitioner also points out that
respondent did not invest in her training or improvement. At the time she joined respondent,
she already had the knowledge and expertise required in the pre-need industry. Finally,
petitioner argues that a strict application of the non-involvement clause would deprive her of
the right to engage in the only work she knows.

In G. Martini, Ltd. v. Glaiserman,[9] we also declared a similar stipulation as void for being an
unreasonable restraint of trade. There, the employee was prohibited from engaging in any

Page

As early as 1916, we already had the occasion to discuss the validity of a non-involvement
clause. In Ferrazzini v. Gsell,[8] we said that such clause was unreasonable restraint of trade
and therefore against public policy. In Ferrazzini, the employee was prohibited from
engaging in any business or occupation in the Philippines for a period of five years after the
termination of his employment contract and must first get the written permission of his
employer if he were to do so. The Court ruled that while the stipulation was indeed limited as
to time and space, it was not limited as to trade. Such prohibition, in effect, forces an
employee to leave the Philippines to work should his employer refuse to give a written
permission.

406

Respondent counters that the validity of a non-involvement clause has been sustained by the
Supreme Court in a long line of cases. It contends that the inclusion of the two-year noninvolvement clause in petitioner's contract of employment was reasonable and needed since
her job gave her access to the company's confidential marketing strategies. Respondent adds
that the non-involvement clause merely enjoined her from engaging in pre-need business akin
to respondent's within two years from petitioner's separation from respondent. She had not
been prohibited from marketing other service plans.

business similar to that of his employer for a period of one year. Since the employee was
employed only in connection with the purchase and export of abaca, among the many
businesses of the employer, the Court considered the restraint too broad since it effectively
prevented the employee from working in any other business similar to his employer even if
his employment was limited only to one of its multifarious business activities.
However, in Del Castillo v. Richmond,[10] we upheld a similar stipulation as legal, reasonable,
and not contrary to public policy. In the said case, the employee was restricted from opening,
owning or having any connection with any other drugstore within a radius of four miles from
the employer's place of business during the time the employer was operating his drugstore.
We said that a contract in restraint of trade is valid provided there is a limitation upon either
time or place and the restraint upon one party is not greater than the protection the other party
requires.
Finally, in Consulta v. Court of Appeals,[11] we considered a non-involvement clause in
accordance with Article 1306[12] of the Civil Code. While the complainant in that case was an
independent agent and not an employee, she was prohibited for one year from engaging
directly or indirectly in activities of other companies that compete with the business of her
principal. We noted therein that the restriction did not prohibit the agent from engaging in
any other business, or from being connected with any other company, for as long as the
business or company did not compete with the principal's business. Further, the prohibition
applied only for one year after the termination of the agent's contract and was therefore a
reasonable restriction designed to prevent acts prejudicial to the employer.
Conformably then with the aforementioned pronouncements, a non-involvement clause is not
necessarily void for being in restraint of trade as long as there are reasonable limitations as to
time, trade, and place.
In this case, the non-involvement clause has a time limit: two years from the time petitioner's
employment with respondent ends. It is also limited as to trade, since it only prohibits
petitioner from engaging in any pre-need business akin to respondent's.
More significantly, since petitioner was the Senior Assistant Vice-President and Territorial
Operations Head in charge of respondent's Hongkong and Asean operations, she had been
privy to confidential and highly sensitive marketing strategies of respondent's business. To
allow her to engage in a rival business soon after she leaves would make respondent's trade
secrets vulnerable especially in a highly competitive marketing environment. In sum, we find
the non-involvement clause not contrary to public welfare and not greater than is necessary to
afford a fair and reasonable protection to respondent.[13]
In any event, Article 1306 of the Civil Code provides that parties to a contract may establish
such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.

Page

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay
respondent P100,000 as liquidated damages. While we have equitably reduced liquidated
damages in certain cases,[17] we cannot do so in this case, since it appears that even from the
start, petitioner had not shown the least intention to fulfill the non-involvement clause in good
faith.

407

Article 1159[14] of the same Code also provides that obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good faith.
Courts cannot stipulate for the parties nor amend their agreement where the same does not
contravene law, morals, good customs, public order or public policy, for to do so would be to
alter the real intent of the parties, and would run contrary to the function of the courts to give
force and effect thereto.[15] Not being contrary to public policy, the non-involvement clause,
which petitioner and respondent freely agreed upon, has the force of law between them, and
thus, should be complied with in good faith.[16]

WHEREFORE, the petition is DENIED for lack of merit. The Decision dated January 20,
2004, and the Resolution dated May 4, 2004, of the Court of Appeals in CA-G.R. CV No.
74972, are AFFIRMED. Costs against petitioner.

Page

408

SO ORDERED.

1\ rp ub[ic of tlJ l? 18 hi Ii ppi Hl?i"l

$>uprcnte QCourt
~aguio Qtitp

TI1IRDDl\11SION
ROYAL PLANT \VORI<ERS

G.R. No. 198783

UNION,

Petitioner,

Present:
VELASCO, JR., J., Chairperson,
PERALTA,
ABAD,
lVfEN DOZA, and
LEONEN, JJ.

- versus -

COCA-COLA BOTTLERS

PHILIPPINES, INC.-CEBU PLANT,

Respondent.

Promulgated:

APR 1 5 2113

(!((~~-

X --------------------- .. ------ ------------------------------ .. ------------ - ------------------

DECISION
lVIENDOZA, .!.:
1

Assailed in this pct1t10n is the May 24, 20 I I Decision and the

September 2, 20 I 1 Resolulion 2 of the Court of Appeals (CA) in CA-CJ.R. SP
No. 05200, entitled Coca-Cola Bottlers Phihj7pines, lnc.-Cebu Plant v.
Rovct! Plant vVorkers Union, which nullified and set aside the June 1 1, .W 10
Dt;cision 3 of the Voluntary Arbitration Pcmcl (Arbitration Colllmittee) in ~-:
case involving the removal of chairs in the bottling plant of Coca-Cola
Bottlers Philippines, Inc. (CCBPI).

Rolio, pp. 23-35 (Penned by Associate Justice l'ampio A. Abarintos and concuned in by Associate
.Justices Eduardo B. Peralta . .Jr. and C.iabriel T Ingles).
c !d. <1l 36-37.
1
\\lluntary ArhitratiLlll Panel Dcci~ion, id. at 227-2.11\.

DECISION

G.R. No. 198783

The Factual and Procedural

Antecedents
The factual and procedural antecedents have been accurately recited
in the May 24, 2011 CA decision as follows:
Petitioner Coca-Cola Bottlers Philippines, Inc. (CCBPI) is a
domestic corporation engaged in the manufacture, sale and
distribution of softdrink products. It has several bottling plants all
over the country, one of which is located in Cebu City. Under the
employ of each bottling plant are bottling operators. In the case of
the plant in Cebu City, there are 20 bottling operators who work for
its Bottling Line 1 while there are 12-14 bottling operators who man
its Bottling Line 2. All of them are male and they are members of
herein respondent Royal Plant Workers Union (ROPWU).
The bottling operators work in two shifts. The first shift is
from 8 a.m. to 5 p.m. and the second shift is from 5 p.m. up to the
time production operations is finished. Thus, the second shift varies
and may end beyond eight (8) hours. However, the bottling
operators are compensated with overtime pay if the shift extends
beyond eight (8) hours. For Bottling Line 1, 10 bottling operators
work for each shift while 6 to 7 bottling operators work for each
shift for Bottling Line 2.
Each shift has rotations of work time and break time. Prior
to September 2008, the rotation is this: after two and a half (2 )
hours of work, the bottling operators are given a 30-minute break
and this goes on until the shift ends. In September 2008 and up to
the present, the rotation has changed and bottling operators are
now given a 30-minute break after one and one half (1 ) hours of
work.
In 1974, the bottling operators of then Bottling Line 2 were
provided with chairs upon their request. In 1988, the bottling
operators of then Bottling Line 1 followed suit and asked to be
provided also with chairs. Their request was likewise granted.
Sometime in September 2008, the chairs provided for the operators
were removed pursuant to a national directive of petitioner. This
directive is in line with the I Operate, I Maintain, I Clean program
of petitioner for bottling operators, wherein every bottling operator
is given the responsibility to keep the machinery and equipment
assigned to him clean and safe. The program reinforces the task of
bottling operators to constantly move about in the performance of
their duties and responsibilities.
With this task of moving constantly to check on the
machinery and equipment assigned to him, a bottling operator does
not need a chair anymore, hence, petitioners directive to remove
them. Furthermore, CCBPI rationalized that the removal of the
chairs is implemented so that the bottling operators will avoid
sleeping, thus, prevent injuries to their persons. As bottling
operators are working with machines which consist of moving
parts, it is imperative that they should not fall asleep as to do so

DECISION

G.R. No. 198783

would expose them to hazards and injuries. In addition, sleeping

will hamper the efficient flow of operations as the bottling operators
would be unable to perform their duties competently.
The bottling operators took issue with the removal of the
chairs. Through the representation of herein respondent, they
initiated the grievance machinery of the Collective Bargaining
Agreement (CBA) in November 2008. Even after exhausting the
remedies contained in the grievance machinery, the parties were
still at a deadlock with petitioner still insisting on the removal of the
chairs and respondent still against such measure. As such,
respondent sent a Notice to Arbitrate, dated 16 July 2009, to
petitioner stating its position to submit the issue on the removal of
the chairs for arbitration. Nevertheless, before submitting to
arbitration
the
issue,
both
parties
availed
of
the
conciliation/mediation
proceedings
before
the
National
Conciliation and Mediation Board (NCMB) Regional Branch No.
VII. They failed to arrive at an amicable settlement.
Thus, the process of arbitration continued and the parties
appointed the chairperson and members of the Arbitration
Committee as outlined in the CBA. Petitioner and respondent
respectively appointed as members to the Arbitration Committee
Mr. Raul A. Kapuno, Jr. and Mr. Luis Ruiz while they both chose
Atty. Alice Morada as chairperson thereof. They then executed a
Submission Agreement which was accepted by the Arbitration
Committee on 01 October 2009. As contained in the Submission
Agreement, the sole issue for arbitration is whether the removal of
chairs of the operators assigned at the production/manufacturing
line while performing their duties and responsibilities is valid or
not.
Both parties submitted their position papers and other
subsequent pleadings in amplification of their respective stands.
Petitioner argued that the removal of the chairs is valid as it is a
legitimate exercise of management prerogative, it does not violate
the Labor Code and it does not violate the CBA it contracted with
respondent. On the other hand, respondent espoused the contrary
view. It contended that the bottling operators have been performing
their assigned duties satisfactorily with the presence of the chairs;
the removal of the chairs constitutes a violation of the Occupational
Health and Safety Standards, the policy of the State to assure the
right of workers to just and humane conditions of work as stated in
Article 3 of the Labor Code and the Global Workplace Rights Policy.

Ruling of the Arbtration Committee

On June 11, 2010, the Arbitration Committee rendered a decision in

favor of the Royal Plant Workers Union (the Union) and against CCBPI, the
dispositive portion of which reads, as follows:

DECISION

G.R. No. 198783

Wherefore, the undersigned rules in favor of ROPWU

declaring that the removal of the operators chairs is not valid.
CCBPI is hereby ordered to restore the same for the use of the
operators as before their removal in 2008.4

The Arbitration Committee ruled, among others, that the use of chairs
by the operators had been a company practice for 34 years in Bottling Line
2, from 1974 to 2008, and 20 years in Bottling Line 1, from 1988 to 2008;
that the use of the chairs by the operators constituted a company practice
favorable to the Union; that it ripened into a benefit after it had been enjoyed
by it; that any benefit being enjoyed by the employees could not be reduced,
diminished, discontinued, or eliminated by the employer in accordance with
Article 100 of the Labor Code, which prohibited the diminution or
elimination by the employer of the employees benefit; and that
jurisprudence had not laid down any rule requiring a specific minimum
number of years before a benefit would constitute a voluntary company
practice which could not be unilaterally withdrawn by the employer.
The Arbitration Committee further stated that, although the removal
of the chairs was done in good faith, CCBPI failed to present evidence
regarding instances of sleeping while on duty. There were no specific details
as to the number of incidents of sleeping on duty, who were involved, when
these incidents happened, and what actions were taken. There was no
evidence either of any accident or injury in the many years that the bottling
operators used chairs. To the Arbitration Committee, it was puzzling why it
took 34 and 20 years for CCBPI to be so solicitous of the bottling operators
safety that it removed their chairs so that they would not fall asleep and
injure themselves.
Finally, the Arbitration Committee was of the view that, contrary to
CCBPIs position, line efficiency was the result of many factors and it could
not be attributed solely to one such as the removal of the chairs.
Not contented with the Arbitration Committees decision, CCBPI
filed a petition for review under Rule 43 before the CA.
Ruling of the CA
On May 24, 2011, the CA rendered a contrasting decision which
nullified and set aside the decision of the Arbitration Committee. The
dispositive portion of the CA decision reads:

Id. at 227-238.

DECISION

G.R. No. 198783

WHEREFORE, premises considered, the petition is hereby

GRANTED and the Decision, dated 11 June 2010, of the Arbitration
Committee in AC389-VII-09-10-2009D is NULLIFIED and SET
ASIDE. A new one is entered in its stead SUSTAINING the removal
of the chairs of the bottling operators from the
manufacturing/production line.5

The CA held, among others, that the removal of the chairs from the
manufacturing/production lines by CCBPI is within the province of
management prerogatives; that it was part of its inherent right to control and
manage its enterprise effectively; and that since it was the employers
discretion to constantly develop measures or means to optimize the
efficiency of its employees and to keep its machineries and equipment in the
best of conditions, it was only appropriate that it should be given wide
latitude in exercising it.
The CA stated that CCBPI complied with the conditions of a valid
exercise of a management prerogative when it decided to remove the chairs
used by the bottling operators in the manufacturing/production lines. The
removal of the chairs was solely motivated by the best intentions for both the
Union and CCBPI, in line with the I Operate, I Maintain, I Clean program
for bottling operators, wherein every bottling operator was given the
responsibility to keep the machinery and equipment assigned to him clean
and safe. The program would reinforce the task of bottling operators to
constantly move about in the performance of their duties and
responsibilities. Without the chairs, the bottling operators could efficiently
supervise these machineries operations and maintenance. It would also be
beneficial for them because the working time before the break in each
rotation for each shift was substantially reduced from two and a half hours (2
) to one and a half hours (1 ) before the 30-minute break. This scheme
was clearly advantageous to the bottling operators as the number of resting
periods was increased. CCBPI had the best intentions in removing the chairs
because some bottling operators had the propensity to fall asleep while on
the job and sleeping on the job ran the risk of injury exposure and removing
them reduced the risk.
The CA added that the decision of CCBPI to remove the chairs was
not done for the purpose of defeating or circumventing the rights of its
employees under the special laws, the Collective Bargaining Agreement
(CBA) or the general principles of justice and fair play. It opined that the
principles of justice and fair play were not violated because, when the chairs
were removed, there was a commensurate reduction of the working time for
each rotation in each shift. The provision of chairs for the bottling operators
was never part of the CBAs contracted between the Union and CCBPI. The
chairs were not provided as a benefit because such matter was dependent
5

Id. at 23-35.

DECISION

G.R. No. 198783

upon the exigencies of the work of the bottling operators. As such, CCBPI
could withdraw this provision if it was not necessary in the exigencies of the
work, if it was not contributing to the efficiency of the bottling operators or
if it would expose them to some hazards. Lastly, the CA explained that the
provision of chairs to the bottling operators cannot be covered by Article
100 of the Labor Code on elimination or diminution of benefits because the
employees benefits referred to therein mainly involved monetary
considerations or privileges converted to their monetary equivalent.
Disgruntled with the adverse CA decision, the Union has come to this
Court praying for its reversal on the following
GROUNDS
I
THAT WITH DUE RESPECT, THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR IN HOLDING THAT A
PETITION FOR REVIEW UNDER RULE 43 OF THE RULES OF
COURT IS THE PROPER REMEDY OF CHALLENGING
BEFORE SAID COURT THE DECISION OF THE VOLUNTARY
ARBITRATOR OR PANEL OF VOLUNTARY ARBITRATORS
UNDER THE LABOR CODE.
II
THAT WITH DUE RESPECT, THE COURT OF APPEALS
GRAVELY ABUSED ITS DISCRETION IN NULLIFYING AND
SETTING ASIDE THE DECISION OF THE PANEL OF
VOLUNTARY ARBITRATORS WHICH DECLARED AS NOT
VALID THE REMOVAL OF THE CHAIRS OF THE OPERATORS
IN THE MANUFACTURING AND/OR PRODUCTION LINE.

In advocacy of its positions, the Union argues that the proper remedy
in challenging the decision of the Arbitration Committee before the CA is a
petition for certiorari under Rule 65. The petition for review under Rule 43
resorted to by CCBPI should have been dismissed for being an improper
remedy. The Union points out that the parties agreed to submit the
unresolved grievance involving the removal of chairs to voluntary arbitration
pursuant to the provisions of Article V of the existing CBA. Hence, the
assailed decision of the Arbitration Committee is a judgment or final order
issued under the Labor Code of the Philippines. Section 2, Rule 43 of the
1997 Rules of Civil Procedure, expressly states that the said rule does not
cover cases under the Labor Code of the Philippines. The judgments or final
orders of the Voluntary Arbitrator or Panel of Voluntary Arbitrators are
governed by the provisions of Articles 260, 261, 262, 262-A, and 262-B of
the Labor Code of the Philippines.

DECISION

G.R. No. 198783

On the substantive aspect, the Union argues that there is no

connection between CCBPIs I Operate, I Maintain, I Clean program and
the removal of the chairs because the implementation of the program was in
2006 and the removal of the chairs was done in 2008. The 30-minute break
is part of an operators working hours and does not make any difference.
The frequency of the break period is not advantageous to the operators
because it cannot compensate for the time they are made to stand throughout
their working time. The bottling operators get tired and exhausted after their
tour of duty even with chairs around. How much more if the chairs are
removed?
The Union further claims that management prerogatives are not
absolute but subject to certain limitations found in law, a collective
bargaining agreement, or general principles of fair play and justice. The
operators have been performing their assigned duties and responsibilities
satisfactorily for thirty (30) years using chairs. There is no record of poor
performance because the operators are sitting all the time. There is no single
incident when the attention of an operator was called for failure to carry out
his assigned tasks. CCBPI has not submitted any evidence to prove that the
performance of the operators was poor before the removal of the chairs and
that it has improved after the chairs were removed. The presence of chairs
for more than 30 years made the operators awake and alert as they could
relax from time to time. There are sanctions for those caught sleeping while
on duty. Before the removal of the chairs, the efficiency of the operators
was much better and there was no recorded accident. After the removal of
the chairs, the efficiency of the operators diminished considerably, resulting
in the drastic decline of line efficiency.
Finally, the Union asserts that the removal of the chairs constitutes
violation of the Occupational Health and Safety Standards, which provide
that every company shall keep and maintain its workplace free from hazards
that are likely to cause physical harm to the workers or damage to property.
The removal of the chairs constitutes a violation of the State policy to assure
the right of workers to a just and humane condition of work pursuant to
Article 3 of the Labor Code and of CCBPIs Global Workplace Rights
Policy. Hence, the unilateral withdrawal, elimination or removal of the
chairs, which have been in existence for more than 30 years, constitutes a
violation of existing practice.
The respondents position
CCBPI reiterates the ruling of the CA that a petition for review under
Rule 43 of the Rules of Court was the proper remedy to question the
decision of the Arbitration Committee. It likewise echoes the ruling of the
CA that the removal of the chairs was a legitimate exercise of management
prerogative; that it was done not to harm the bottling operators but for the

DECISION

G.R. No. 198783

purpose of optimizing their efficiency and CCBPIs machineries and

equipment; and that the exercise of its management prerogative was done in
good faith and not for the purpose of circumventing the rights of the
employees under the special laws, the CBA or the general principles of
justice and fair play.
The Courts Ruling
The decision in this case rests on the resolution of two basic
questions. First, is an appeal to the CA via a petition for review under Rule
43 of the 1997 Rules of Civil Procedure a proper remedy to question the
decision of the Arbitration Committee? Second, was the removal of the
bottling operators chairs from CCBPIs production/manufacturing lines a
valid exercise of a management prerogative?
The Court sustains the ruling of the CA on both issues.
Regarding the first issue, the Union insists that the CA erred in ruling
that the recourse taken by CCBPI in appealing the decision of the
Arbitration Committee was proper. It argues that the proper remedy in
challenging the decision of the Voluntary Arbitrator before the CA is by
filing a petition for certiorari under Rule 65 of the Rules of Court, not a
petition for review under Rule 43.
CCBPI counters that the CA was correct in ruling that the recourse it
took in appealing the decision of the Arbitration Committee to the CA via a
petition for review under Rule 43 of the Rules of Court was proper and in
conformity with the rules and prevailing jurisprudence.
A Petition for Review
under Rule 43 is the
proper remedy

CCBPI is correct. This procedural issue being debated upon is not

novel. The Court has already ruled in a number of cases that a decision or
award of a voluntary arbitrator is appealable to the CA via a petition for
review under Rule 43. The recent case of Samahan Ng Mga Manggagawa
Sa Hyatt (SAMASAH-NUWHRAIN) v. Hon. Voluntary Arbitrator
Buenaventura C. Magsalin and Hotel Enterprises of the Philippines6
reiterated the well-settled doctrine on this issue, to wit:

G.R. No. 164939, June 6, 2011, 650 SCRA 445, 454-456.

DECISION

G.R. No. 198783

In the case of Samahan ng mga Manggagawa sa HyattNUWHRAIN-APL v. Bacungan,7 we repeated the well-settled rule
that a decision or award of a voluntary arbitrator is appealable to
the CA via petition for review under Rule 43. We held that:
The question on the proper recourse to assail a decision
of a voluntary arbitrator has already been settled in Luzon
Development Bank v. Association of Luzon Development
Bank Employees, where the Court held that the decision or
award of the voluntary arbitrator or panel of arbitrators
should likewise be appealable to the Court of Appeals, in line
with the procedure outlined in Revised Administrative
Circular No. 1-95 (now embodied in Rule 43 of the 1997
Rules of Civil Procedure), just like those of the quasi-judicial
agencies, boards and commissions enumerated therein, and
consistent with the original purpose to provide a uniform
procedure for the appellate review of adjudications of all
quasi-judicial entities.
Subsequently, in Alcantara, Jr. v. Court of Appeals, and
Nippon Paint Employees Union-Olalia v. Court of Appeals,
the Court reiterated the aforequoted ruling. In Alcantara,
the Court held that notwithstanding Section 2 of Rule 43, the
ruling in Luzon Development Bank still stands. The Court
explained, thus:
The provisions may be new to the Rules of Court but it
is far from being a new law. Section 2, Rules 42 of the 1997
Rules of Civil Procedure, as presently worded, is nothing
more but a reiteration of the exception to the exclusive
appellate jurisdiction of the Court of Appeals, as provided
for in Section 9, Batas Pambansa Blg. 129, as amended by
Republic Act No. 7902:
(3) Exclusive appellate jurisdiction over all final
judgments, decisions, resolutions, orders or awards of
Regional Trial Courts and quasi-judicial agencies,
instrumentalities, boards or commissions, including the
Securities and Exchange Commission, the Employees
Compensation Commission and the Civil Service
Commission, except those falling within the appellate
jurisdiction of the Supreme Court in accordance with the
Constitution, the Labor Code of the Philippines under
Presidential Decree No. 442, as amended, the provisions of
this Act and of subparagraph (1) of the third paragraph and
subparagraph (4) of the fourth paragraph of Section 17 of
the Judiciary Act of 1948.

The Court took into account this exception in Luzon

Development Bank but, nevertheless, held that the decisions
of voluntary arbitrators issued pursuant to the Labor Code
do not come within its ambit x x x.

G.R. No. 149050, March 25, 2009, 582 SCRA 369, 374-375, citing Luzon Development Bank v.
Association of Luzon Development Bank Employees, 319 Phil. 262 (1995); Alcantara, Jr. v. Court of
Appeals, 435 Phil. 395 (2002); and Nippon Paint Employees Union-Olalia v. Court of Appeals, G.R. No.
159010, November 19, 2004, 443 SCRA 286.

10

DECISION

G.R. No. 198783

Furthermore, Sections 1, 3 and 4, Rule 43 of the 1997 Rules of

Civil Procedure, as amended, provide:
SECTION 1. Scope. - This Rule shall apply to appeals
from judgments or final orders of the Court of Tax Appeals
and from awards, judgments, final orders or resolutions of
or authorized by any quasi-judicial agency in the exercise
of its quasi-judicial functions. Among these agencies are
the x x x, and voluntary arbitrators authorized by law.
xxxx
SEC. 3. Where to appeal. - An appeal under this Rule
may be taken to the Court of Appeals within the period and
in the manner therein provided, whether the appeal
involves questions of fact, of law, or mixed questions of fact
and law.
SEC. 4. Period of appeal. - The appeal shall be taken
within fifteen (15) days from notice of the award,
judgment, final order or resolution, or from the date of its
last publication, if publication is required by law for its
effectivity, or of the denial of petitioners motion for new
trial or reconsideration duly filed in accordance with the
governing law of the court or agency a quo. x x x.
(Emphasis supplied.)

Hence, upon receipt on May 26, 2003 of the Voluntary

Arbitrators Resolution denying petitioners motion for
reconsideration, petitioner should have filed with the CA, within the
fifteen (15)-day reglementary period, a petition for review, not a
petition for certiorari.

On the second issue, the Union basically claims that the CCBPIs
decision to unilaterally remove the operators chairs from the
production/manufacturing lines of its bottling plants is not valid because it
violates some fundamental labor policies. According to the Union, such
removal constitutes a violation of the 1) Occupational Health and Safety
Standards which provide that every worker is entitled to be provided by the
employer with appropriate seats, among others; 2) policy of the State to
assure the right of workers to a just and humane condition of work as
provided for in Article 3 of the Labor Code;8 3) Global Workplace Rights
Policy of CCBPI which provides for a safe and healthy workplace by
maintaining a productive workplace and by minimizing the risk of accident,
injury and exposure to health risks; and 4) diminution of benefits provided in
Article 100 of the Labor Code.9

Article 3. Declaration of basic policy. The State shall afford protection to labor, promote full employment,
ensure equal work opportunities regardless of sex, race or creed and regulate the relations between workers
and employers. The State shall assure the rights of workers to self-organization, collective bargaining,
security of tenure, and just and humane conditions of work.
9
ART. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the
time of promulgation of this Code.

DECISION

11

G.R. No. 198783

Opposing the Unions argument, CCBPI mainly contends that the

removal of the subject chairs is a valid exercise of management prerogative.
The management decision to remove the subject chairs was made in good
faith and did not intend to defeat or circumvent the rights of the Union under
the special laws, the CBA and the general principles of justice and fair play.
Again, the Court agrees with CCBPI on the matter.
A Valid Exercise of
Management Prerogative

The Court has held that management is free to regulate, according to

its own discretion and judgment, all aspects of employment, including
hiring, work assignments, working methods, time, place, and manner of
work, processes to be followed, supervision of workers, working regulations,
transfer of employees, work supervision, lay-off of workers, and discipline,
dismissal and recall of workers. The exercise of management prerogative,
however, is not absolute as it must be exercised in good faith and with due
regard to the rights of labor.10
In the present controversy, it cannot be denied that CCBPI removed
the operators chairs pursuant to a national directive and in line with its I
Operate, I Maintain, I Clean program, launched to enable the Union to
perform their duties and responsibilities more efficiently. The chairs were
not removed indiscriminately. They were carefully studied with due regard
to the welfare of the members of the Union. The removal of the chairs was
compensated by: a) a reduction of the operating hours of the bottling
operators from a two-and-one-half (2 )-hour rotation period to a one-and-ahalf (1 ) hour rotation period; and b) an increase of the break period from
15 to 30 minutes between rotations.
Apparently, the decision to remove the chairs was done with good
intentions as CCBPI wanted to avoid instances of operators sleeping on the
job while in the performance of their duties and responsibilities and because
of the fact that the chairs were not necessary considering that the operators
constantly move about while working. In short, the removal of the chairs
was designed to increase work efficiency. Hence, CCBPIs exercise of its
management prerogative was made in good faith without doing any harm to
the workers rights.

10

Julies Bakeshop v. Arnaiz,, G.R. No. 173882, February 15, 2012, 666 SCRA 101, 115.

12

DECISION

G.R. No. 198783

The fact that there is no proof of any operator sleeping on the job is of
no moment. There is no guarantee that such incident would never happen as
sitting on a chair is relaxing. Besides, the operators constantly move about
while doing their job. The ultimate purpose is to promote work efficiency.
No Violation of Labor Laws
The rights of the Union under any labor law were not violated. There
is no law that requires employers to provide chairs for bottling operators.
The CA correctly ruled that the Labor Code, specifically Article 13211
thereof, only requires employers to provide seats for women. No similar
requirement is mandated for men or male workers. It must be stressed that
all concerned bottling operators in this case are men.
There was no violation either of the Health, Safety and Social Welfare
Benefit provisions under Book IV of the Labor Code of the Philippines. As
shown in the foregoing, the removal of the chairs was compensated by the
reduction of the working hours and increase in the rest period. The directive
did not expose the bottling operators to safety and health hazards.
The Union should not complain too much about standing and moving
about for one and one-half (1 ) hours because studies show that sitting in
workplaces for a long time is hazardous to ones health. The report of
VicHealth, Australia,12 disclosed that prolonged workplace sitting is an
emerging public health and occupational health issue with serious
implications for the health of our working population. Importantly,
prolonged sitting is a risk factor for poor health and early death, even among
those who meet, or exceed, national13 activity guidelines. In another
report,14 it was written:
Workers needing to spend long periods in a seated position on the
job such as taxi drivers, call centre and office workers, are at risk for
injury and a variety of adverse health effects.
The most common injuries occur in the muscles, bones, tendons
and ligaments, affecting the neck and lower back regions. Prolonged
sitting:

11

reduces body movement making muscles more

likely to pull, cramp or strain when stretched
suddenly,

Art. 132. Facilities for Women. The Secretary of Labor shall establish standards that will insure the
safety and health of women employees. In appropriate cases, he shall by regulations, require employers to:
(a) Provide seats proper for women and permit them to use such seats when they are free
from work and during working hours, provided they can perform their duties in this
position without detriment to efficiency.
12
http://www.vichealth.vic.gov.au/About-VicHealth.aspx. Last visited March 28, 2013.
13
Australian.
14
http://www.ohsrep.org.au/hazards/workplace-conditions/sedentary-work/index.cfm. Last visited March
28, 2013.

13

DECISION

G.R. No. 198783

causes fatigue in the back and neck muscles by

slowing the blood supply and puts high tension on
the spine, especially in the low back or neck, and

causes a steady compression on the spinal discs

that hinders their nutrition and can contribute to
their premature degeneration.

Sedentary employees may also face a gradual deterioration in

health if they do not exercise or do not lead an otherwise physically
active life. The most common health problems that these employees
experience are disorders in blood circulation and injuries affecting
their ability to move. Deep Vein Thrombosis (DVT), where a clot
forms in a large vein after prolonged sitting (eg after a long flight)
has also been shown to be a risk.
Workers who spend most of their working time seated may also
experience other, less specific adverse health effects. Common
effects include decreased fitness, reduced heart and lung efficiency,
and digestive problems. Recent research has identified too much
sitting as an important part of the physical activity and health
equation, and suggests we should focus on the harm caused by daily
inactivity such as prolonged sitting.
Associate professor David Dunstan leads a team at the Baker IDI in
Melbourne which is specifically researching sitting and physical
activity. He has found that people who spend long periods of time
seated (more than four hours per day) were at risk of:

higher blood levels of sugar and fats,

larger waistlines, and

higher risk of metabolic syndrome

regardless of how much moderate to vigorous exercise they had.

In addition, people who interrupted their sitting time more often

just by standing or with light activities such as housework,
shopping, and moving about the office had healthier blood sugar and
fat levels, and smaller waistlines than those whose sitting time was
not broken up.

Of course, in this case, if the chairs would be returned, no risks would

be involved because of the shorter period of working time. The study was
cited just to show that there is a health risk in prolonged sitting.

DECISION

14

G.R. No. 198783

No Violation of the CBA

The CBA15 between the Union and CCBPI contains no provision
whatsoever requiring the management to provide chairs for the operators in
the production/manufacturing line while performing their duties and
responsibilities. On the contrary, Section 2 of Article 1 of the CBA
expressly provides as follows:
Article I
SCOPE
SECTION 2. Scope of the Agreement. All the terms and
conditions of employment of employees and workers within the
appropriate bargaining unit (as defined in Section 1 hereof) are
embodied in this Agreement and the same shall govern the
relationship between the COMPANY and such employees and/or
workers. On the other hand, all such benefits and/or privileges as are
not expressly provided for in this Agreement but which are now being
accorded, may in the future be accorded, or might have previously
been accorded, to the employees and/or workers, shall be deemed as
purely voluntary acts on the part of the COMPANY in each case, and
the continuance and repetition thereof now or in the future, no matter
how long or how often, shall not be construed as establishing an
obligation on the part of the COMPANY. It is however understood
that any benefits that are agreed upon by and between the
COMPANY and the UNION in the Labor-Management Committee
Meetings regarding the terms and conditions of employment
outside the CBA that have general application to employees who are
similarly situated in a Department or in the Plant shall be
implemented. [emphasis and underscoring supplied]

As can be gleaned from the aforecited provision, the CBA expressly

provides that benefits and/or privileges, not expressly given therein but
which are presently being granted by the company and enjoyed by the
employees, shall be considered as purely voluntary acts by the management
and that the continuance of such benefits and/or privileges, no matter how
long or how often, shall not be understood as establishing an obligation on
the companys part. Since the matter of the chairs is not expressly stated in
the CBA, it is understood that it was a purely voluntary act on the part of
CCBPI and the long practice did not convert it into an obligation or a vested
right in favor of the Union.

15

Rollo, pp. 127-148.

DECISION

15

G.R. No. 198783

No Violation of the general principles

of justice and fair play
The Court completely agrees with the CA ruling that the removal of
the chairs did not violate the general principles of justice and fair play
because the bottling operators working time was considerably reduced
from two and a half (2 ) hours to just one and a half (1 ) hours and the
break period, when they could sit down, was increased to 30 minutes
between rotations. The bottling operators new work schedule is certainly
advantageous to them because it greatly increases their rest period and
significantly decreases their working time. A break time of thirty (30)
minutes after working for only one and a half (1 ) hours is a just and fair
work schedule.
No Violation of Article 100
of the Labor Code

The operators chairs cannot be considered as one of the employee

benefits covered in Article 10016 of the Labor Code. In the Courts view, the
term benefits mentioned in the non-diminution rule refers to monetary
benefits or privileges given to the employee with monetary equivalents.
Such benefits or privileges form part of the employees wage, salary or
compensation making them enforceable obligations.
This Court has already decided several cases regarding the nondiminution rule where the benefits or privileges involved in those cases
mainly concern monetary considerations or privileges with monetary
equivalents. Some of these cases are: Eastern Telecommunication Phils. Inc.
v. Eastern Telecoms Employees Union,17 where the case involves the
payment of 14th, 15th and 16th month bonuses; Central Azucarera De Tarlac
v. Central Azucarera De Tarlac Labor Union-NLU,18 regarding the 13th
month pay, legal/special holiday pay, night premium pay and vacation and
sick leaves; TSPIC Corp. v. TSPIC Employees Union, 19 regarding salary
wage increases; and American Wire and Cable Daily Employees Union vs.
American Wire and Cable Company, Inc.,20 involving service awards with
cash incentives, premium pay, Christmas party with incidental benefits and
promotional increase.

16

Art. 100. Prohibition against elimination or diminution of benefits. Nothing in this Book shall be
construed to eliminate or in any way diminish supplements, or other employee benefits being enjoyed at the
time of promulgation of this Code.
17
G.R. No. 185665, February 8, 2012, 665 SCRA 516.
18
G.R. No. 188949, July 26, 2010, 625 SCRA 622.
19
G.R. 163419, February 13, 2008, 545 SCRA 215.
20
497 Phil. 213 (2005).

16

DECISION

G.R. No.

19R7~3

In this regard, the Court agrees with rhe CA when it resolved tlh.:
matter and wrote:
Let it be stressed that the aforcquoted article speaks of nondiminution of supplements and other employee benefits.
Supplements arc privileges given to an employee vvhich constitute
as extra remuneration besides his or her basic ordinary earnings
and '"'ages. From this definition, \1\Te can only deduce that the other
employee benefits spoken of by Article 100 pertain only to those
which are suseeptible of monetary considerations. Indeed, this
could only be the most plausible conclusion because the cases
tackling Article 100 involve mainly with monetary considerations or
privileges converted to their monetary equivalents.
xxxx
Without a doubt, equating the provision of chairs to the

bottling operators Ds something within the ambit of "benefits'' in

the context of Article 100 of the Labor Code is unduly stretching tl1e::
coverage of the lavv. The interpretations of Article 100 of the Labor
Code do not show ev-en vvith the slightest hint that such provision of
chairs for the bottling operators rnay be sheltered under its
mantle. 21

Jurisprudence recognizes the exercise of management prerogatives.

Labor Jaws also discourage interference with an employer's judgment in the
conduct of its business. For this reason, the Court often declines to interfere
in legitimate business decisions of employers. The law must protect not only
22
the welfare of the employees, but also the right of the employers.

WHEREFORE, the petition is

DI~NIED.

SO ORDERED.

JOSE

21

CA~ENDOZA
Ass~~~~~~ J::tice
1

Rollo, pp. 23-35.

,'lmu!jo U l~'ndico \'. Quantum Foot!\ Uistrihution Center, li.JZ. Nu. l(Jl6l5. Janu<:ry 30, 2(109, ..::.n
SCRA 2lJ9, 309.
!'.

DL~CiSfON

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ATTESTATION

lou rl 's Di visio11.

PRESl:HTE 0 J. VELA.SCO; .JH.

/' ssociate Justice
Ch<~J. cr:;on. ihircl Division
I

'

DECISION

18

G.R. No. 198783

C ER'I'IFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P~ A. SERENO

Chief Justice

SECOND DIVISION
[G.R. No. 162994. September 17, 2004]
DUNCAN ASSOCIATION OF DETAILMAN-PTGWO and PEDRO A. TECSON, petitioners,
vs. GLAXO WELLCOME PHILIPPINES, INC. respondent.
RESOLUTION
TINGA, J.:
Confronting the Court in this petition is a novel question, with constitutional overtones,
involving the validity of the policy of a pharmaceutical company prohibiting its
employees from marrying employees of any competitor company.
This is a Petition for Review on Certiorari assailing the Decision[1] dated May 19, 2003
and the Resolution dated March 26, 2004 of the Court of Appeals in CA-G.R. SP No.
62434.[2]
Petitioner Pedro A. Tecson (Tecson) was hired by respondent Glaxo Wellcome
Philippines, Inc. (Glaxo) as medical representative on October 24, 1995, after Tecson
had undergone training and orientation.
Thereafter, Tecson signed a contract of employment which stipulates, among others,
that he agrees to study and abide by existing company rules; to disclose to
management any existing or future relationship by consanguinity or affinity with coemployees or employees of competing drug companies and should management find
that such relationship poses a possible conflict of interest, to resign from the company.
The Employee Code of Conduct of Glaxo similarly provides that an employee is expected
to inform management of any existing or future relationship by consanguinity or affinity
with co-employees or employees of competing drug companies. If management
perceives a conflict of interest or a potential conflict between such relationship and the
employees employment with the company, the management and the employee will
explore the possibility of a transfer to another department in a non-counterchecking
position or preparation for employment outside the company after six months.
Tecson was initially assigned to market Glaxos products in the Camarines Sur-Camarines
Norte sales area.
Subsequently, Tecson entered into a romantic relationship with Bettsy, an employee of
Astra Pharmaceuticals[3] (Astra), a competitor of Glaxo. Bettsy was Astras Branch
Coordinator in Albay. She supervised the district managers and medical representatives
of her company and prepared marketing strategies for Astra in that area.
Even before they got married, Tecson received several reminders from his District
Manager regarding the conflict of interest which his relationship with Bettsy might
engender. Still, love prevailed, and Tecson married Bettsy in September 1998.
In January 1999, Tecsons superiors informed him that his marriage to Bettsy gave rise
to a conflict of interest. Tecsons superiors reminded him that he and Bettsy should
decide which one of them would resign from their jobs, although they told him that
they wanted to retain him as much as possible because he was performing his job well.
1

Tecson requested for time to comply with the company policy against entering into a
relationship with an employee of a competitor company. He explained that Astra,
Bettsys employer, was planning to merge with Zeneca, another drug company; and
Bettsy was planning to avail of the redundancy package to be offered by Astra. With
Bettsys separation from her company, the potential conflict of interest would be
eliminated. At the same time, they would be able to avail of the attractive redundancy
package from Astra.
In August 1999, Tecson again requested for more time resolve the problem. In
September 1999, Tecson applied for a transfer in Glaxos milk division, thinking that
since Astra did not have a milk division, the potential conflict of interest would be
eliminated. His application was denied in view of Glaxos least-movement-possible policy.
In November 1999, Glaxo transferred Tecson to the Butuan City-Surigao City-Agusan del
Sur sales area. Tecson asked Glaxo to reconsider its decision, but his request was
denied.
Tecson sought Glaxos reconsideration regarding his transfer and brought the matter to
Glaxos Grievance Committee. Glaxo, however, remained firm in its decision and gave
Tescon until February 7, 2000 to comply with the transfer order. Tecson defied the
transfer order and continued acting as medical representative in the Camarines SurCamarines Norte sales area.
During the pendency of the grievance proceedings, Tecson was paid his salary, but was
not issued samples of products which were competing with similar products
manufactured by Astra. He was also not included in product conferences regarding such
products.
Because the parties failed to resolve the issue at the grievance machinery level, they
submitted the matter for voluntary arbitration. Glaxo offered Tecson a separation pay of
one-half () month pay for every year of service, or a total of P50,000.00 but he declined
the offer. On November 15, 2000, the National Conciliation and Mediation Board (NCMB)
rendered its Decision declaring as valid Glaxos policy on relationships between its
employees and persons employed with competitor companies, and affirming Glaxos
right to transfer Tecson to another sales territory.
Aggrieved, Tecson filed a Petition for Review with the Court of Appeals assailing the
NCMB Decision.
On May 19, 2003, the Court of Appeals promulgated its Decision denying the Petition
for Review on the ground that the NCMB did not err in rendering its Decision. The
appellate court held that Glaxos policy prohibiting its employees from having personal
relationships with employees of competitor companies is a valid exercise of its
management prerogatives.[4]
Tecson filed a Motion for Reconsideration of the appellate courts Decision, but the
motion was denied by the appellate court in its Resolution dated March 26, 2004.[5]
Petitioners filed the instant petition, arguing therein that (i) the Court of Appeals erred
2

in affirming the NCMBs finding that the Glaxos policy prohibiting its employees from
marrying an employee of a competitor company is valid; and (ii) the Court of Appeals
also erred in not finding that Tecson was constructively dismissed when he was
transferred to a new sales territory, and deprived of the opportunity to attend products
seminars and training sessions.[6]
Petitioners contend that Glaxos policy against employees marrying employees of
competitor companies violates the equal protection clause of the Constitution because it
creates invalid distinctions among employees on account only of marriage. They claim
that the policy restricts the employees right to marry.[7]
They also argue that Tecson was constructively dismissed as shown by the following
circumstances: (1) he was transferred from the Camarines Sur-Camarines Norte sales
area to the Butuan-Surigao-Agusan sales area, (2) he suffered a diminution in pay, (3)
he was excluded from attending seminars and training sessions for medical
representatives, and (4) he was prohibited from promoting respondents products which
were competing with Astras products.[8]
In its Comment on the petition, Glaxo argues that the company policy prohibiting its
employees from having a relationship with and/or marrying an employee of a
competitor company is a valid exercise of its management prerogatives and does not
violate the equal protection clause; and that Tecsons reassignment from the Camarines
Norte-Camarines Sur sales area to the Butuan City-Surigao City and Agusan del Sur
sales area does not amount to constructive dismissal.[9]
Glaxo insists that as a company engaged in the promotion and sale of pharmaceutical
products, it has a genuine interest in ensuring that its employees avoid any activity,
relationship or interest that may conflict with their responsibilities to the company.
Thus, it expects its employees to avoid having personal or family interests in any
competitor company which may influence their actions and decisions and consequently
deprive Glaxo of legitimate profits. The policy is also aimed at preventing a competitor
company from gaining access to its secrets, procedures and policies.[10]
It likewise asserts that the policy does not prohibit marriage per se but only proscribes
existing or future relationships with employees of competitor companies, and is
therefore not violative of the equal protection clause. It maintains that considering the
nature of its business, the prohibition is based on valid grounds.[11]
According to Glaxo, Tecsons marriage to Bettsy, an employee of Astra, posed a real and
potential conflict of interest. Astras products were in direct competition with 67% of the
products sold by Glaxo. Hence, Glaxos enforcement of the foregoing policy in Tecsons
case was a valid exercise of its management prerogatives.[12] In any case, Tecson was
given several months to remedy the situation, and was even encouraged not to resign
but to ask his wife to resign from Astra instead.[13]
Glaxo also points out that Tecson can no longer question the assailed company policy
because when he signed his contract of employment, he was aware that such policy
was stipulated therein. In said contract, he also agreed to resign from respondent if the
management finds that his relationship with an employee of a competitor company
would be detrimental to the interests of Glaxo.[14]
3

Glaxo likewise insists that Tecsons reassignment to another sales area and his exclusion
from seminars regarding respondents new products did not amount to constructive
dismissal.
It claims that in view of Tecsons refusal to resign, he was relocated from the Camarines
Sur-Camarines Norte sales area to the Butuan City-Surigao City and Agusan del Sur
sales area. Glaxo asserts that in effecting the reassignment, it also considered the
welfare of Tecsons family. Since Tecsons hometown was in Agusan del Sur and his wife
traces her roots to Butuan City, Glaxo assumed that his transfer from the Bicol region to
the Butuan City sales area would be favorable to him and his family as he would be
relocating to a familiar territory and minimizing his travel expenses.[15]
In addition, Glaxo avers that Tecsons exclusion from the seminar concerning the new
anti-asthma drug was due to the fact that said product was in direct competition with a
drug which was soon to be sold by Astra, and hence, would pose a potential conflict of
interest for him. Lastly, the delay in Tecsons receipt of his sales paraphernalia was due
to the mix-up created by his refusal to transfer to the Butuan City sales area (his
paraphernalia was delivered to his new sales area instead of Naga City because the
supplier thought he already transferred to Butuan).[16]
The Court is tasked to resolve the following issues: (1) Whether the Court of Appeals
erred in ruling that Glaxos policy against its employees marrying employees from
competitor companies is valid, and in not holding that said policy violates the equal
protection clause of the Constitution; (2) Whether Tecson was constructively dismissed.
The Court finds no merit in the petition.
The stipulation in Tecsons contract of employment with Glaxo being questioned by
petitioners provides:
10. You agree to disclose to management any existing or future relationship you may
have, either by consanguinity or affinity with co-employees or employees of competing
drug companies. Should it pose a possible conflict of interest in management discretion,
you agree to resign voluntarily from the Company as a matter of Company policy.
[17]
The same contract also stipulates that Tecson agrees to abide by the existing company
rules of Glaxo, and to study and become acquainted with such policies.[18] In this
regard, the Employee Handbook of Glaxo expressly informs its employees of its rules
regarding conflict of interest:
1. Conflict of Interest
Employees should avoid any activity, investment relationship, or interest that may run
counter to the responsibilities which they owe Glaxo Wellcome.
Specifically, this means that employees are expected:

a. To avoid having personal or family interest, financial or otherwise, in any competitor

supplier or other businesses which may consciously or unconsciously influence their
actions or decisions and thus deprive Glaxo Wellcome of legitimate profit.
b. To refrain from using their position in Glaxo Wellcome or knowledge of Company
plans to advance their outside personal interests, that of their relatives, friends and
other businesses.
c. To avoid outside employment or other interests for income which would impair their
effective job performance.
d. To consult with Management on such activities or relationships that may lead to
conflict of interest.
1.1. Employee Relationships
Employees with existing or future relationships either by consanguinity or affinity with
co-employees of competing drug companies are expected to disclose such relationship
to the Management. If management perceives a conflict or potential conflict of interest,
every effort shall be made, together by management and the employee, to arrive at a
solution within six (6) months, either by transfer to another department in a noncounter checking position, or by career preparation toward outside employment after
Glaxo Wellcome. Employees must be prepared for possible resignation within six (6)
months, if no other solution is feasible.[19]
No reversible error can be ascribed to the Court of Appeals when it ruled that Glaxos
policy prohibiting an employee from having a relationship with an employee of a
competitor company is a valid exercise of management prerogative.
Glaxo has a right to guard its trade secrets, manufacturing formulas, marketing
strategies and other confidential programs and information from competitors, especially
so that it and Astra are rival companies in the highly competitive pharmaceutical
industry.
The prohibition against personal or marital relationships with employees of competitor
companies upon Glaxos employees is reasonable under the circumstances because
relationships of that nature might compromise the interests of the company. In laying
down the assailed company policy, Glaxo only aims to protect its interests against the
possibility that a competitor company will gain access to its secrets and procedures.
That Glaxo possesses the right to protect its economic interests cannot be denied. No
less than the Constitution recognizes the right of enterprises to adopt and enforce such
a policy to protect its right to reasonable returns on investments and to expansion and
growth.[20] Indeed, while our laws endeavor to give life to the constitutional policy on
social justice and the protection of labor, it does not mean that every labor dispute will
be decided in favor of the workers. The law also recognizes that management has rights
which are also entitled to respect and enforcement in the interest of fair play.[21]
As held in a Georgia, U.S.A case,[22] it is a legitimate business practice to guard
business confidentiality and protect a competitive position by even-handedly
5

disqualifying from jobs male and female applicants or employees who are married to a
competitor. Consequently, the court ruled than an employer that discharged an
employee who was married to an employee of an active competitor did not violate Title
VII of the Civil Rights Act of 1964.[23] The Court pointed out that the policy was
applied to men and women equally, and noted that the employers business was highly
competitive and that gaining inside information would constitute a competitive
advantage.
The challenged company policy does not violate the equal protection clause of the
Constitution as petitioners erroneously suggest. It is a settled principle that the
commands of the equal protection clause are addressed only to the state or those
acting under color of its authority.[24] Corollarily, it has been held in a long array of
U.S. Supreme Court decisions that the equal protection clause erects no shield against
merely private conduct, however, discriminatory or wrongful.[25] The only exception
occurs when the state[26] in any of its manifestations or actions has been found to
have become entwined or involved in the wrongful private conduct.[27] Obviously,
however, the exception is not present in this case. Significantly, the company actually
enforced the policy after repeated requests to the employee to comply with the policy.
Indeed, the application of the policy was made in an impartial and even-handed
manner, with due regard for the lot of the employee.
In any event, from the wordings of the contractual provision and the policy in its
employee handbook, it is clear that Glaxo does not impose an absolute prohibition
against relationships between its employees and those of competitor companies. Its
employees are free to cultivate relationships with and marry persons of their own
choosing. What the company merely seeks to avoid is a conflict of interest between the
employee and the company that may arise out of such relationships. As succinctly
explained by the appellate court, thus:
The policy being questioned is not a policy against marriage. An employee of the
company remains free to marry anyone of his or her choosing. The policy is not aimed
at restricting a personal prerogative that belongs only to the individual. However, an
employees personal decision does not detract the employer from exercising
management prerogatives to ensure maximum profit and business success. . . [28]
The Court of Appeals also correctly noted that the assailed company policy which forms
part of respondents Employee Code of Conduct and of its contracts with its employees,
such as that signed by Tecson, was made known to him prior to his employment.
Tecson, therefore, was aware of that restriction when he signed his employment
contract and when he entered into a relationship with Bettsy. Since Tecson knowingly
and voluntarily entered into a contract of employment with Glaxo, the stipulations
therein have the force of law between them and, thus, should be complied with in good
faith.[29] He is therefore estopped from questioning said policy.
The Court finds no merit in petitioners contention that Tecson was constructively
dismissed when he was transferred from the Camarines Norte-Camarines Sur sales area
to the Butuan City-Surigao City-Agusan del Sur sales area, and when he was excluded
from attending the companys seminar on new products which were directly competing
with similar products manufactured by Astra. Constructive dismissal is defined as a
quitting, an involuntary resignation resorted to when continued employment becomes
6

impossible, unreasonable, or unlikely; when there is a demotion in rank or diminution in

pay; or when a clear discrimination, insensibility or disdain by an employer becomes
unbearable to the employee.[30] None of these conditions are present in the instant
case. The record does not show that Tecson was demoted or unduly discriminated upon
by reason of such transfer. As found by the appellate court, Glaxo properly exercised its
management prerogative in reassigning Tecson to the Butuan City sales area:
. . . In this case, petitioners transfer to another place of assignment was merely in
keeping with the policy of the company in avoidance of conflict of interest, and thus
validNote that [Tecsons] wife holds a sensitive supervisory position as Branch
Coordinator in her employer-company which requires her to work in close coordination
with District Managers and Medical Representatives. Her duties include monitoring sales
of Astra products, conducting sales drives, establishing and furthering relationship with
customers, collection, monitoring and managing Astras inventoryshe therefore takes an
active participation in the market war characterized as it is by stiff competition among
pharmaceutical companies. Moreover, and this is significant, petitioners sales territory
covers Camarines Sur and Camarines Norte while his wife is supervising a branch of her
employer in Albay. The proximity of their areas of responsibility, all in the same Bicol
Region, renders the conflict of interest not only possible, but actual, as learning by one
spouse of the others market strategies in the region would be inevitable.
[Managements] appreciation of a conflict of interest is therefore not merely illusory and
wanting in factual basis[31]
In Abbott Laboratories (Phils.), Inc. v. National Labor Relations Commission,[32] which
involved a complaint filed by a medical representative against his employer drug
company for illegal dismissal for allegedly terminating his employment when he refused
to accept his reassignment to a new area, the Court upheld the right of the drug
company to transfer or reassign its employee in accordance with its operational
demands and requirements. The ruling of the Court therein, quoted hereunder, also
finds application in the instant case:
By the very nature of his employment, a drug salesman or medical representative is
expected to travel. He should anticipate reassignment according to the demands of
their business. It would be a poor drug corporation which cannot even assign its
representatives or detail men to new markets calling for opening or expansion or to
areas where the need for pushing its products is great. More so if such reassignments
are part of the employment contract.[33]
As noted earlier, the challenged policy has been implemented by Glaxo impartially and
disinterestedly for a long period of time. In the case at bar, the record shows that Glaxo
gave Tecson several chances to eliminate the conflict of interest brought about by his
relationship with Bettsy. When their relationship was still in its initial stage, Tecsons
supervisors at Glaxo constantly reminded him about its effects on his employment with
the company and on the companys interests. After Tecson married Bettsy, Glaxo gave
him time to resolve the conflict by either resigning from the company or asking his wife
to resign from Astra. Glaxo even expressed its desire to retain Tecson in its employ
because of his satisfactory performance and suggested that he ask Bettsy to resign
from her company instead. Glaxo likewise acceded to his repeated requests for more
time to resolve the conflict of interest. When the problem could not be resolved after
several years of waiting, Glaxo was constrained to reassign Tecson to a sales area
7

different from that handled by his wife for Astra. Notably, the Court did not terminate
Tecson from employment but only reassigned him to another area where his home
province, Agusan del Sur, was included. In effecting Tecsons transfer, Glaxo even
considered the welfare of Tecsons family. Clearly, the foregoing dispels any suspicion of
unfairness and bad faith on the part of Glaxo.[34]
WHEREFORE, the Petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.
Austria-Martinez and Callejo, Sr., JJ., concur.
Puno (Chairman), J., in the result.
Chico-Nazario, J., on leave.

1\epublir of tbe flbilippines

~upreme QCourt
;ffmanila

THIRD DIVISION

BPI EMPLOYEES UNIONDA VAO CITY-FUBU (BPIEUDA VAO CITY -FUBU),

Petitioner,

-versus-

BANK OF THE PHILIPPINE

ISLANDS
(BPI),
and
BPI
OFFICERS CLARO M. REYES,
CECIL CONANAN and GEMMA
VELEZ,
Respondents.

G.R. No. 174912

Present:
VELASCO, JR., J, Chairperson,
PERALTA,
ABAD,
MENDOZA, and
LEONEN,JJ

Promulgated:
"~U.L

2 ~ 1013

O'(tcw
.
X---------------------------------------------------------------------------------------------------~---X
DECISION
MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45

1
of the 1997 Rules of Civil Procedure, assailing the April 5, 2006 Decision
2
and August 17, 2006 Resolution of the Court of Appeals (CA) in CA-G.R.
4
3
SP No. 74595 affirming the December 21, 2001 and August 23, 2002
Resolutions of the National Labor Relations Commission (NLRC) in
declaring as valid and legal the action of respondent Bank of the Philippine
Islands-Davao City (BPI-Davao) in contracting out certain functions to BPI
Operations Management Corporation (BOMC).

Penned by Associate Justice Rodrigo F. Lim. Jr., with Associate Justices Teresita Dy-Liacco Flores and
Ramon R. Garcia. concurring; rollo, pp. 84-103.
2
ld. at 105-107.
3
ld. at 53-79.
4
ld. at 81-82.

DECISION

G.R. No. 174912

The Factual Antecedents

BOMC, which was created pursuant to Central Bank5 Circular No.
1388, Series of 1993 (CBP Circular No. 1388, 1993), and primarily engaged
in providing and/or handling support services for banks and other financial
institutions, is a subsidiary of the Bank of Philippine Islands (BPI) operating
and functioning as an entirely separate and distinct entity.
A service agreement between BPI and BOMC was initially
implemented in BPIs Metro Manila branches. In this agreement, BOMC
undertook to provide services such as check clearing, delivery of bank
statements, fund transfers, card production, operations accounting and
control, and cash servicing, conformably with BSP Circular No. 1388. Not a
single BPI employee was displaced and those performing the functions,
which were transferred to BOMC, were given other assignments.
The Manila chapter of BPI Employees Union (BPIEU-Metro ManilaFUBU) then filed a complaint for unfair labor practice (ULP). The Labor
Arbiter (LA) decided the case in favor of the union. The decision was,
however, reversed on appeal by the NLRC. BPIEU-Metro Manila-FUBU
filed a petition for certiorari before the CA which denied it, holding that BPI
transferred the employees in the affected departments in the pursuit of its
legitimate business. The employees were neither demoted nor were their
salaries, benefits and other privileges diminished.6
On January 1, 1996, the service agreement was likewise implemented
in Davao City. Later, a merger between BPI and Far East Bank and Trust
Company (FEBTC) took effect on April 10, 2000 with BPI as the surviving
corporation. Thereafter, BPIs cashiering function and FEBTCs cashiering,
distribution and bookkeeping functions were handled by BOMC.
Consequently, twelve (12) former FEBTC employees were transferred to
BOMC to complete the latters service complement.
BPI Davaos rank and file collective bargaining agent, BPI Employees
Union-Davao City-FUBU (Union), objected to the transfer of the functions
and the twelve (12) personnel to BOMC contending that the functions
rightfully belonged to the BPI employees and that the Union was deprived of
membership of former FEBTC personnel who, by virtue of the merger,

5
6

Now Bangko Sentral ng Pilipinas (BSP).

Rollo, p. 181.

DECISION

G.R. No. 174912

would have formed part of the bargaining unit represented by the Union
pursuant to its union shop provision in the CBA.7
The Union then filed a formal protest on June 14, 2000 addressed to
BPI Vice Presidents Claro M. Reyes and Cecil Conanan reiterating its
objection. It requested the BPI management to submit the BOMC issue to
the grievance procedure under the CBA, but BPI did not consider it as
grievable. Instead, BPI proposed a Labor Management Conference (LMC)
between the parties.8
During the LMC, BPI invoked management prerogative stating that
the creation of the BOMC was to preserve more jobs and to designate it as
an agency to place employees where they were most needed. On the other
hand, the Union charged that BOMC undermined the existence of the union
since it reduced or divided the bargaining unit. While BOMC employees
perform BPI functions, they were beyond the bargaining units coverage. In
contracting out FEBTC functions to BOMC, BPI effectively deprived the
union of the membership of employees handling said functions as well as
curtailed the right of those employees to join the union.
Thereafter, the Union demanded that the matter be submitted to the
grievance machinery as the resort to the LMC was unsuccessful. As BPI
allegedly ignored the demand, the Union filed a notice of strike before the
National Conciliation and Mediation Board (NCMB) on the following
grounds:
a) Contracting out services/functions performed by union
members that interfered with, restrained and/or coerced the
employees in the exercise of their right to self-organization;
b) Violation of duty to bargain; and
c) Union busting.9

Id. at 87-88.
Id. at 88.
9
Id. at 90.
8

DECISION

G.R. No. 174912

BPI then filed a petition for assumption of jurisdiction/certification

with the Secretary of the Department of Labor and Employment (DOLE),
who subsequently issued an order certifying the labor dispute to the NLRC
for compulsory arbitration. The DOLE Secretary directed the parties to cease
and desist from committing any act that might exacerbate the situation.
On October 27, 2000, a hearing was conducted. Thereafter, the parties
were required to submit their respective position papers. On November 29,
2000, the Union filed its Urgent Omnibus Motion to Cease and Desist with a
prayer that BPI-Davao and/or Mr. Claro M. Reyes and Mr. Cecil Conanan
be held in contempt for the following alleged acts of BPI:
1. The Bank created a Task Force Committee on November 20,
2000 composed of six (6) former FEBTC employees to handle
the Cashiering, Distributing, Clearing, Tellering and Accounting
functions of the former FEBTC branches but the task force
conducts its business at the office of the BOMC using the latters
equipment and facilities.

2. On November 27, 2000, the bank integrated the clearing

operations of the BPI and the FEBTC. The clearing function of
BPI, then solely handled by the BPI Processing Center prior to
the labor dispute, is now encroached upon by the BOMC
because with the merger, differences between BPI and FEBTC
operations were diminished or deleted. What the bank did was
simply to get the total of all clearing transactions under BPI but
the BOMC employees process the clearing of checks at the
Clearing House as to checks coming from former FEBTC
branches. Prior to the labor dispute, the run-up and distribution
of the checks of BPI were returned to the BPI processing center,
now all checks whether of BPI or of FEBTC were brought to the
BOMC. Since the clearing operations were previously done by
the BPI processing center with BPI employees, said function
should be performed by BPI employees and not by BOMC.10

On December 21, 2001, the NLRC came out with a resolution

upholding the validity of the service agreement between BPI and BOMC and
dismissing the charge of ULP. It ruled that the engagement by BPI of
BOMC to undertake some of its activities was clearly a valid exercise of its
management prerogative.11 It further stated that the spinning off by BPI to
BOMC of certain services and functions did not interfere with, restrain or
coerce employees in the exercise of their right to self-organization.12 The
Union did not present even an iota of evidence showing that BPI had

10

Id. at 91.
Id. at 93.
12
Id. at 92.
11

DECISION

G.R. No. 174912

terminated employees, who were its members. In fact, BPI exerted utmost
diligence, care and effort to see to it that no union member was terminated.13
The NLRC also stressed that Department Order (D.O.) No. 10 series of
1997, strongly relied upon by the Union, did not apply in this case as BSP
Circular No. 1388, series of 1993, was the applicable rule.
After the denial of its motion for reconsideration, the Union elevated
its grievance to the CA via a petition for certiorari under Rule 65. The CA,
however, affirmed the NLRCs December 21, 2001 Resolution with
modification that the enumeration of functions listed under BSP Circular No.
1388 in the said resolution be deleted. The CA noted at the outset that the
petition must be dismissed as it merely touched on factual matters which
were beyond the ambit of the remedy availed of.14 Be that as it may, the CA
found that the factual findings of the NLRC were supported by substantial
evidence and, thus, entitled to great respect and finality. To the CA, the
NLRC did not act with grave abuse of discretion as to merit the reversal of
the resolution.15
Furthermore, the CA ratiocinated that, considering the ramifications
of the corporate merger, it was well within BPIs prerogatives to determine
what additional tasks should be performed, who should best perform it and
what should be done to meet the exigencies of business.16 It pointed out
that the Union did not, by the mere fact of the merger, become the
bargaining agent of the merged employees17 as the Unions right to represent
said employees did not arise until it was chosen by them.18
As to the applicability of D.O. No. 10, the CA agreed with the NLRC
that the said order did not apply as BPI, being a commercial bank, its
transactions were subject to the rules and regulations of the BSP.
Not satisfied, the Union filed a motion for reconsideration which was,
however, denied by the CA.

13

Id. at 93.
Id. at 96.
15
Id. at 97.
16
Id. at 98.
17
Id. at 99.
18
Id.
14

DECISION

G.R. No. 174912

Hence, the present petition with the following

ASSIGNMENT OF ERRORS:
A. THE PETITION BEFORE THE COURT OF APPEALS
INVOLVED QUESTIONS OF LAW AND ITS DECISION DID
NOT ADDRESS THE ISSUE OF WHETHER BPIS ACT OF
OUTSOURCING FUNCTIONS FORMERLY PERFORMED BY
UNION MEMBERS VIOLATES THE CBA.

B. THE HONORABLE COURT OF APPEALS ERRED IN

HOLDING THAT DOLE DEPARTMENT ORDER NO. 10 DOES
NOT APPLY IN THIS CASE.

The Union is of the position that the outsourcing of jobs included in

the existing bargaining unit to BOMC is a breach of the union-shop
agreement in the CBA. In transferring the former employees of FEBTC to
BOMC instead of absorbing them in BPI as the surviving corporation in the
merger, the number of positions covered by the bargaining unit was
decreased, resulting in the reduction of the Unions membership. For the
Union, BPIs act of arbitrarily outsourcing functions formerly performed by
the Union members and, in fact, transferring a number of its members
beyond the ambit of the Union, is a violation of the CBA and interfered with
the employees right to self organization. The Union insists that the CBA
covers the agreement with respect, not only to wages and hours of work, but
to all other terms and conditions of work. The union shop clause, being part
of these conditions, states that the regular employees belonging to the
bargaining unit, including those absorbed by way of the corporate merger,
were required to join the bargaining union as a condition for employment.
Simply put, the transfer of former FEBTC employees to BOMC removed
them from the coverage of unionized establishment. While the Union
admitted that BPI has the prerogative to determine what should be done to
meet the exigencies of business in accordance with the case of Sime Darby
Pilipinas, Inc. v. NLRC,19 it insisted that the exercise of management
prerogative is not absolute, thus, requiring good faith and adherence to the
law and the CBA. Citing the case of Shell Oil Workers Union v. Shell
Company of the Philippines, Ltd.,20 the Union claims that it is unfair labor
practice for an employer to outsource the positions in the existing bargaining
unit.

19
20

351 Phil. 1013 (1998).

148-A Phil. 229 (1971).

DECISION

G.R. No. 174912

Position of BPI-Davao
For its part, BPI defended the validity of its service agreement with
BOMC on three (3) grounds: 1] that it was pursuant to the prevailing law at
that time, CBP Circular No. 1388; 2] that the creation of BOMC was within
management prerogatives intended to streamline the operations and provide
focus for BPIs core activities; and 3] that the Union recognized, in its CBA,
the exclusive right and prerogative of BPI to conduct the management and
operation of its business.21
BPI argues that the case of Shell Oil Workers Union v. Shell
Company of the Philippines, Ltd.,22 cited by the Union, is not on all fours
with the present case. In said case, the company dissolved its security guard
section and replaced it with an outside agency, claiming that such act was a
valid exercise of management prerogative. The Court, however, ruled
against the said outsourcing because there was an express assurance in the
CBA that the security guard section would continue to exist. Having failed
to reserve its right to effect a dissolution, the companys act of outsourcing
and transferring security guards was invalidated by the Court, ruling that the
unfair labor practice strike called by the Union did have the impression of
validity. In contrast, there is no provision in the CBA between BPI and the
Union expressly stipulating the continued existence of any position within
the bargaining unit. For BPI, the absence of this peculiar fact is enough
reason to prevent the application of Shell to this case.
BPI likewise invokes settled jurisprudence,23 where the Court upheld
the acts of management to contract out certain functions held by employees,
and even notably those held by union members. In these cases, the decision
to outsource certain functions was a justifiable business judgment which
deserved no judicial interference. The only requisite of this act is good faith
on the part of the employer and the absence of malicious and arbitrary action
in the outsourcing of functions to BOMC.

21

Section 1, Article IV. Exclusive Rights and Prerogatives The UNION all all its members hereby
recognize that the management and operation of the business of the BANK which include, among others,
the hiring of employees, promotion, transfers, and dismissal for just cause as well as the maintenance of
order, discipline and efficiency in its operation are the sole and exclusive prerogative of the BANK..
22
Supra note 20.
23
Cecille de Ocampo v. NLRC, G.R. No. 101539, September 4, 1992, 213 SCRA 652; Asian Alcohol
Corporation v. NLRC, 364 Phil. 912 (1999). G.R. No. 131108, March 25, 1999, Manila Electric Company
v. Quisumbing, 383 Phil. 47 (2000).

DECISION

G.R. No. 174912

On the issue of the alleged curtailment of the right of the employees to

self-organization, BPI refutes the Unions allegation that ULP was
committed when the number of positions in the bargaining was reduced. It
cites as correct the CA ruling that the representation of the Unions
prospective members is contingent on the choice of the employee, that is,
whether or not to join the Union. Hence, it was premature for the Union to
claim that the rights of its prospective members to self-organize were
restrained by the transfer of the former FEBTC employees to BOMC.
The Courts Ruling
In essence, the primordial issue in this case is whether or not the act of
BPI to outsource the cashiering, distribution and bookkeeping functions to
BOMC is in conformity with the law and the existing CBA. Particularly in
dispute is the validity of the transfer of twelve (12) former FEBTC
employees to BOMC, instead of being absorbed in BPI after the corporate
merger. The Union claims that a union shop agreement is stipulated in the
existing CBA. It is unfair labor practice for employer to outsource the
positions in the existing bargaining unit, citing the case of Shell Oil
Workers Union v. Shell Company of the Philippines, Ltd.24
The Unions reliance on the Shell Case is misplaced. The rule now is
covered by Article 261 of the Labor Code, which took effect on November
1, 1974.25 Article 261 provides:
ART. 261. Jurisdiction of Voluntary Arbitrators or panel of
Voluntary Arbitrators. x x x Accordingly, violations of a Collective
Bargaining Agreement, except those which are gross in character,
shall no longer be treated as unfair labor practice and shall be
resolved as grievances under the Collective Bargaining Agreement.
For purposes of this article, gross violations of Collective Bargaining
Agreement shall mean flagrant and/or malicious refusal to comply
with the economic provisions of such agreement. [Emphases supplied]

Clearly, only gross violations of the economic provisions of the CBA

are treated as ULP. Otherwise, they are mere grievances.

24
25

Supra note 20.

Bustamante v. NLRC, 332 Phil. 833, 839 (1996).

DECISION

G.R. No. 174912

In the present case, the alleged violation of the union shop agreement
in the CBA, even assuming it was malicious and flagrant, is not a violation
of an economic provision in the agreement. The provisions relied upon by
the Union were those articles referring to the recognition of the union as the
sole and exclusive bargaining representative of all rank-and-file employees,
as well as the articles on union security, specifically, the maintenance of
membership in good standing as a condition for continued employment and
the union shop clause.26 It failed to take into consideration its recognition of
the banks exclusive rights and prerogatives, likewise provided in the CBA,
which included the hiring of employees, promotion, transfers, and dismissals
for just cause and the maintenance of order, discipline and efficiency in its
operations.27
The Union, however, insists that jobs being outsourced to BOMC
were included in the existing bargaining unit, thus, resulting in a reduction
of a number of positions in such unit. The reduction interfered with the
employees right to self-organization because the power of a union primarily
depends on its strength in number.28
It is incomprehensible how the reduction of positions in the
collective bargaining unit interferes with the employees right to selforganization because the employees themselves were neither transferred nor
dismissed from the service. As the NLRC clearly stated:
In the case at hand, the union has not presented even an iota
of evidence that petitioner bank has started to terminate certain
employees, members of the union. In fact, what appears is that the
Bank has exerted utmost diligence, care and effort to see to it that
no union member has been terminated. In the process of the
consolidation or merger of the two banks which resulted in
increased diversification of functions, some of these non-banking
functions were merely transferred to the BOMC without affecting
the union membership.29

BPI stresses that not a single employee or union member was or

would be dislocated or terminated from their employment as a result of the
Service Agreement.30 Neither had it resulted in any diminution of salaries
and benefits nor led to any reduction of union membership.31

26

Rollo, p. 57.
Id. at 125.
28
Id. at 37.
29
Id. at 72-73.
30
Id. at 125-126.
31
Id.
27

DECISION

10

G.R. No. 174912

As far as the twelve (12) former FEBTC employees are concerned, the
Union failed to substantially prove that their transfer, made to complete
BOMCs service complement, was motivated by ill will, anti-unionism or
bad faith so as to affect or interfere with the employees right to selforganization.

It is to be emphasized that contracting out of services is not illegal per

se. It is an exercise of business judgment or management prerogative.
Absent proof that the management acted in a malicious or arbitrary manner,
the Court will not interfere with the exercise of judgment by an employer.32
In this case, bad faith cannot be attributed to BPI because its actions were
authorized by CBP Circular No. 1388, Series of 199333 issued by the
Monetary Board of the then Central Bank of the Philippines (now Bangko

32

Manila Electric Company v. Secretary Quisumbing, 383 Phil. 47, 60 (2000).

CBP CIRCULAR NO. 1388
Series of 1993

33

The Monetary Board, in its Resolution No. 231 dated March 19, 1993, approved the following amendments
to Book I of the Manual of Regulations for Banks and Other Financial Intermediaries:
SECTION 1. The following new section is hereby added after Section 1176 of the Manual:
SECTION 1177. Bank Service Contract. A bank with expanded commercial banking authority or a
commercial bank may engage a bank service bureau or corporation to perform the following services:
(a) data processing systems development and maintenance;
(b) deposit and withdrawal recording;
(c) computation and recording of interests, service charges, penalties, and other fees;
(d) check-clearing processing, such as the transmission and receipt of check-clearing items/tapes to and
from the Central Bank (CB), collection and delivery of checks not included in the Philippine Clearing
House System, as well as the recording of the same;
(e) printing and delivery of bank statements; and
(f) providing general support services, such as purchasing of bank forms, equipment and supplies;
messengerial, janitorial and services; necessary budget and expense accounting, and other similar services.
Banks may enter into contracts covering above-mentioned services, provided that:
1. The performance by the Service Bureau of aforesaid bank services pertinent to deposit operations will
not in any way violate laws on secrecy of bank deposits;
2. There will be no diminution of Central Bank's supervisory and examining authority over banks, nor in
any manner impede CB's exercise thereof;
3. The administrative powers of CB over the bank, its directors and officers shall not be impaired by such
transfer of activities;
4. The bank remains responsible for the performance of subject activities in the same manner and to the
same extent as it was before the transfer of said services to the Bureau;
5. The Service Bureau shall be owned exclusively by banks and shall render services to banks; and
6. The bank shall continue to comply with all laws and regulations, covering the activities performed by the
Service Bureau for and in its behalf such as, but may not be limited to, keeping of records and preparation
of reports, signing authorities, internal control, and clearing regulations."
SECTION 2. Section 1379(a) is hereby amended by adding a paragraph after item (10), as follows:
"(11) Bank service corporations all of the capital of which is owned by one or more banks and organized to
perform for and in behalf of banks the services enumerated in Section 1177."
This Circular shall take effect immediately.
JOSE L. CUISIA, JR.
Governor

DECISION

11

G.R. No. 174912

Sentral ng Pilipinas). The circular covered amendments in Book I of the

Manual of Regulations for Banks and Other Financial Intermediaries,
particularly on the matter of bank service contracts. A finding of ULP
necessarily requires the alleging party to prove it with substantial evidence.
Unfortunately, the Union failed to discharge this burden.

Much has been said about the applicability of D.O. No. 10. Both the
NLRC and the CA agreed with BPI that the said order does not apply. With
BPI, as a commercial bank, its transactions are subject to the rules and
regulations of the governing agency which is the Bangko Sentral ng
Pilipinas.34 The Union insists that D.O. No. 10 should prevail.

The Court is of the view, however, that there is no conflict between

D.O. No. 10 and CBP Circular No. 1388. In fact, they complement each
other.

Consistent with the maxim, interpretare et concordare leges legibus

est optimus interpretandi modus, a statute should be construed not only to be
consistent with itself but also to harmonize with other laws on the same
subject matter, as to form a complete, coherent and intelligible system of
jurisprudence.35 The seemingly conflicting provisions of a law or of two
laws must be harmonized to render each effective.36 It is only when
harmonization is impossible that resort must be made to choosing which law
to apply.37

In the case at bench, the Union submits that while the Central Bank
regulates banking, the Labor Code and its implementing rules regulate the
employment relationship. To this, the Court agrees. The fact that banks are
of a specialized industry must, however, be taken into account. The
competence in determining which banking functions may or may not be
outsourced lies with the BSP. This does not mean that banks can simply
outsource banking functions allowed by the BSP through its circulars,
without giving regard to the guidelines set forth under D.O. No. 10 issued by
the DOLE.

34

Rollo, pp. 100-101.

Dreamwork Construction, Inc. v. Janiola, G.R. No. 184861, June 30, 2009, 591 SCRA 466, 474; CSC v.
CA, G.R. No. 176162, October 9, 2012, sc.judiciary.gov.ph/jurisprudence/2012/october2012/176162.pdf,
(last visited June 17, 2013).
36
Remo v. The Honorable Secretary of Foregin Affairs, G.R. No. 169202, March 5, 2010, 614 SCRA 281,
290.
37
Dreamwork Construction, Inc. v. Janiola, supra note 35 at 475.
35

DECISION

12

G.R. No. 174912

While D.O. No. 10, Series of 1997, enumerates the permissible

contracting or subcontracting activities, it is to be observed that, particularly
in Sec. 6(d) invoked by the Union, the provision is general in character x
x x Works or services not directly related or not integral to the main
business or operation of the principal x x x. This does not limit or
prohibit the appropriate government agency, such as the BSP, to issue rules,
regulations or circulars to further and specifically determine the permissible
services to be contracted out. CBP Circular No. 138838 enumerated functions
which are ancillary to the business of banks, hence, allowed to be
outsourced. Thus, sanctioned by said circular, BPI outsourced the cashiering
(i.e., cash-delivery and deposit pick-up) and accounting requirements of its
Davao City branches.39 The Union even described the extent of BPIs actual
and intended contracting out to BOMC as follows:
As an initiatory move, the functions of the Cashiering Unit of the
Processing Center of BPI, handled by its regular rank and file employees
who are members of the Union, xxx [were] transferred to BOMC with the
Accounting Department as next in line. The Distributing, Clearing and
Bookkeeping functions of the Processing Center of the former FEBTC
were likewise contracted out to BOMC.40

Thus, the subject functions appear to be not in any way directly

related to the core activities of banks. They are functions in a processing
center of BPI which does not handle or manage deposit transactions. Clearly,
the functions outsourced are not inherent banking functions, and, thus, are
well within the permissible services under the circular.
The Court agrees with BPI that D.O. No. 10 is but a guide to
determine what functions may be contracted out, subject to the rules and
established jurisprudence on legitimate job contracting and prohibited laboronly contracting.41 Even if the Court considers D.O. No. 10 only, BPI would
still be within the bounds of D.O. No. 10 when it contracted out the subject
functions. This is because the subject functions were not related or not
integral to the main business or operation of the principal which is the
lending of funds obtained in the form of deposits.42 From the very definition
of banks as provided under the General Banking Law, it can easily be
discerned that banks perform only two (2) main or basic functions deposit
and loan functions. Thus, cashiering, distribution and bookkeeping are but
ancillary functions whose outsourcing is sanctioned under CBP Circular No.

38

See Note 33.

Rollo, p. 181-182.
40
Rollo, p. 219.
41
Rollo, p. 201.
42
Sec. 3.1., Chapter I, R.A. No. 8191, The General Banking Law of 2000; First Planters Pawnshop, Inc. v.
CIR, G.R. No. 174134, July 30, 2008, 560 SCRA 606, 619; Galvez v. CA, G.R. No. 187919, April 25,
2012, 671 SCRA 223, 238.
39

DECISION

13

G.R. No. 174912

1388 as well as D.O. No. 10. Even BPI itself recognizes that deposit and
loan functions cannot be legally contracted out as they are directly related or
integral to the main business or operation of banks. The CBP's Manual of
Regulations has even categorically stated and emphasized on the prohibition
against outsourcing inherent banking functions, which refer to any contract
between the bank and a service provider for the latter to supply, or any act
whereby _the latter supplies, the manpower to service the deposit transactions
of the former. 43

In one case, the Court held that it is management prerogative to farm

out any of its activities, regardless of whether such activity is peripheral or
44
core in nature. What is of primordial importance is that the service
agreement does not violate the employee's right to security of tenure and
payment of benefits to which he is entitled under the law. Furthermore, the
outsourcing must not squarely fall under labor-only contracting where the
contractor or sub-contractor merely recruits, supplies or places workers to
perform a job, work or service for a principal or if any of the following
elements are present:
i) The contractor or subcontractor does not have substantial
capital or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by such
coBtractor or subcontractor are performing activities which are
directly related to the main business of the principal; or
ii) The contractor does not exercise the right to control over
the performance of the work of the contractual employee. 45

WHEREFORE, the petition is DENIED.

SO ORDERED.

'

41
"
45

~X 162.1 (2008- XI 69. I), Manual of Regulations for Banks.

Alviado v. Procter & Gamble ?hils., Inc, G.R. No. 160506, March 9, 2010,614 SCRA 563,577.
!d.; A1i. I 06, Labor Code of the Philippines.

DECISION

G.R. No. 174912

14

WE CONCUR:

As ciate Justice
Chairperson

L!vv~~}~
ROBERTO A. ABAD
Associate Justice

Associate Justice

ATTESTATION
l attest that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opini n of the
Court's Division.

PRESBITERO . VELASCO, JR.

Ass ciate Justice
Chairpe son, Third Division

DECISION

15

G.R. No. 174912

CERTIFICATION
Pursuant to Section 13, Article VflJ of the Constitution and the
Division Chairperson's Attestation, I certify that the conclusions in the
above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice