Cases on Labor Standard Midterm 2014 Part 2

CASES ON LABOR STANDARDS MID-TERM 2014 PART 2

Republic of the PhilippinesSUPREME COURT

Baguio CityTHIRD DIVISION

G.R. No. 100701 March 28, 2001

PRODUCERS BANK OF THE PHILIPPINES, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION and PRODUCERS BANK EMPLOYEES ASSOCIATION,1respondents.GONZAGA-REYES, J.:Before us is a special civil action for certiorari with prayer for preliminary injunction and/or restraining order seeking the nullification of (1) the decision of public respondent in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank Employees Association v. Producers Bank of the Philippines," promulgated on 30 April 1991, reversing the Labor Arbiter's dismissal of private respondent's complaint and (2) public respondent's resolution dated 18 June 1991 denying petitioner's motion for partial reconsideration.1âwphi1.nêtThe present petition originated from a complaint filed by private respondent on 11 February 1988 with the Arbitration Branch, National Capital Region, National Labor Relations Commission (NLRC), charging petitioner with diminution of benefits, non-compliance with Wage Order No. 6 and non-payment of holiday pay. In addition, private respondent prayed for damages.2

On 31 March 1989, Labor Arbiter Nieves V. de Castro found private respondent's claims to be unmeritorious and dismissed its complaint.3 In a complete reversal, however, the NLRC4 granted all of private respondent's claims, except for damages.5 The dispositive portion of the NLRC's decision provides –WHEREFORE, premises considered, the appealed Decision is, as it is hereby, SET ASIDE and another one issued ordering respondent- appellee to pay complainant-appellant:1. The unpaid bonus (mid-year and Christmas bonus) and 13th month pay;2. Wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding adjustment thereof; and3. Holiday pay under Article 94 of the Labor Code, but not to exceed three (3) years.The rest of the claims are dismissed for lack of merit.

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SO ORDERED.Petition filed a Motion for Partial Reconsideration, which was denied by the NLRC in a Resolution issued on 18 June 1991. Hence, recourse to this Court.Petitioner contends that the NLRC gravely abused its discretion in ruling as it did for the succeeding reasons stated in its Petition -1. On the alleged diminution of benefits, the NLRC gravely abused its discretion when (1) it contravened the Supreme Court decision in Traders Royal Bank v. NLRC, et al., G.R. No. 88168, promulgated on August 30, 1990, (2) its ruling is not justified by law and Art. 100 of the Labor Code, (3) its ruling is contrary to the CBA, and (4) the so-called "company practice invoked by it has no legal and moral bases" (p. 2, Motion for Partial Reconsideration, Annex "H");2. On the alleged non-compliance with Wage Order No. 6, the NLRC again gravely abused its discretion when it patently and palpably erred in holding that it is "more inclined to adopt the stance of appellant (private respondent UNION) in this issue since it is more in keeping with the law and its implementing provisions and the intendment of the parties as revealed in their CBA" without giving any reason or justification for such conclusions as the stance of appellant (private respondent UNION) does not traverse the clear and correct finding and conclusion of the Labor Arbiter.Furthermore, the petitioner, under conservatorship and distressed, is exempted under Wage Order No. 6.Finally, the "wage differentials under Wage Order No. 6 for November 1, 1984 and the corresponding adjustment thereof" (par. 2, dispositive portion, NLRC Decision), has prescribed (p. 12, Motion for Partial Reconsideration, Annex "H").3. On the alleged non-payment of legal holiday pay, the NLRC again gravely abused its discretion when it patently and palpably erred in approving and adopting "the position of appellant (private respondent UNION)" without giving any reason or justification therefor which position does not squarely traverse or refute the Labor Arbiter's correct finding and ruling (p. 18, Motion for Partial Reconsideration, Annex "H").6

On 29 July 1991, the Court granted petitioner's prayer for a temporary restraining order enjoining respondents from executing the 30 April 1991 Decision and 18 June 1991 Resolution of the NLRC.7

Coming now to the merits of the petition, the Court shall discuss the issues ad seriatim.

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BonusesAs to the bonuses, private respondent declared in its position papers filed with the NLRC that –1. Producers Bank of the Philippines, a banking institution, has been providing several benefits to its employees since 1971 when it started its operation. Among the benefits it had been regularly giving is a mid-year bonus equivalent to an employee's one-month basic pay and a Christmas bonus equivalent to an employee's one whole month salary (basic pay plus allowance);2. When P.D. 851, the law granting a 13th month pay, took effect, the basic pay previously being given as part of the Christmas bonus was applied as compliance to it (P.D. 851), the allowances remained as Christmas bonus;3. From 1981 up to 1983, the bank continued giving one month basic pay as mid-year bonus, one month basic pay as 13th month pay but the Christmas bonus was no longer based on the allowance but on the basic pay of the employees which is higher;4. In the early part of 1984, the bank was placed under conservatorship but it still provided the traditional mid-year bonus;5. By virtue of an alleged Monetary Board Resolution No. 1566, bank only gave a one-half (1/2) month basic pay as compliance of the 13th month pay and none for the Christmas bonus. In a tabular form, here are the bank's violations:

YEAR MID- YEAR BONUS

CHRISTMAS BONUS 13TH MO. PAY

previous years

one mo. basic one mo. basic one mo. Basic

1984 [one mo. basic] -none- one-half mo. Basic

1985 one-half mo. basic

-none- one-half mo. Basic


one-half mo. basic one mo. Basic


one-half mo. basic one mo. basic

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Private respondent argues that the mid-year and Christmas bonuses, by reason of their having been given for thirteen consecutive years, have ripened into a vested right and, as such, can no longer be unilaterally withdrawn by petitioner without violating Article 100 of Presidential Decree No. 4429 which prohibits the diminution or elimination of benefits already being enjoyed by the employees. Although private respondent concedes that the grant of a bonus is discretionary on the part of the employer, it argues that, by reason of its long and regular concession, it may become part of the employee's regular compensation.10

On the other hand, petitioner asserts that it cannot be compelled to pay the alleged bonus differentials due to its depressed financial condition, as evidenced by the fact that in 1984 it was placed under conservatorship by the Monetary Board. According to petitioner, it sustained losses in the millions of pesos from 1984 to 1988, an assertion which was affirmed by the labor arbiter. Moreover, petitioner points out that the collective bargaining agreement of the parties does not provide for the payment of any mid-year or Christmas bonus. On the contrary, section 4 of the collective bargaining agreement states that –Acts of Grace. Any other benefits or privileges which are not expressly provided in this Agreement, even if now accorded or hereafter accorded to the employees, shall be deemed purely acts of grace dependent upon the sole judgment and discretion of the BANK to grant, modify or withdraw .11

A bonus is an amount granted and paid to an employee for his industry and loyalty which contributed to the success of the employer's business and made possible the realization of profits. It is an act of generosity granted by an enlightened employer to spur the employee to greater efforts for the success of the business and realization of bigger profits.12 The granting of a bonus is a management prerogative, something given in addition to what is ordinarily received by or strictly due the recipient.13 Thus, a bonus is not a demandable and enforceable obligation,14 except when it is made part of the wage, salary or compensation of the employee.15

However, an employer cannot be forced to distribute bonuses which it can no longer afford to pay. To hold otherwise would be to penalize the employer for his past generosity. Thus, in Traders Royal Bank v. NLRC,16 we held that -It is clear x x x that the petitioner may not be obliged to pay bonuses to its employees. The matter of giving them bonuses over and above their lawful salaries and allowances is entirely dependent on the profits, if any, realized by the Bank from its operations during the past year.

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From 1979-1985, the bonuses were less because the income of the Bank had decreased. In 1986, the income of the Bank was only 20.2 million pesos, but the Bank still gave out the usual two (2) months basic mid-year and two months gross year-end bonuses. The petitioner pointed out, however, that the Bank weakened considerably after 1986 on account of political developments in the country. Suspected to be a Marcos-owned or controlled bank, it was placed under sequestration by the present administration and is now managed by the Presidential Commission on Good Government (PCGG).In light of these submissions of the petitioner, the contention of the Union that the granting of bonuses to the employees had ripened into a company practice that may not be adjusted to the prevailing financial condition of the Bank has no legal and moral bases. Its fiscal condition having declined, the Bank may not be forced to distribute bonuses which it can no longer afford to pay and, in effect, be penalized for its past generosity to its employees. -Private respondent's contention, that the decrease in the mid-year and year-end bonuses constituted a diminution of the employees' salaries, is not correct, for bonuses are not part of labor standards in the same class as salaries, cost of living allowances, holiday pay, and leave benefits, which are provided by the Labor Code.This doctrine was reiterated in the more recent case of Manila Banking Corporation v. NLR17 wherein the Court made the following pronouncements –By definition, a "bonus" is a gratuity or act of liberality of the giver which the recipient has no right to demand as a matter of right. It is something given in addition to what is ordinarily received by or strictly due the recipient. The granting of a bonus is basically a management prerogative which cannot be forced upon the employer who may not be obliged to assume the onerous burden of granting bonuses or other benefits aside from the employee's basic salaries or wages, especially so if it is incapable of doing so.xxx xxx xxxClearly then, a bonus is an amount given ex gratia to an employee by an employer on account of success in business or realization of profits. How then can an employer be made liable to pay additional benefits in the nature of bonuses to its employees when it has been operating on considerable net losses for a given period of time?Records bear out that petitioner Manilabank was already in dire financial straits in the mid-80's. As early as 1984, the Central Bank found that Manila bank had been

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suffering financial losses. Presumably, the problems commenced even before their discovery in 1984. As earlier chronicled, the Central Bank placed petitioner bank under comptrollership in 1984 because of liquidity problems and excessive interbank borrowings. In 1987, it was placed under receivership and ordered to close operation. In 1988, it was ordered liquidated.It is evident, therefore, that petitioner bank was operating on net losses from the years 1984, 1985 and 1986, thus, resulting to its eventual closure in 1987 and liquidation in 1988. Clearly, there was no success in business or realization of profits to speak of that would warrant the conferment of additional benefits sought by private respondents. No company should be compelled to act liberally and confer upon its employees additional benefits over and above those mandated by law when it is plagued by economic difficulties and financial losses. No act of enlightened generosity and self-interest can be exacted from near empty , if not empty coffers.It was established by the labor arbiter18 and the NLRC19 and admitted by both parties20 that petitioner was placed under conservatorship by the Monetary Board, pursuant to its authority under Section 28-A of Republic Act No. 265,21 as amended by Presidential Decree No. 72,22 which provides –Sec.28-A. Appointment of conservator. - Whenever, on the basis of a report submitted by the appropriate supervising and examining department, the Monetary Board finds that a bank is in a state of continuing inability or unwillingness to maintain a condition of solvency and liquidity deemed adequate to protect the interest of depositors and creditors, the Monetary Board may appoint a conservator to take charge of the assets, liabilities, and the management of that banking institution, collect all monies and debts due said bank and exercise all powers necessary to preserve the assets of the bank, reorganize the management thereof and restore its viability .He shall have the power to overrule or revoke "the actions of the previous management and board of directors of the bank, any provision of law to the contrary notwithstanding, and such other powers as the Monetary Board shall deem necessary.1âwphi1.nêtxxx xxx xxxUnder Section 28-A, the Monetary Board may place a bank under the control of a conservator when it finds that the bank is continuously unable or unwilling to maintain a condition of solvency or liquidity .In Central Bank of the Philippines v. Court of Appeals,23 the Court declared that the order placing petitioner herein under conservatorship had long become final and its validity could no longer be

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litigated upon. Also, in the same case, the Court found that sometime in August, 1983, some news items triggered a bank-run in petitioner which resulted in continuous over- drawings on petitioner's demand deposit account with the Central Bank; the over- drawings reached P143.955 million by 17 January 1984; and as of 13 February 1990, petitioner had over-drawings of up to P1.233 billion, which evidences petitioner's continuing inability to maintain a condition of solvency and liquidity, thus justifying the conservatorship. Our findings in the Central Bank case coincide with petitioner's claims that it continuously suffered losses from 1984 to 1988 as follows –

YEAR NET LOSSES IN MILLIONS OF PESOS

1984 P 144.418

1985 P 144.940

1986 P 132.940

1987 P 84.182

January-February 1988

P 9.271

These losses do not include the interest expenses on the overdraft loan of the petitioner to the Central Bank, which interest as of July 31, 1987, amounted to P610.065 Million, and penalties on reserve deficiencies which amounted to P89.029 Million. The principal balance of the overdraft amounted to P971.632 Million as of March 16, 1988.24

Petitioner was not only experiencing a decline in its profits, but was reeling from tremendous losses triggered by a bank-run which began in 1983. In such a depressed financial condition, petitioner cannot be legally compelled to continue paying the same amount of bonuses to its employees. Thus, the conservator was justified in reducing the mid-year and Christmas bonuses of petitioner's employees. To hold otherwise would be to defeat the reason for the conservatorship which is to preserve the assets and restore the viability of the financially precarious bank. Ultimately, it is to the employees' advantage that the conservatorship achieve its purposes for the alternative would be petitioner's

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closure whereby employees would lose not only their benefits, but their jobs as well.13th Month PayWith regard to the 13th month pay, the NLRC adopted the position taken by private respondent and held that the conservator was not justified in diminishing or not paying the 13th month pay and that petitioner should have instead applied for an exemption, in accordance with section 7 of Presidential Decree No. 851 (PD 851), as amended by Presidential Decree No. 1364, but that it did not do so.25 The NLRC held that the actions of the conservator ran counter to the provisions of PD 851.In its position paper,26 private respondent claimed that petitioner made the following payments to its members –

YEAR MID-YEAR BONUS 13th MONTH PAY CHRISTMAS BONUS

1984 1 month basic ½ month basic None

1985 ½ month basic ½ month basic None

1986 ½ month basic 1 month basic ½ month basic

1987 ½ month basic 1 month basic ½ month basic

However, in its Memorandum27 filed before this Court, private respondent revised its claims as follows –

YEAR MID- YEAR BONUS 13th MONTH PAY CHRISTMAS BONUS

1984 1 month basic None ½ month basic

1985 ½ month basic None ½ month basic

1986 ½ month basic 1/2 month basic 1 month basic

1987 1/2 month basic ½ month basic 1 month basic

1988 1/2 month basic ½ month basic 1 month basic

Petitioner argues that it is not covered by PD 851 since the mid-year and Christmas bonuses it has been giving its employees from 1984 to 1988 exceeds the basic salary for one month (except for 1985 where a total of one month basic

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salary was given). Hence, this amount should be applied towards the satisfaction of the 13th month pay, pursuant to Section 2 of PD 851.28

PD 851, which was issued by President Marcos on 16 December 1975, requires all employers to pay their employees receiving a basic salary of not more than P 1,000 a month,29 regardless of the nature of the employment, a 13th month pay, not later than December 24 of every year.30 However, employers already paying their employees a 13th month pay or its equivalent are not covered by the law. Under the Revised Guidelines on the Implementation of the 13th-Month Pay Law,31 the term "equivalent" shall be construed to include Christmas bonus, mid-year bonus, cash bonuses and other payments amounting to not less than 1/12 of the basic salary. The intention of the law was to grant some relief - not to all workers - but only to those not actually paid a 13 thmonth salary or what amounts to it, by whatever name called. It was not envisioned that a double burden would be imposed on the employer already paying his employees a 13 th month pay or its equivalent whether out of pure generosity or on the basis of a binding agreement. To impose upon an employer already giving his employees the equivalent of a 13th month pay would be to penalize him for his liberality and in all probability, the employer would react by withdrawing the bonuses or resist further voluntary grants for fear that if and when a law is passed giving the same benefits, his prior concessions might not be given due credit.32

In the case at bar, even assuming the truth of private respondent's claims as contained in its position paper or Memorandum regarding the payments received by its members in the form of 13th month pay, mid-year bonus and Christmas bonus, it is noted that, for each and every year involved, the total amount given by petitioner would still exceed, or at least be equal to, one month basic salary and thus, may be considered as an "equivalent" of the 13thmonth pay mandated by PD 851.Thus, petitioner is justified in crediting the mid-year bonus and Christmas bonus as part of the 13th month pay.Wage Order No. 6Wage Order No.6, which came into effect on 1 November 1984, increased the statutory minimum wage of workers, with different increases being specified for agricultural plantation and non-agricultural workers. The bone of contention, however, involves Section 4 thereof which reads –All wage increase in wage and/or allowance granted by employers between June 17, 1984 and the effectivity of this Order shall be credited as compliance with the

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minimum wage and allowance adjustments prescribed herein, provided that where the increases are less than the applicable amount provided in this Order, the employer shall pay the difference. Such increases shall not include anniversary wage increases provided in collective bargaining agreements unless the agreement expressly provide otherwise.On 16 November 1984, the parties entered into a collective bargaining agreement providing for the following salary adjustments –Article VIII. Section 1. Salary Adjustments. - Cognizant of the effects of, among others, price increases of oil and other commodities on the employees' wages and earnings, and the certainty of continued governmental or statutory actions adjusting employees' minimum wages, earnings, allowances, bonuses and other fringe benefits, the parties have formulated and agreed on the following highly substantial packaged increases in salary and allowance which take into account and cover (a) any deflation in income of employees because of such price increases and inflation and (b) the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement:(i) Effective March 1, 1984 - P225.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1, 1984.(ii) Effective March 1,1985 -P125.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1,1985.(iii) Effective March 1,1986 -P125.00 per month as salary increase plus P100.00 per month as increase in allowance to employees within the bargaining unit on March 1, 1986.In addition, the collective bargaining agreement of the parties also included a provision on the chargeability of such salary or allowance increases against government-ordered or legislated income adjustments –Section 2. Pursuant to the MOLE Decision dated October 2, 1984 and Order dated October 24, 1984, the first-year salary and allowance increases shall be chargeable against adjustments under Wage Order No. 5, which took effect on June 16, 1984. The charge ability of the foregoing salary increases against government-ordered or legislated income adjustments subsequent to Wage Order No. 5 shall be determined on the basis of the provisions of such government orders or legislation.

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Petitioner argues that it complied with Wage Order No. 6 because the first year salary and allowance increase provided for under the collective bargaining agreement can be credited against the wage and allowance increase mandated by such wage order. Under Wage Order No. 6, all increases in wages or allowances granted by the employer between 17 June 1984 and 1 November 1984 shall be credited as compliance with the wage and allowance adjustments prescribed therein. Petitioner asserts that although the collective bargaining agreement was signed by the parties on 16 November. 1984, the first year salary and allowance increase was made to take effect retroactively, beginning from 1 March 1984 until 28 February 1985. Petitioner maintains that this period encompasses the period of creditability provided for under Wage Order No. 6 and that, therefore, the balance remaining after applying the first year salary and allowance increase in the collective bargaining agreement to the increase mandated by Wage Order No. 5, in the amount of P125.00, should be made chargeable against the increase prescribed by Wage Order No. 6, and if not sufficient, petitioner is willing to pay the difference.33

On the other hand, private respondent contends that the first year salary and allowance increases under the collective bargaining agreement cannot be applied towards the satisfaction of the increases prescribed by Wage Order No. 6 because the former were not granted within the period of creditability provided for in such wage order. According to private respondent, the significant dates with regard to the granting of the first year increases are 9 November 1984 the date of issuance of the MOLE Resolution, 16 November 1984 - the date when the collective bargaining agreement was signed by the parties and 1 March 1984 the retroactive date of effectivity of the first year increases. Private respondent points out that none of these dates fall within the period of creditability under Wage Order No. 6 which is from 17 June 1984 to 1 November 1984. Thus, petitioner has not complied with Wage Order No. 6.34

The creditability provision in Wage Order No. 6 is based on important public policy, that is, the encouragement of employers to grant wage and allowance increases to their employees higher than the minimum rates of increases prescribed by statute or administrative regulation. Thus, we held in Apex Mining Company, Inc. v. NLRC35 that –[t]o obliterate the creditability provisions in the Wage Orders through interpretation or otherwise, and to compel employers simply to add on legislated increases in salaries or allowances without regard to what is already being paid,

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would be to penalize employers who grant their workers more than the statutorily prescribed minimum rates of increases. Clearly, this would be counter-productive so far as securing the interest of labor is concerned. The creditability provisions in the Wage Orders prevent the penalizing of employers who are industry leaders and who do not wait for statutorily prescribed increases in salary or allowances and pay their workers more than what the law or regulations require.Section 1 of Article VIII of the collective bargaining agreement of the parties states that "...the parties have formulated and agreed on the following highly substantial packaged increases in salary and allowance which take into account and cover (a) any deflation in income of employees because of such price increases and inflation and (b) the expected governmental response thereto in the form of statutory adjustments in wages, allowances and benefits, during the next three (3) years of this Agreement..." The unequivocal wording of this provision manifests the clear intent of the parties to apply the wage and allowance increases stipulated in the collective bargaining agreement to any statutory wage and allowance, adjustments issued during the effectivity of such agreement – from 1 March 1984 to 28 February 1987. Furthermore, contrary to private respondent's contentions, there is nothing in the wording of Section 2 of Article VIII of the collective bargaining agreement that would prevent petitioner from crediting the first year salary and allowance increases against the increases prescribed by Wage Order No. 6.It would be inconsistent with the above stated rationale underlying the creditability provision of Wage Order No. 6 if, after applying the first year increase to Wage Order No. 5, the balance was not made chargeable to the increases under Wage Order No. 6 for the fact remains that petitioner actually granted wage and allowance increases sufficient to cover the increases mandated by Wage Order No. 5 and part of the increases mandated by Wage Order No. 6.Holiday PayArticle 94 of the Labor Code provides that every worker shall be paid his regular daily wage during regular holidays36 and that the employer may require an employee to work on any holiday but such employee shall be paid a compensation equivalent to twice his regular rate. In this case, the Labor Arbiter found that the divisor used by petitioner in arriving at the employees' daily rate for the purpose of computing salary-related benefits is 314.37This finding was not disputed by the NLRC.38 However, the divisor was reduced to 303 by virtue of an inter-office memorandum issued on 13 August 1986, to wit –

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To increase the rate of overtime pay for rank and filers, we are pleased to inform that effective August 18, 1986, the acting Conservator approved the use of 303 days as divisor in the computation of Overtime pay. The present Policy of 314 days as divisor used in the computation for cash conversion and determination of daily rate, among others, still remain, Saturdays, therefore, are still considered paid rest days.Corollarily, the Acting Conservator also approved the increase of meal allowance from P25.00 to P30.00 for a minimum of four (4) hours of work for Saturdays.Proceeding from the unambiguous terms of the above quoted memorandum, the Labor Arbiter observed that the reduction of the divisor to 303 was for the sole purpose of increasing the employees' overtime pay and was not meant to replace the use of 314 as the divisor in the computation of the daily rate for salary-related benefits.39

Private respondent admits that, prior to 18 August 1986, petitioner used a divisor of 314 in arriving at the daily wage rate of monthly-salaried employees. Private respondent also concedes that the divisor was changed to 303 for purposes of computing overtime pay only. In its Memorandum, private respondent states that –49. The facts germane to this issue are not debatable. The Memorandum Circular issued by the Acting Conservator is clear. Prior to August 18,1986, the petitioner bank used a divisor of 314 days in arriving at the daily wage rate of the monthly-salaried employees. Effective August 18, 1986, this was changed. It adopted the following formula:Basic salary x 12 months = Daily Wage Rate

303 days50. By utilizing this formula even up to the present, the conclusion is inescapable that the petitioner bank is not actually paying its employees the regular holiday pay mandated by law. Consequently, it is bound to pay the salary differential of its employees effective November 1, 1974 up to the present.xxx xxx xxx54. Since it is a question of fact, the Inter-office Memorandum dated August 13,1986 (Annex "E") provides for a divisor of 303 days in computing overtime pay. The clear import of this document is that from the 365 days in a year, we deduct 52 rest days which gives a total of 313 days. Now, if 313 days is the number of working days of the employees then, there is a disputable presumption that the employees are paid their holiday pay. However, this is not so in the case at bar.

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The bank uses 303 days as its divisor. Hence, it is not paying its employees their corresponding holiday pay.40

In Union of Filipro Employees v. Vivar, ]r.41 the Court held that "[t]he divisor assumes an important role in determining whether or not holiday pay is already included in the monthly paid employee's salary and in the computation of his daily rate." This was also our ruling in Chartered Bank Employees Association v. Ople,42 as follows –It is argued that even without the presumption found in the rules and in the policy instruction, the company practice indicates that the monthly salaries of the employees are so computed as to include the holiday pay provided by law. The petitioner contends otherwise.One strong argument in favor of the petitioner's stand is the fact that the Chartered Bank, in computing overtime compensation for its employees, employs a "divisor" of 251 days. The 251 working days divisor is the result of subtracting all Saturdays, Sundays and the ten (10) legal holidays form the total number of calendar days in a year. If the employees are already paid for all non-working days, the divisor should be 365 and not 251.Apparently, the divisor of 314 is arrived at by subtracting all Sundays from the total number of calendar days in a year, since Saturdays are considered paid rest days, as stated in the inter-office memorandum. Thus, the use of 314 as a divisor leads to the inevitable conclusion that the ten legal holidays are already included therein.We agree with the labor arbiter that the reduction of the divisor to 303 was done for the sole purpose of increasing the employees' overtime pay, and was not meant to exclude holiday pay from the monthly salary of petitioner's employees. In fact, it was expressly stated in the inter-office memorandum - also referred to by private respondent in its pleadings - that the divisor of 314 will still be used in the computation for cash conversion and in the determination of the daily rate. Thus, based on the records of this case and the parties' own admissions, the Court holds that petitioner has complied with the requirements of Article 94 of the Labor Code.1âwphi1.nêtDamagesAs to private respondent's claim for damages, the NLRC was correct in ruling that there is no basis to support the same.WHEREFORE, for the reasons above stated, the 30 April 1991 Decision of public respondent in NLRC-NCR Case No. 02-00753-88, entitled "Producers Bank

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Employees Association v. Producers Bank of the Philippines," and its 18 June 1991 - Resolution issued in the same case are hereby SET ASIDE, with the exception of public respondent's ruling on damages.SO ORDERED.Melo, Vitug , Panganiban, and Sandoval-Gutierrez, JJ., concur.


ManilaFIRST DIVISION

G.R. No. 158255 July 8, 2004

MANILA WATER COMPANY, INC., petitioner, vs.HERMINIO D. PENA, ESTEBAN B. BALDOZA, JORGE D. CANONIGO, JR., IKE S. DELFIN, RIZALINO M. INTAL, REY T. MANLEGRO, JOHN L. MARTEJA, MARLON B. MORADA, ALLAN D. ESPINA, EDUARDO ONG, AGNESIO D. QUEBRAL, EDMUNDO B. VICTA, VICTOR C. ZAFARALLA, EDILBERTO C. PINGUL and FEDERICO M. RIVERA, respondents.

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D E C I S I O N

YNARES-SANTIAGO, J.:This petition assails the decision1 of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, which reversed the decision of the National Labor Relations Commission and reinstated the decision of the Labor Arbiter with modification.Petitioner Manila Water Company, Inc. is one of the two private concessionaires contracted by the Metropolitan Waterworks and Sewerage System (MWSS) to manage the water distribution system in the East Zone of Metro Manila, pursuant to Republic Act No. 8041, otherwise known as the National Water Crisis Act of 1995. Under the Concession Agreement, petitioner undertook to absorb former employees of the MWSS whose names and positions were in the list furnished by the latter, while the employment of those not in the list was terminated on the day petitioner took over the operation of the East Zone, which was on August 1, 1997. Private respondents, being contractual collectors of the MWSS, were among the 121 employees not included in the list; nevertheless, petitioner engaged their services without written contract from August 1, 1997 to August 31, 1997. Thereafter, on September 1, 1997, they signed a three-month contract to perform collection services for eight branches of petitioner in the East Zone.2

Before the end of the three-month contract, the 121 collectors incorporated the Association Collectors Group, Inc. (ACGI),3 which was contracted by petitioner to collect charges for the Balara Branch. Subsequently, most of the 121 collectors were asked by the petitioner to transfer to the First Classic Courier Services, a newly registered corporation. Only private respondents herein remained with ACGI. Petitioner continued to transact with ACGI to do its collection needs until February 8, 1999, when petitioner terminated its contract with ACGI.4

Private respondents filed a complaint for illegal dismissal and money claims against petitioner, contending that they were petitioner’s employees as all the methods and procedures of their collections were controlled by the latter.On the other hand, petitioner asserts that private respondents were employees of ACGI, an independent contractor. It maintained that it had no control and supervision over private respondents’ manner of performing their work except as

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to the results. Thus, petitioner did not have an employer-employee relationship with the private respondents, but only a service contractor-client relationship with ACGI.On May 31, 2000, Labor Arbiter Eduardo J. Carpio rendered a decision finding the dismissal of private respondents illegal. He held that private respondents were regular employees of petitioner not only because the tasks performed by them were controlled by it but, also, the tasks were obviously necessary and desirable to petitioner’s principal business. The dispositive portion of the decision reads:WHEREFORE, premises considered, judgment is hereby rendered, finding that complainants were employees of respondent [petitioner herein], that they were illegally dismissed, and respondent [petitioner herein] is hereby ordered to pay their separation pay based on the following computed amounts:

HERMINIO D. PENA P15,000.00

ESTEBAN BALDOZA P12,000.00

JORGE D. CANONIGO, JR.

P16,000.00

IKE S. DELFIN P12,000.00

RIZALINO M. INTAL P16,000.00

REY T. MANLEGRO P16,000.00

JOHN L. MARTEJA P12,000.00

MARLON B. MORADA P16,000.00

ALLAN D. ESPINA P14,000.00

EDUARDO ONG P15,000.00

AGNESIO D. QUEBRAL

P16,000.00

EDMUNDO B. VICTA P13,000.00

VICTOR P. ZAFARALLA

P15,000.00

EDILBERTO C. PINGUL

P19,500.00

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FEDERICO M. RIVERA P15,000.00

TOTAL P222,500.00

Respondent [petitioner herein] is further directed to pay ten (10%) percent of the total award as attorney’s fee or the sum of P22,250.00.SO ORDERED.5

Both parties appealed to the NLRC, which reversed the decision of the Labor Arbiter and ruled that the documentary evidence, e.g., letters and memoranda by the petitioner to ACGI regarding the poor performance of the collectors, did not constitute proof of control since these documents merely identified the erring collectors; the appropriate disciplinary actions were left to the corporation to impose.6 Further, there was no evidence showing that the incorporation of ACGI was irregular.Private respondents filed a petition for certiorari with the Court of Appeals, contending that the NLRC acted with grave abuse of discretion amounting to lack or excess of jurisdiction when it reversed the decision of the Labor Arbiter.The Court of Appeals reversed the decision of the NLRC and reinstated with modification the decision of the Labor Arbiter.7 It held that petitioner deliberately prevented the creation of an employment relationship with the private respondents; and that ACGI was not an independent contractor. It likewise denied petitioner’s motion for reconsideration.8

Hence, this petition for review raising the following errors:THE HONORABLE COURT OF APPEALS IN RENDERING THE ASSAILED DECISION AND RESOLUTION COMMITTED GRAVE REVERSIBLE ERRORS:A. IN GOING BEYOND ITS JURISDICTION AND PROCEEDING TO GIVE DUE COURSE TO RESPONDENTS’ PETITION FOR CERTIORARI UNDER RULE 65 OF THE RULES OF COURT, NOTWITHSTANDING THE ABSENCE OF ANY PROOF OF GRAVE ABUSE OF DISCRETION ON THE PART OF THE NATIONAL LABOR RELATIONS COMMISSION WHEN IT RENDERED THE DECISION ASSAILED BY HEREIN RESPONDENTS.B. WHEN IT MANIFESTLY OVERLOOKED THE EVIDENCE PRESENTED BY THE PETITIONER COMPANY AND RULING THAT THE PETITIONER’S DEFENSE OF LACK OF EMPLOYER-EMPLOYEE RELATIONS IS WITHOUT MERIT.C. IN CONCLUDING THAT PETITIONER COMPANY REQUIRED RESPONDENTS TO INCORPORATE THE ASSOCIATED COLLECTORS GROUP, INC. ["ACGI"]

18


NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME.D. IN FINDING PETITIONER COMPANY GUILTY OF BAD FAITH NOTWITHSTANDING ABSENCE OF ANY SPECIFIC EVIDENCE IN SUPPORT OF THE SAME, AND AWARDING MORAL AND EXEMPLARY DAMAGES TO HEREIN RESPONDENTS.9

The pivotal issue to be resolved in this petition is whether or not there exists an employer-employee relationship between petitioner and private respondents. Corollary thereto is the issue of whether or not private respondents were illegally dismissed by petitioner.The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact.10 As a rule, the Supreme Court is not a trier of facts, and this applies with greater force in labor cases. Hence, factual findings of quasi-judicial bodies like the NLRC, particularly when they coincide with those of the Labor Arbiter and if supported by substantial evidence, are accorded respect and even finality by this Court.11However, a disharmony between the factual findings of the Labor Arbiter and the National Labor Relations Commission opens the door to a review thereof by this Court. Factual findings of administrative agencies are not infallible and will be set aside when they fail the test of arbitrariness. Moreover, when the findings of the National Labor Relations Commission contradict with those of the labor arbiter, this Court, in the exercise of its equity jurisdiction, may look into the records of the case and reexamine the questioned findings.12

The resolution of the foregoing issues initially boils down to a determination of the true status of ACGI, i.e., whether it is an independent contractor or a labor-only contractor.Petitioner asserts that ACGI, a duly organized corporation primarily engaged in collection services, is an independent contractor which entered into a service contract for the collection of petitioner’s accounts starting November 30, 1997 until the early part of February 1999. Thus, it has no employment relationship with private respondents, being employees of ACGI.The existence of an employment relationship between petitioner and private respondents cannot be negated by simply alleging that the latter are employees of ACGI as an independent contractor, it being crucial that ACGI’s status, whether as "labor-only contractor" or "independent contractor", be measured in terms of and determined by the criteria set by statute.The case of De los Santos v. NLRC13 succinctly enunciates this statutory criteria –

19


Job contracting is permissible only if the following conditions are met: 1) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and 2) the contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of the business."Labor-only contracting" as defined in Section 5, Department Order No. 18-02, Rules Implementing Articles 106-109 of the Labor Code14 refers to an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform job, work or service for a principal, and any of the following elements is present:(i) The contractor or subcontractor does not have substantial capital or investment which relates to the job, work or service to be performed and the employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal; or(ii) The contractor does not exercise the right to control over the performance of the work of the contractual employee.Given the above criteria, we agree with the Labor Arbiter that ACGI was not an independent contractor.First, ACGI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises, and other materials, to qualify as an independent contractor. While it has an authorized capital stock of P1,000,000.00, only P62,500.00 is actually paid-in, which cannot be considered substantial capitalization. The 121 collectors subscribed to four shares each and paid only the amount of P625.00 in order to comply with the incorporation requirements.15 Further, private respondents reported daily to the branch office of the petitioner because ACGI has no office or work premises. In fact, the corporate address of ACGI was the residence of its president, Mr. Herminio D. Peña.16 Moreover, in dealing with the consumers, private respondents used the receipts and identification cards issued by petitioner.17

Second, the work of the private respondents was directly related to the principal business or operation of the petitioner. Being in the business of providing water to the consumers in the East Zone, the collection of the charges therefor by private

20


respondents for the petitioner can only be categorized as clearly related to, and in the pursuit of the latter’s business.Lastly, ACGI did not carry on an independent business or undertake the performance of its service contract according to its own manner and method, free from the control and supervision of its principal, petitioner. Prior to private respondents’ alleged employment with ACGI, they were already working for petitioner, subject to its rules and regulations in regard to the manner and method of performing their tasks. This form of control and supervision never changed although they were already under the seeming employ of ACGI. Petitioner issued memoranda regarding the billing methods and distribution of books to the collectors;18 it required private respondents to report daily and to remit their collections on the same day to the branch office or to deposit them with Bank of the Philippine Islands; it monitored strictly their attendance as when a collector cannot perform his daily collection, he must notify petitioner or the branch office in the morning of the day that he will be absent; and although it was ACGI which ultimately disciplined private respondents, the penalty to be imposed was dictated by petitioner as shown in the letters it sent to ACGI specifying the penalties to be meted on the erring private respondents.19 These are indications that ACGI was not left alone in the supervision and control of its alleged employees. Consequently, it can be concluded that ACGI was not an independent contractor since it did not carry a distinct business free from the control and supervision of petitioner.Under this factual milieu, there is no doubt that ACGI was engaged in labor-only contracting, and as such, is considered merely an agent of the petitioner. In labor-only contracting, the statute creates an employer-employee relationship for a comprehensive purpose: to prevent a circumvention of labor laws. The contractor is considered merely an agent of the principal employer and the latter is responsible to the employees of the labor-only contractor as if such employees had been directly employed by the principal employer.20 Since ACGI is only a labor-only contractor, the workers it supplied should be considered as employees of the petitioner.Even the "four-fold test" will show that petitioner is the employer of private respondents. 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 employee’s conduct. The most important element is the employer’s

21


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.21

We agree with the Labor Arbiter that in the three stages of private respondents’ services with the petitioner, i.e., (1) from August 1, 1997 to August 31, 1997; (2) from September 1, 1997 to November 30, 1997; and (3) from December 1, 1997 to February 8, 1999, the latter exercised control and supervision over the formers’ conduct.Petitioner contends that the employment of private respondents from August 1, 1997 to August 30, 1997 was only temporary and done to accommodate their request to be absorbed since petitioner was still undergoing a transition period. It was only when its business became settled that petitioner employed private respondents for a fixed term of three months.Although petitioner was not obliged to absorb the private respondents, by engaging their services, paying their wages in the form of commission, subjecting them to its rules and imposing punishment in case of breach thereof, and controlling not only the end result but the manner of achieving the same as well, an employment relationship existed between them.Notably, private respondents performed activities which were necessary or desirable to its principal trade or business. Thus, they were regular employees of petitioner, regardless of whether the engagement was merely an accommodation of their request, pursuant to Article 280 of the Labor Code which reads: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.As such regular employees, private respondents are entitled to security of tenure which may not be circumvented by mere stipulation in a subsequent contract that their employment is one with a fixed period. While this Court has upheld the legality of fixed-term employment, where from the circumstances it is apparent that the periods have been imposed to preclude acquisition of tenurial security by

22


the employee, they should be struck down or disregarded as contrary to public policy and morals.22

In the case at bar, we find that the term fixed in the subsequent contract was used to defeat the tenurial security which private respondents already enjoy. Thus, we concur with the Labor Arbiter, as affirmed by the Court of Appeals, when it held that:The next question if whether, with respect to the period, the individual contracts are valid. Not all contracts of employment fixing a period are invalid. Under Article 280, the evil sought to be prevented is singled out: agreements entered into precisely to circumvent security of tenure. It has no application where a fixed period of employment was agreed upon knowingly and voluntarily by the parties, without any force, duress or improper pressure being brought upon the employee and absent any circumstances vitiating his consent, or where it satisfactorily appears that the employer and employee dealt with each other on more or less terms with no moral dominance whatever being exercised by the former over the latter. That is the doctrine in Brent School, Inc. v. Zamora, 181 SCRA 702. The individual contracts in question were prepared by MWC in the form of the letter addressed to complainants. The letter-contract is dated September 1, 1997, when complainants were already working for MWC as collectors. With their employment as their means of survival, there was no room then for complainants to disagree with the presented letter-contracts. Their choice then was not to negotiate for the terms of the contract but to lose or not to lose their employment – employment which they already had at that time. The choice is obvious, as what they did, to sign the ready made letter-contract to retain their employment, and survive. It is a defiance of the teaching in Brent School, Inc. v. Zamora if this Office rules that the individual contracts in question are valid, so, in deference to Brent School ruling, this Office rules they are null and void.23

In view of the foregoing, we hold that an employment relationship exists between petitioner and private respondents. We now proceed to ascertain whether private respondents were dismissed in accordance with law.As private respondents’ employer, petitioner has the burden of proving that the dismissal was for a cause allowed under the law and that they were afforded procedural due process.24 Petitioner failed to discharge this burden by substantial evidence as it maintained the defense that it was not the employer of private respondents. Having established that the schemes employed by petitioner were devious attempts to defeat the tenurial rights of private respondents and that it

23


failed to comply with the requirements of termination under the Labor Code, the dismissal of the private respondent is tainted with illegality.Under Article 279 of the Labor Code, an employee who is unjustly dismissed from work is 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. However, if reinstatement is no longer possible, the employer has the alternative of paying the employee his separation pay in lieu of reinstatement.25

This Court however cannot sustain the award of moral and exemplary damages in favor of private respondents. Such an award cannot be justified solely upon the premise that the employer dismissed his employee without just cause or due process. Additional facts must be pleaded and proved to warrant the grant of moral damages under the Civil Code. The act of dismissal must be attended with bad faith, or fraud, or was oppressive to labor or done in a manner contrary to morals, good customs or public policy and, of course, that social humiliation, wounded feelings, or grave anxiety resulted therefrom. Similarly, exemplary damages are recoverable only when the dismissal was effected in a wanton, oppressive or malevolent manner.26 Those circumstances have not been adequately established.However, private respondents are entitled to attorney’s fees as they were compelled to litigate with petitioners and incur expenses to enforce and protect their interests.27 The award by the Labor Arbiter of P22,250.00 as attorney’s fees to private respondents, being reasonable, is sustained.WHEREFORE, in view of the foregoing, the decision of the Court of Appeals dated November 29, 2002, in CA-G.R. SP No. 67134, reversing the decision of the National Labor Relations Commission and reinstating the decision of the Labor Arbiter is AFFIRMED with the MODIFICATION that the awards of P10,000.00 as moral damages and P5,000.00 as exemplary damages are DELETED for lack of evidentiary basis.SO ORDERED.Davide, Jr., C.J., (Chairman), Panganiban, Carpio, and Azcuna, JJ., concur.

24



ManilaFIRST DIVISION

G.R. No. 126586 February 2, 2000

ALEXANDER VINOYA, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, REGENT FOOD CORPORATION AND/OR RICKY SEE (PRESIDENT), respondents.KAPUNAN, J.:This petition for certiorari under Rule 65 seeks to annul and set aside the decision,1 promulgated on 21 June 1996, of the National Labor Relations Commission ("NLRC") which reversed the decision2 of the, Labor Arbiter, rendered on 15 June 1994, ordering Regent Food Corporation ("RFC") to reinstate Alexander Vinoya to his former position and pay him backwages.Private respondent Regent Food Corporation is a domestic corporation principally engaged in the manufacture and sale of various food products. Private respondent Ricky See, on the other hand, is the president of RFC and is being sued in that capacity.Petitioner Alexander Vinoya, the complainant, worked with RFC as sales representative until his services were terminated on 25 November 1991.The parties presented conflicting versions of facts.Petitioner Alexander Vinoya claims that he applied and was accepted by RFC as sales representative on 26 May 1990. On the same date, a company identification card3 was issued to him by RFC. Petitioner alleges that he reported daily to the office of RFC, in Pasig City, to take the latter's van for the delivery of its products. According to petitioner, during his employ, he was assigned to various supermarkets and grocery stores where he booked sales orders and collected payments for RFC. For this task, he was required by RFC to put up a monthly bond of P200.00 as security deposit to guarantee the performance of his obligation as

25


sales representative. Petitioner contends that he was under the direct control and supervision of Mr. Dante So and Mr. Sadi Lim, plant manager and senior salesman of RFC, respectively. He avers that on 1 July 1991, he was transferred by RFC to Peninsula Manpower Company, Inc. ("PMCI"), an agency which provides RFC with additional contractual workers pursuant to a contract for the supply of manpower services (hereinafter referred to as the "Contract of Service").4 After his transfer to PMCI, petitioner was allegedly reassigned to RFC as sales representative. Subsequently, on 25 November 1991, he was informed by Ms. Susan Chua, personnel manager of RFC, that his services were terminated and he was asked to surrender his ID card. Petitioner was told that his dismissal was due to the expiration of the Contract of Service between RFC and PMCI. Petitioner claims that he was dismissed from employment despite the absence of any notice or investigation. Consequently, on 3 December 1991, petitioner filed a case against RFC before the Labor Arbiter for illegal dismissal and non-payment of 13th month pay.5

Private respondent Regent Food Corporation, on the other hand, maintains that no employer-employee relationship existed between petitioner and itself. It insists that petitioner is actually an employee of PMCI, allegedly an independent contractor, which had a Contract of Service6 with RFC. To prove this fact, RFC presents an Employment Contract7 signed by petitioner on 1 July 1991, wherein PMCI appears as his employer. RFC denies that petitioner was ever employed by it prior to 1 July 1991. It avers that petitioner was issued an ID card so that its clients and customers would recognize him as a duly authorized representative of RFC. With regard to the P200.00 pesos monthly bond posted by petitioner, RFC asserts that it was required in order to guarantee the turnover of his collection since he handled funds of RFC. While RFC admits that it had control and supervision over petitioner, it argues that such was exercised in coordination with PMCI. Finally, RFC contends that the termination of its relationship with petitioner was brought about by the expiration of the Contract of Service between itself and PMCI and not because petitioner was dismissed from employment.On 3 December 1991, when petitioner filed a complaint for illegal dismissal before the Labor Arbiter, PMCI was initially impleaded as one of the respondents. However, petitioner thereafter withdrew his charge against PMCI and pursued his claim solely against RFC. Subsequently, RFC filed a third party complaint against PMCI. After considering both versions of the parties, the Labor Arbiter rendered a decision,8 dated 15 June 1994, in favor of petitioner. The Labor Arbiter concluded

26


that RFC was the true employer of petitioner for the following reasons: (1) Petitioner was originally with RFC and was merely transferred to PMCI to be deployed as an agency worker and then subsequently reassigned to RFC as sales representative; (2) RFC had direct control and supervision over petitioner; (3) RFC actually paid for the wages of petitioner although coursed through PMCI; and, (4) Petitioner was terminated per instruction of RFC. Thus, the Labor Arbiter decreed, as follows:ACCORDINGLY, premises considered respondent RFC is hereby declared guilty of illegal dismissal and ordered to immediately reinstate complainant to his former position without loss of seniority rights and other benefits and pay him backwages in the amount of P103,974.00.The claim for 13th month pay is hereby DENIED for lack of merit.This case, insofar as respondent PMCI [is concerned] is DISMISSED, for lack of merit.SO ORDERED.9

RFC appealed the adverse decision of the Labor Arbiter to the NLRC. In a decision,10 dated 21 June 1996, the NLRC reversed the findings of the Labor Arbiter. The NLRC opined that PMCI is an independent contractor because it has substantial capital and, as such, is the true employer of petitioner. The NLRC, thus, held PMCI liable for the dismissal of petitioner. The dispositive portion of the NLRC decision states:WHEREFORE, premises considered, the appealed decision is modified as follows:1. Peninsula Manpower Company Inc. is declared as employer of the complainant;2. Peninsula is ordered to pay complainant his separation pay of P3,354.00 and his proportionate 13th month pay for 1991 in the amount of P2,795.00 or the total amount of P6,149.00.SO ORDERED.11

Separate motions for reconsideration of the NLRC decision were filed by petitioner and PMCI. In a resolution,12dated 20 August 1996, the NLRC denied both motions. However, it was only petitioner who elevated the case before this Court.In his petition for certiorari, petitioner submits that respondent NLRC committed grave abuse of discretion in reversing the decision of the Labor Arbiter, and asks for the reinstatement of the latter's decision.Principally, this petition presents the following issues:1. Whether petitioner was an employee of RFC or PMCI.2. Whether petitioner was lawfully dismissed.

27


The resolution of the first issue initially boils down to a determination of the true status of PMCI, whether it is a labor-only contractor or an independent contractor.In the case at bar, RFC alleges that PMCI is an independent contractor on the sole ground that the latter is a highly capitalized venture. To buttress this allegation, RFC presents a copy of the Articles of Incorporation and the Treasurer's Affidavit13 submitted by PMCI to the Securities and Exchange Commission showing that it has an authorized capital stock of One Million Pesos (P1,000,000.00), of which Three Hundred Thousand Pesos (P300,000.00) is subscribed and Seventy-Five Thousand Pesos (P75,000.00) is paid-in. According to RFC, PMCI is a duly organized corporation engaged in the business of creating and hiring a pool of temporary personnel and, thereafter, assigning them to its clients from time to time for such duration as said clients may require. RFC further contends that PMCI has a separate office, permit and license and its own organization.Labor-only contracting, a prohibited act, is an arrangement where the contractor or subcontractor merely recruits, supplies or places workers to perform a job, work or service for a principal.14 In labor-only contracting, the following elements are present:(a) The contractor or subcontractor does not have substantial capital or investment to actually perform the job, work or service under its own account and responsibility;(b) The employees recruited, supplied or placed by such contractor or subcontractor are performing activities which are directly related to the main business of the principal.15

On the other hand, permissible job contracting or subcontracting refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work or service within a definite or predetermined period, regardless of whether such job, work or service is to be performed or completed within or outside the premises of the principal.16 A person is considered engaged in legitimate job contracting or subcontracting if the following conditions concur:(a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work or service on its own account and under its own responsibility according to its own manner and method, and free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof;(b) The contractor or subcontractor has substantial capital or investment; and

28


(c) The agreement between the principal and contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits.17

Previously, in the case of Neri vs. NLRC,18 we held that in order to be considered as a job contractor it is enough that a contractor has substantial capital. In other words, once substantial capital established it is no longer necessary for the contractor to show evidence that it has investment in the form of tools, equipment, machineries, work premises, among others. The rational for this is that Article 106 of the Labor Code does not require that the contractor possess both substantial capital and investment in the form of tools, equipment, machineries, work premises, among others.19 The decision of the Court in Neri, thus, states:Respondent BCC need not prove that it made investments in the form of tools, equipment, machineries, work premises, among others, because it has established that it has sufficient capitalization. The Labor Arbiter and the NLRC both determined that BCC had a capital stock of P1 million fully subscribed and paid for. BCC is therefore a highly capitalized venture and cannot be deemed engaged in "labor-only" contracting.20

However, in declaring that Building Care Corporation ("BCC") was an independent contractor, the Court considered not only the fact that it had substantial capitalization. The Court noted that BCC carried on an independent business and undertook the performance of its contract according to its own manner and method, free from the control and supervision of its principal in all matters except as to the results thereof.21 The Court likewise mentioned that the employees of BCC were engaged to perform specific special services for its principal.22 Thus, the Court ruled that BCC was an independent contractor.The Court further clarified the import of the Neri decision in the subsequent case of Philippine Fuji Xerox Corporation vs. NLRC.23 In the said case, petitioner Fuji Xerox implored the Court to apply the Neri doctrine to its alleged job-contractor, Skillpower, Inc., and declare the same as an independent contractor. Fuji Xerox alleged that Skillpower, Inc. was a highly capitalized venture registered with the Securities and Exchange Commission, the Department of Labor and Employment, and the Social Security System with assets exceeding P5,000,000.00 possessing at least 29 typewriters, office equipment and service vehicles, and its own pool of employees with 25 clerks assigned to its clients on a temporary basis.24 Despite

29


the evidence presented by Fuji Xerox the Court refused to apply the Neri case and explained:Petitioners cite the case of Neri v. NLRC, in which it was held that the Building Care Corporation (BCC) was an independent contractor on the basis of finding that it had substantial capital, although there was no evidence that it had investments in the form of tools, equipment, machineries and work premises. But the Court in that case considered not only the capitalization of the BCC but also the fact that BCC was providing specific special services (radio/telex operator and janitor) to the employer; that in another case, the Court had already found that BCC was an independent contractor; that BCC retained control over the employees and the employer was actually just concerned with the end-result; that BCC had the power to reassign the employees and their deployment was not subject to the approval of the employer; and that BCC was paid in lump sum for the services it rendered. These features of that case make it distinguishable from the present one.25

Not having shown the above circumstances present in Neri, the Court declared Skillpower, Inc. to be engaged in labor-only contracting and was considered as a mere agent of the employer.From the two aforementioned decisions, it may be inferred that it is not enough to show substantial capitalization or investment in the form of tools, equipment, machineries and work premises, among others, to be considered as an independent contractor. In fact, jurisprudential holdings are to the effect that in determining the existence of an independent contractor relationship, several factors might be considered such as, but not necessarily confined to, whether the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of specified pieces of work; the control and supervision of the workers; the power of the employer with respect to the hiring, firing and payment of the workers of the contractor; the control of the premises; the duty to supply premises, tools, appliances, materials and labor; and the mode, manner and terms of payment.26

Given the above standards and the factual milieu of the case, the Court has to agree with the conclusion of the Labor Arbiter that PMCI is engaged in labor-only contracting.First of all, PMCI does not have substantial capitalization or investment in the form of tools, equipment, machineries, work premises, among others, to qualify as an independent contractor. While it has an authorized capital stock of P1,000,000.00,

30


only P75,000.00 is actually paid-in, which, to our mind, cannot be considered as substantial capitalization. In the case of Neri, which was promulgated in 1993, BCC had a capital stock of P1,000,000.00 which was fully subscribed and paid-for. Moreover, when the Neri case was decided in 1993, the rate of exchange between the dollar and the peso was only P27.30 to $127 while presently it is at P40.390 to $1.28The Court takes judicial notice of the fact that in 1993, the economic situation in the country was not as adverse as the present, as shown by the devaluation of our peso. With the current economic atmosphere in the country, the paid-in capitalization of PMCI amounting to P75,000,00 cannot be considered as substantial capital and, as such, PMCI cannot qualify as an independent contractor.Second, PMCI did not carry on an independent business nor did it undertake the performance of its contract according to its own manner and method, free from the control and supervision of its principal, RFC. The evidence at hand shows that the workers assigned by PMCI to RFC were under the control and supervision of the latter. The Contract of Service itself provides that RFC can require the workers assigned by PMCI to render services even beyond the regular eight hour working day when deemed necessary.29 Furthermore, RFC undertook to assist PMCI in making sure that the daily time records of its alleged employees faithfully reflect the actual working hours.30 With regard to petitioner, RFC admitted that it exercised control and supervision over him.31 These are telltale indications that PMCI was not left alone to supervise and control its alleged employees. Consequently, it can be, concluded that PMCI was not an independent contractor since it did not carry a distinct business free from the control and supervision of RFC.Third, PMCI was not engaged to perform a specific and special job or service, which is one of the strong indicators that an entity is an independent contractor as explained by the Court in the cases of Neri and Fuji. As stated in the Contract of Service, the sole undertaking of PMCI was to provide RFC with a temporary workforce able to carry out whatever service may be required by it.32 Such venture was complied with by PMCI when the required personnel were actually assigned to RFC. Apart from that, no other particular job, work or service was required from PMCI. Obviously, with such an arrangement, PMCI merely acted as a recruitment agency for RFC. Since the undertaking of PMCI did not involve the performance of a specific job, but rather the supply of manpower only, PMCI clearly conducted itself as labor-only contractor.

31


Lastly, in labor-only contracting, the employees recruited, supplied or placed by the contractor perform activities which are directly related to the main business of its principal. In this case, the work of petitioner as sales representative is directly related to the business of RFC. Being in the business of food manufacturing and sales, it is necessary for RFC to hire a sales representative like petitioner to take charge of booking its sales orders and collecting payments for such. Thus, the work of petitioner as sales representative in RFC can only be categorized as clearly related to, and in the pursuit of the latter's business. Logically, when petitioner was assigned by PMCI to RFC, PMCI acted merely as a labor-only contractor.Based on the foregoing, PMCI can only be classified as a labor-only contractor and, as such, cannot be considered as the employer of petitioner.However, even granting that PMCI is an independent contractor, as RFC adamantly suggests, still, a finding of the same will not save the day for RFC. A perusal of the Contract of Service entered into between RFC and PMCI reveals that petitioner is actually not included in the enumeration of the workers to be assigned to RFC. The following are the workers enumerated in the contract:1. Merchandiser2. Promo Girl3. Factory Worker4. Driver33

Obviously, the above enumeration does not include the position of petitioner as sales representative. This only shows that petitioner was never intended to be a part of those to be contracted out. However, RFC insists that despite the absence of his position in the enumeration, petitioner is deemed included because this has been agreed upon between itself and PMCI. Such contention deserves scant consideration. Had it really been the intention of both parties to include the position of petitioner they should have clearly indicated the same in the contract. However, the contract is totally silent on this point which can only mean that petitioner was never really intended to be covered by it.Even if we use the "four-fold test" to ascertain whether RFC is the true employer of petitioner that same result would be achieved. In determining the existence of employer-employee relationship the following elements of the "four-fold test" are generally considered, namely: (1) the selection and engagement of the employee or the power to hire; (2) the payment of wages; (3) the power to dismiss; and (4) the power to control the employee.34 Of these four, the "control test" is the most

32


important.35 A careful study of the evidence at hand shows that RFC possesses the earmarks of being the employer of petitioner.With regard to the first element, the power to hire, RFC denies any involvement in the recruitment and selection of petitioner and asserts that petitioner did not present any proof that he was actually hired and employed by RFC.It should be pointed out that no particular form of proof is required to prove the existence of an employer-employee relationship.36 Any competent and relevant evidence may show the relationship.37 If only documentary evidence would be required to demonstrate that relationship, no scheming employer would ever be brought before bar of justice.38 In the case at bar, petitioner presented the identification card issue to him on 26 May 1990 by RFC as proof that it was the latter who engaged his services. To our mind, the ID card is enough proof that petitioner was previously hired by RFC prior to his transfer as agency worker to PMCI. It must be noted that the Employment Contract between petitioner and PMCI was dated 1 July 1991. On the other hand, the ID card issued by RFC to petitioner was dated 26 May 1990, or more than one year before the Employment Contract was signed by petitioner in favor of PMCI. It makes one wonder why, if petitioner was indeed recruited by PMCI as its own employee on 1 July 1991, how come he had already been issued an ID card by RFC a year earlier? While the Employment Contract indicates the word "renewal," presumably an attempt to show that petitioner had previously signed a similar contract with PMCI, no evidence of a prior contract entered into petitioner and PMCI was ever presented by RFC. In fact, despite the demand made by the counsel of petitioner for production of the contract which purportedly shows that prior to 1 July 1991 petitioner was already connected with PMCI, RFC never made a move to furnish the counsel of petitioner a copy of the alleged original Employment Contract. The only logical conclusion which may be derived from such inaction is that there was no such contract end that the only Employment Contract entered into between PMCI and petitioner was the 1 July 1991 contract and no other. Since, as shown by the ID card, petitioner was already with RFC on 26 May 1990, prior to the time any Employment Contract was agreed upon between PMCI and petitioner, it follows that it was RFC who actually hired and engaged petitioner to be its employee.With respect to the payment of wages, RFC disputes the argument of petitioner that it paid his wages on the ground that petitioner did not submit any evidence to prove that his salary was paid by it, or that he was issued payslip by the company. On the contrary, RFC asserts that the invoices39 presented by it, show

33


that it was PMCI who paid petitioner his wages through its regular monthly billings charged to RFC.The Court takes judicial notice of the practice of employers who, in order to evade the liabilities under the Labor Code, do not issue payslips directly to their employees.40 Under the current practice, a third person, usually the purported contractor (service or manpower placement agency), assumes the act of paying the wage.41 For this reason, the lowly worker is unable to show proof that it was directly paid by the true employer. Nevertheless, for the workers, it is enough that they actually receive their pay, oblivious of the need for payslips, unaware of its legal implications.42 Applying this principle to the case at bar, even though the wages were coursed through PMCI, we note that the funds actually came from the pockets of RFC. Thus, in the end, RFC is still the one who paid the wages of petitioner albeit indirectly.As to the third element, the power to dismiss, RFC avers that it was PMCI who terminated the employment of petitioner. The facts on record, however, disprove the allegation of RFC. First of all, the Contract of Service gave RFC the right to terminate the workers assigned to it by PMCI without the latter's approval. Quoted hereunder is the portion of the contract stating the power of RFC to dismiss, to wit:7. The First party ("RFC") reserves the right to terminate the services of any worker found to be unsatisfactory without the prior approval of the second party ("PMCI").43

In furtherance of the above provision, RFC requested PMCI to terminate petitioner from his employment with the company. In response to the request of RFC, PMCI terminated petitioner from service. As found by the Labor Arbiter, to which we agree, the dismissal of petitioner was indeed made under the instruction of RFC to PMCI.The fourth and most important requirement in ascertaining the presence of employer-employee relationship is the power of control. The power of control refers to the authority of the employer to control the employee not only with regard to the result of work to be done but also to the means and methods by which the work is to be accomplished.44 It should be borne in mind, that the "control test" calls merely for the existence of the right to control the manner of doing the work, and not necessarily to the actual exercise of the right.45 In the case at bar, we need not belabor ourselves in discussing whether the power of control exists. RFC already admitted that it exercised control and supervision over

34


petitioner.46 RFC, however, raises the defense that the power of control was jointly exercised with PMCI. The Labor Arbiter, on the other hand, found that petitioner was under the direct control and supervision of the personnel of RFC and not PMCI. We are inclined to believe the findings of the Labor Arbiter which is supported not only by the admission of RFC but also by the evidence on record. Besides, to our mind, the admission of RFC that it exercised control and supervision over petitioner, the same being a declaration against interest, is sufficient enough to prove that the power of control truly exists.We, therefore, hold that an employer-employee relationship exists between petitioner and RFC.Having determined the real employer of petitioner, we now proceed to ascertain the legality of his dismissal from employment.Since petitioner, due to his length of service, already attained the status of a regular employee,47 he is entitled to the security of tenure provided under the labor laws. Hence, he may only be validly terminated from service upon compliance with the legal requisites for dismissal. Under the Labor Code, the requirements for the lawful dismissal of an employee are two-fold, the substantive and the procedural aspects. Not only must the dismissal be for a valid or authorized cause,48 the rudimentary requirements of due process — notice and hearing49 — must, likewise, be observed before an employee may be dismissed. Without the concurrence of the two, the termination would, in the eyes of the law, be illegal.50

As the employer, RFC has the burden of proving that the dismissal of petitioner was for a cause allowed under the law and that petitioner was afforded procedural due process. Sad to say, RFC failed to discharge this burden. Indeed, RFC never pointed to any valid or authorized cause under the Labor Code which allowed it to terminate the services of petitioner. Its lone allegation that the dismissal was due to the expiration or completion of contract is not even one of the grounds for termination allowed by law. Neither did RFC show that petitioner was given ample opportunity to contest the legality of his dismissal. In fact, no notice of such impending termination was ever given him. Petitioner was, thus, surprised that he was already terminated from employment without any inkling as to how and why it came about. Petitioner was definitely denied due process. Having failed to establish compliance with the requirements on termination of employment under the Labor Code, the dismissal of petitioner is tainted with illegality.

35


An employee who has been illegally dismissed is entitled to reinstatement to his former position without loss of seniority rights and to payment of full backwages corresponding to the period from his illegal dismissal up to actual reinstatement.51 Petitioner is entitled to no less.WHEREFORE, the petition is GRANTED. The decision of the NLRC, dated 21 June 1996, as well as its resolution, promulgated on 20 August 1996, are ANNULLED and SET ASIDE. The decision of the Labor Arbiter, rendered on 15 June 1994, is hereby REINSTATED and AFFIRMED.1âwphi1.nêtSO ORDERED.Davide, Jr., C.J., Puno, Pardo and Ynares-Santiago, JJ., concur.


ManilaSECOND DIVISION

G.R. No. 79004-08 October 4, 1991

FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES AND 4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES

36


and 4 OTHERS, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or FELICIANO LUPO, respondents.Public Attorney's Office for petitioners.Joseph M. Baduel & Steve R. Siclot for private respondents. MELENCIO-HERRERA, J.:The liability of an employer in job contracting, vis-a-vis his contractor's employees, is the sole issue brought to the fore in this labor dispute.This Petition for certiorari seeks to set aside the Resolution, dated 27 February 1987, of public respondent National Labor Relations Commission (NLRC), Third Division, which reversed the Resolution of its First Division, dated 27 December 1985, and absolved private respondent General Milling Corporation (GMC) from any and all liability to petitioners.Sometime in 1983, private respondent Feliciano LUPO, a building contractor, entered into a contract with GMC, a domestic corporation engaged in flour and feeds manufacturing, for the construction of an annex building inside the latter's plant in Cebu City. In connection with the aforesaid contract, LUPO hired herein petitioners either as carpenters, masons or laborers.Subsequently, LUPO terminated petitioners' services, on different dates. As a result, petitioners filed Complaints against LUPO and GMC before the NLRC Regional Arbitration Branch No. VII, Cebu City, for unpaid wages, COLA differentials, bonus and overtime pay.In a Decision, dated 21 November 1984, the Executive Labor Arbiter, Branch VII, found LUPO and GMC jointly and severally liable to petitioners, premised on Article 109 of the Labor Code, infra, and ordered them to pay the aggregate amount of P95,382.92. Elevated on appeal on 14 December 1984, the NLRC (First Division) denied the same for lack of merit in a Resolution, dated 27 December 1985.Upon Motion for Reconsideration, filed on 27 February 1986, the case was reassigned to the Third Division. In a Resolution of 27 February 1987, that Division absolved GMC from any liability. It opined that petitioners were only hired by LUPO as workers in his construction contract with GMC and were never meant to be employed by the latter.Petitioners now assail that judgment in this Petition for Certiorari.

37


Petitioners contend that GMC is jointly and severally liable with LUPO for the latter's obligations to them. They seek recovery from GMC based on Article 106 of the Labor Code, infra, which holds the employer jointly and severally liable with his contractor for unpaid wages of employees of the latter.In his "Manifestation in lieu of Comment," the Solicitor General recognizes the solidary liability of GMC and LUPO but bases recovery on Article 108 of the Labor Code, infra, contending that inasmuch as GMC failed to require them LUPO a bond to answer for the latter's obligations to his employees, as required by said provision, GMC should, correspondingly, be deemed solidarily liable.In their respective Comments, both GMC and the NLRC maintain that Article 106 finds no application in the instant case because it is limited to situations where the work being performed by the contractor's employees are directly related to the principal business of the employer. The NLRC further opines that Article 109 on "Solidary Liability" finds no application either because GMC was neither petitioners' employer nor indirect employer.Upon the facts and circumstances, we uphold the solidary liability of GMC and LUPO for the latter's liabilities in favor of employees whom he had earlier employed and dismissed.Recovery, however, should not be based on Article 106 of the Labor Code. This provision treats specifically of "labor-only" contracting, which is not the set-up between GMC and LUPO.Article 106 provides:Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another person for the performance of the former's work, the employees of the contractor and of the latter's subcontractor, if any, shall be paid in accordance with the provisions of this Code.In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.xxx xxx xxxThere is "labor-only" contracting where the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such persons are performing activities which are directly related to

38


the principal business of such employer. In such cases, the person or intermediary shall be considered merely as an agent of the employer who shall be responsible to the workers in the same manner and extent as if the latter were directly employed by him (Emphasis supplied).In other words, a person is deemed to be engaged in "labor only" contracting where (1) the person supplying workers to an employer does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others; and (2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer (See Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code; emphasis supplied).Since the construction of an annex building inside the company plant has no relation whatsoever with the employer's business of flour and feeds manufacturing, "labor-only" contracting does not exist. Article 106 is thus inapplicable.Instead, it is "job contracting," covered by Article 107, which is involved, reading:Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Emphasis supplied).Specifically, there is "job contracting" where (1) the contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2) the contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business. It may be that LUPO subsequently ran out of capital and was unable to satisfy the award to petitioners. That was an after-the-fact development, however, and does not detract from his status as an independent contractor.Based on the foregoing, GMC qualifies as an "indirect employer." It entered into a contract with an independent contractor, LUPO, for the construction of an annex building, a work, task, job or project not directly related to GMC's business of flour and feeds manufacturing. Being an "indirect employer," GMC is solidarily liable

39


with LUPO for any violation of the Labor Code pursuant to Article 109 thereof, reading:Art. 109. Solidary Liability. — The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer shall be held responsible with a contractor or subcontractor for any violation of any provision of this Code. For purposes of determining the extent of their civil liability under this Chapter, they shall be considered as direct employers.The provision of existing law referred to is Article 1728 of the Civil Code, which states, among others, that "the contractor is liable for all the claims of laborers and others employed by him ..."The foregoing interpretation finds a precedent in the case o Deferia v. NLRC (G.R. No. 78713, 27 February 1991) per Sarmiento, J., where Articles 107 and 109 were applied as the statutory basis for the joint and several liability of the employer with his contractor, in addition to Article 106, since the situation in that case was clearly one of "labor-only" contracting.The NLRC submission that Article 107 is not applicable in the instant case for the reason that the coverage thereof is limited to one "not an employer" whereas GMC is such an employer as defined in Article 97 (b) of the Labor Code, 1 is not well-taken. Under the peculiar set-up herein, GMC is, in fact, "not an employer" (in the sense of not being a direct employer) as understood in Article 106 of the Labor Code, but qualifies as an "indirect employer" under Article 107 of said Code.The distinction between Articles 106 and 107 was in the fact that Article 106 deals with "labor-only" contracting. Here, by operation of law, the contractor is merely considered as an agent of the employer, who is deemed "responsible to the workers to the same extent as if the latter were directly employed by him." On the other hand, Article 107 deals with "job contracting." In the latter situation, while the contractor himself is the direct employer of the employees, the employer is deemed, by operation of law, as an indirect employer.In other words, the phrase "not an employer" found in Article 107 must be read in conjunction with Article 106. A contrary interpretation would render the provisions of Article 107 meaningless considering that everytime an employer engages a contractor, the latter is always acting in the interest of the former, whether directly or indirectly, in relation to his employees.It should be recalled that a finding that a contractor is a "labor-only" contractor is equivalent to declaring that there is an employer-employee relationship between the owner of the project and the employees of the "labor-only" contractor

40


(Associated Anglo-American Tobacco Corp. v. Clave, G.R. No. 50915, 30 August 1990, 189 SCRA 127; Industrial Timber Corp. v. NLRC, G.R. No. 83616, 20 January 1989, 169 SCRA 341). This is evidently because, as heretofore stated, the "labor-only" contractor is considered as a mere agent of an employer. In contrast, in "job contracting," no employer-employee relationship exists between the owner and the employees of his contractor. The owner of the project is not the direct employer but merely an indirect employer, by operation of law, of his contractor's employees.As an indirect employer, and for purposes of determining the extent of its civil liability, GMC is deemed a "direct employee" of his contractor's employees pursuant to the last sentence of Article 109 of the Labor Code. As a consequence, GMC can not escape its joint and solidary liability to petitioners.Further, Article 108 of the Labor Code requires the posting of a bond to answer for wages that a contractor fails to pay, thus:Article 108. Posting of Bond. — An employer or indirect employer may require the contractor or subcontractor to furnish a bond equal to the cost of labor under contract, on condition that the bond will answer for the wages due the employees showed the contractor or subcontractor, as the case may be, fails to pay the same.Having failed to require LUPO to post such a bond, GMC must answer for whatever liabilities LUPO may have incurred to his employees. This is without prejudice to its seeking reimbursement from LUPO for whatever amount it will have to pay petitioners.WHEREFORE, the Petition for certiorari is GRANTED. The Resolution of respondent NLRC, Third Division, dated 27 February 1987, is hereby SET ASIDE, and the Decision of the Labor Arbiter, dated 21 November 1984, is hereby REINSTATED.SO ORDERED.Paras, Sarmiento and Regalado, JJ., concur.

41



Manila

FIRST DIVISION

G.R. No. 161115 November 30, 2006

DOLE PHILIPPINES, INC., Petitioner, vs.MEDEL ESTEVA, HENRY SILVA, GILBERT CABILAO, LORENZO GAQUIT, DANIEL PABLO, EDWIN CAMILO, BENJAMIN SAKILAN, RICHARD PENUELA, ARMANDO PORRAS, EDUARDO FALDAS, NILO DONDOYANO, MIGUEL DIAZ, ROMEL BAJO, ARTEMIO TENERIFE, EDDIE LINAO, JERRY LIGTAS, SAMUEL RAVAL, WILFREDO BLANDO, LORENZO MONTERO, JR., JAIME TESIPAO, GEORGE DERAL, ERNESTO ISRAEL, JR., AGAPITO ESTOLOGA, JOVITO DAGUIO, ARSENIO LEONCIO, MARLON BLANDO, JOSE OTELO CASPILLO, ARNOLD LIZADA, JERRY DEYPALUBOS, STEVEN MADULA, ROGELIO CABULAO, JR., ALVIN COMPOC, EUGENIO BRITANA, RONNIE GUELOS, EMMANUEL JIMENA, GERMAN JAVA, JESUS MEJICA, JOEL INVENTADO, DOMINGO JABULGO, RAMIL ENAD, RAYMUNDO YAMON, RITCHIE MELENDRES, JACQUEL ORGE, RAMON BARCELONA, ERWIN ESPIA, NESTOR DELIDELI, JR., ALLAN GANE, ROMEO PORRAS, RITCHIE BOCOG, JOSELITO ACEBES, DANNY TORRES, JIMMY NAVARRO, RALPH PEREZ, SONNY SESE, RONALD RODRIQUES, ROBERTO ALLANEC, ERNIE GIGANTANA, NELSON SAMSON, REDANTE DAVILA, EDDIE BUSLIG, ALLAN PINEDA, JESUS BELGERA, VICENTE LABISTE, CARMENCITA FELISILDA, GEORGE DERLA, RUBEN TORMON, NEIL TAJALE, ORLANDO ESPENILLA, RITCHEL MANEJAR, JOEL QUINTANA, ERWIN ALDE, JOEL CATALAN, ELMER TIZON, ALLAN ESPADA, EUGENE BRETANA, RAMIL ENAD, RENE INGALLA, STEVEN MADULLA, RANDY REBUTAZO, NEIL BAGATILLA, ARSENIO LEONCIO, ROLANDO VILLEGAS and JUSLIUS TESIPAO, herein represented by MEDEL ESTEVA, Authorized Representative,Respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

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Before this Court is a Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil Procedure seeking the reversal of the Decision,1 dated 20 May 2002, and the Amended Decision,2 dated 27 November 2003, both rendered by the Court of Appeals in CA-G.R. SP No. 63405, which declared herein petitioner Dole Philippines, Inc. as the employer of herein respondents, Medel Esteva and 86 others; found petitioner guilty of illegal dismissal; and ordered petitioner to reinstate respondents to their former positions and to pay the latter backwages.

The antecedent facts of the case are recounted as follows:

Petitioner is a corporation duly organized and existing in accordance with Philippine laws, engaged principally in the production and processing of pineapple for the export market.3 Its plantation is located in Polomolok, South Cotabato.4

Respondents are members of the Cannery Multi-Purpose Cooperative (CAMPCO). CAMPCO was organized in accordance with Republic Act No. 6938, otherwise known as the Cooperative Code of the Philippines, and duly-registered with the Cooperative Development Authority (CDA) on 6 January 1993.5 Members of CAMPCO live in communities surrounding petitioner’s plantation and are relatives of petitioner’s employees.

On 17 August 1993, petitioner and CAMPCO entered into a Service Contract.6 The Service Contract referred to petitioner as "the Company," while CAMPCO was "the Contractor." Relevant portions thereof read as follows –

1. That the amount of this contract shall be or shall not exceed TWO HUNDRED TWENTY THOUSAND ONLY (P220,000.00) PESOS, terms and conditions of payment shall be on a per job basis as specified in the attached schedule of rates; the CONTRACTOR shall perform the following services for the COMPANY;

1.1 Assist the COMPANY in its daily operations;

1.2 Perform odd jobs as may be assigned.

2. That both parties shall observe the following terms and conditions as stipulated, to wit:

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2.1 CONTRACTOR must carry on an independent legitimate business, and must comply with all the pertinent laws of the government both local and national;

2.2 CONTRACTOR must provide all hand tools and equipment necessary in the performance of their work.

However, the COMPANY may allow the use of its fixed equipment as a casual facility in the performance of the contract;

2.3 CONTRACTOR must comply with the attached scope of work, specifications, and GMP and safety practices of the company;

2.4 CONTRACTOR must undertake the contract work under the following manner:

a. on his own account;

b. under his own responsibility;

c. according to his manner and method, free from the control and direction of the company in all matters connected with the performance of the work except as to the result thereof;

3. CONTRACTOR must pay the prescribed minimum wage, remit SSS/MEDICARE premiums to proper government agencies, and submit copies of payroll and proof of SSS/MEDICARE remittances to the COMPANY;

4. This contract shall be for a specific period of Six (6) months from July 1 to December 31, 1993; x x x.

Pursuant to the foregoing Service Contract, CAMPCO members rendered services to petitioner. The number of CAMPCO members that report for work and the type of service they performed depended on the needs of petitioner at any given time. Although the Service Contract specifically stated that it shall only be for a period of six months, i.e., from 1 July to 31 December 1993, the parties had apparently extended or renewed the same for the succeeding years without executing another written contract. It was under these circumstances that respondents came to work for petitioner.

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Investigation by DOLE

Concomitantly, the Sangguniang Bayan of Polomolok, South Cotabato, passed Resolution No. 64, on 5 May 1993, addressed to then Secretary Ma. Nieves R. Confessor of the Department of Labor and Employment (DOLE), calling her attention to the worsening working conditions of the petitioner’s workers and the organization of contractual workers into several cooperatives to replace the individual labor-only contractors that used to supply workers to the petitioner. Acting on the said Resolution, the DOLE Regional Office No. XI in Davao City organized a Task Force that conducted an investigation into the alleged labor-only contracting activities of the cooperatives in Polomolok.7

On 24 May 1993, the Senior Legal Officer of petitioner wrote a letter addressed to Director Henry M. Parel of DOLE Regional Office No. XI, supposedly to correct the misinformation that petitioner was involved in labor-only contracting, whether with a cooperative or any private contractor. He further stated in the letter that petitioner was not hiring cooperative members to replace the regular workers who were separated from service due to redundancy; that the cooperatives were formed by the immediate dependents and relatives of the permanent workers of petitioner; that these cooperatives were registered with the CDA; and that these cooperatives were authorized by their respective constitutions and by-laws to engage in the job contracting business.8

The Task Force submitted a report on 3 June 1993 identifying six cooperatives that were engaged in labor-only contracting, one of which was CAMPCO. The DOLE Regional Office No. XI held a conference on 18 August 1993 wherein the representatives of the cooperatives named by the Task Force were given the opportunity to explain the nature of their activities in relation to petitioner. Subsequently, the cooperatives were required to submit their position papers and other supporting documents, which they did on 30 August 1993. Petitioner likewise submitted its position paper on 15 September 1993.9

On 19 October 1993, Director Parel of DOLE Regional Office No. XI issued an Order10 in which he made the following findings –

Records submitted to this Office show that the six (6) aforementioned cooperatives are all duly registered with the Cooperative Development Authority (CDA). These cooperatives were also found engaging in different activities with

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DOLE PHILIPPINES, INC. a company engaged in the production of pineapple and export of pineapple products. Incidentally, some of these cooperatives were also found engaging in activities which are directly related to the principal business or operations of the company. This is true in the case of the THREE (3) Cooperatives, namely; Adventurer’s Multi Purpose Cooperative, Human Resource Multi Purpose Cooperative and Cannery Multi Purpose Cooperative.

From the foregoing findings and evaluation of the activities of Adventurer’s Multi Purpose Cooperative, Human Resource Multi Purpose Cooperative and Cannery Multi Purpose Cooperative, this Office finds and so holds that they are engaging in Labor Only Contracting Activities as defined under Section 9, Rule VIII, Book III of the rules implementing the Labor Code of the Philippines, as amended which we quote:

"Section 9 Labor Only Contracting – a) Any person who undertakes to supply workers to an employer shall be deemed to be engaged in labor-only contracting where such person:

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

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

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

WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby declared to be engaged in labor only contracting which is a prohibited activity. The same cooperatives are therefore ordered to cease and desist from further engaging in such activities.

The three (3) other cooperatives, namely Polomolok Skilled Workers Multi Purpose Cooperative, Unified Engineering and Manpower Service Multi Purpose

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Cooperative and Tibud sa Katibawasan Multi Purpose Cooperative whose activities may not be directly related to the principal business of DOLE Philippines, Inc. are also advised not to engage in labor only contracting with the company.

All the six cooperatives involved appealed the afore-quoted Order to the Office of the DOLE Secretary, raising the sole issue that DOLE Regional Director Director Parel committed serious error of law in directing the cooperatives to cease and desist from engaging in labor-only contracting. On 15 September 1994, DOLE Undersecretary Cresencio B. Trajano, by the authority of the DOLE Secretary, issued an Order11 dismissing the appeal on the basis of the following ratiocination –

The appeal is devoid of merit.

The Regional Director has jurisdiction to issue a cease and desist order as provided by Art. 106 of the Labor Code, as amended, to wit:

"Art. 106. Contractor or subcontractor. x x x

x x x x

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

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

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in relation to Article 128(b) of the Labor Code, as amended by Republic Act No. 7730, which reads:

"Art. 128. Visitorial and Enforcement Power.

b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial safety engineers made in the course of inspection. The Secretary or his duly authorized representatives shall issue writs of execution to the appropriate authority for the enforcement of their orders, except in cases where the employer contests the findings of the labor employment and enforcement officer and raises issues supported by documentary proof which were not considered in the course of inspection.

An order issued by the duly authorized representative of the Secretary of Labor and Employment under this article may be appealed to the latter. In case said order involves a monetary award, an appeal by the employer may be perfected only upon the posting of a cash bond issued by a reputable bonding company duly accredited by the Secretary of Labor and Employment in the amount equivalent to the monetary award in the order appealed from."

The records reveal that in the course of the inspection of the premises of Dolefil, it was found out that the activities of the members of the [cooperatives] are necessary and desirable in the principal business of the former; and that they do not have the necessary investment in the form of tools and equipments. It is worthy to note that the cooperatives did not deny that they do not have enough capital in the form of tools and equipment. Under the circumstances, it could not be denied that the [cooperatives] are considered as labor-only contractors in relation to the business operation of DOLEFIL, INC.

Thus, Section 9, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code, provides that:

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

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

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

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

x x x x"

Violation of the afore-quoted provision is considered a labor standards violation and thus, within the visitorial and enforcement powers of the Secretary of Labor and Employment (Art. 128).

The Regional Director’s authority to issue a cease and desist order emanates from Rule I, Section 3 of the Rules on Disposition of Labor Standard Cases in the Regional Offices, to wit:

"Section 3. Authorized representative of the Secretary of Labor and Employment. – The Regional Directors shall be the duly authorized representatives of the Secretary of Labor and Employment in the administration and enforcement of the labor standards within their respective territorial jurisdiction."

The power granted under Article 106 of the Labor Code to the Secretary of Labor and Employment to restrict or prohibit the contracting out of labor to protect the rights of workers established under the Code is delegated to the Regional Directors by virtue of the above-quoted provision.

The reason why "labor-only" contracting is prohibited under the Labor Code is that it encourages circumvention of the provisions of the Labor Code on the workers’ right to security of tenure and to self-organization.

49


WHEREFORE, the respondents’ Appeal is hereby DISMISSED for lack of merit. The Order of the Regional Director, Regional Office No. XI, Davao City, is AFFIRMED.

After the motion for reconsideration of the foregoing Order was denied, no further motion was filed by the parties, and the Order, dated 15 September 1994, of DOLE Undersecretary Trajano became final and executory. A Writ of Execution12 was issued by DOLE Regional Office No. XI only on 27 July 1999, years after the issuance of the order subject of the writ. The DOLE Regional Office No. XI was informed that CAMPCO and two other cooperatives "continued to operate at DOLE Philippines, Inc. despite the cease and desist Order" it had issued. It therefore commanded the Sheriff to proceed to the premises of CAMPCO and the two other cooperatives and implement its Order dated 19 October 1993.

Respondent’s Complaint before the NLRC

Respondents started working for petitioner at various times in the years 1993 and 1994, by virtue of the Service Contract executed between CAMPCO and petitioner. All of the respondents had already rendered more than one year of service to petitioner. While some of the respondents were still working for petitioner, others were put on "stay home status" on varying dates in the years 1994, 1995, and 1996 and were no longer furnished with work thereafter. Together, respondents filed a Complaint,13 on 19 December 1996, with the National Labor Relations Commission (NLRC), for illegal dismissal, regularization, wage differentials, damages and attorney’s fees.

In their Position Paper,14 respondents reiterated and expounded on the allegations they previously made in their Complaint –

Sometime in 1993 and 1994, [herein petitioner] Dolefil engaged the services of the [herein respondents] through Cannery Multi-purpose Cooperative. A cooperative which was organized through the initiative of Dolefil in order to fill in the vacuum created as a result of the dismissal of the regular employees of Dolefil sometime in 1990 to 1993.

The [respondents] were assigned at the Industrial Department of respondent Dolefil. All tools, implements and machineries used in performing their task such as: can processing attendant, feeder of canned pineapple at pineapple processing, nata de coco processing attendant, fruit cocktail processing

50


attendant, and etc. were provided by Dolefil. The cooperative does not have substantial capital and does not provide the [respondents] with the necessary tools to effectively perform their assigned task as the same are being provided by Dolefil.

The training and instructions received by the [respondents] were provided by Dolefil. Before any of the [respondents] will be allowed to work, he has to undergo and pass the training prescribed by Dolefil. As a matter of fact, the trainers are employees of Dolefil.

The [respondents] perform their assigned task inside the premises of Dolefil. At the job site, they were given specific task and assignment by Dolefil’s supervisors assigned to supervise the works and efficiency of the complainants. Just like the regular employees of Dolefil, [respondents] were subjected to the same rules and regulations observe [sic] inside company premises and to some extent the rules applied to the [respondents] by the company through its officers are even stricter.

The functions performed by the [respondents] are the same functions discharged by the regular employees of Dolefil. In fact, at the job site, the [respondents] were mixed with the regular workers of Dolefil. There is no difference in so far as the job performed by the regular workers of Dolefil and that of the [respondents].

Some of the [respondents] were deprived of their employment under the scheme of "stay home status" where they were advised to literally stay home and wait for further instruction to report anew for work. However, they remained in this condition for more than six months. Hence, they were constructively or illegally dismissed.

Respondents thus argued that they should be considered regular employees of petitioner given that: (1) they were performing jobs that were usually necessary and desirable in the usual business of petitioner; (2) petitioner exercised control over respondents, not only as to the results, but also as to the manner by which they performed their assigned tasks; and (3) CAMPCO, a labor-only contractor, was merely a conduit of petitioner. As regular employees of petitioner, respondents asserted that they were entitled to security of tenure and those placed on "stay home status" for more than six months had been constructively and illegally dismissed. Respondents further claimed entitlement to wage differential, moral damages, and attorney’s fees.

51


In their Supplemental Position Paper,15 respondents presented, in support of their Complaint, the Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994, finding that CAMPCO was a labor-only contractor and directing CAMPCO to cease and desist from any further labor-only contracting activities.

Petitioner, in its Position Paper16 filed before the NLRC, denied that respondents were its employees.

Petitioner explained that it found the need to engage external services to augment its regular workforce, which was affected by peaks in operation, work backlogs, absenteeism, and excessive leaves. It used to engage the services of individual workers for definite periods specified in their employment contracts and never exceeding one year. However, such an arrangement became the subject of a labor case,17 in which petitioner was accused of preventing the regularization of such workers. The Labor Arbiter who heard the case, rendered his Decision18 on 24 June 1994 declaring that these workers fell squarely within the concept of seasonal workers as envisaged by Article 280 of the Labor Code, as amended, who were hired by petitioner in good faith and in consonance with sound business practice; and consequently, dismissing the complaint against petitioner. The NLRC, in its Resolution,19 dated 14 March 1995, affirmed in toto the Labor Arbiter’s Decision and further found that the workers were validly and legally engaged by petitioner for "term employment," wherein the parties agreed to a fixed period of employment, knowingly and voluntarily, without any force, duress or improper pressure being brought to bear upon the employees and absent any other circumstance vitiating their consent. The said NLRC Resolution became final and executory on 18 June 1996. Despite the favorable ruling of both the Labor Arbiter and the NLRC, petitioner decided to discontinue such employment arrangement. Yet, the problem of petitioner as to shortage of workforce due to the peaks in operation, work backlogs, absenteeism, and excessive leaves, persisted. Petitioner then found a solution in the engagement of cooperatives such as CAMPCO to provide the necessary additional services.

Petitioner contended that respondents were owners-members of CAMPCO; that CAMPCO was a duly-organized and registered cooperative which had already grown into a multi-million enterprise; that CAMPCO was engaged in legitimate job-contracting with its own owners-members rendering the contract work; that under

52


the express terms and conditions of the Service Contract executed between petitioner (the principal) and CAMPCO (the contractor), the latter shall undertake the contract work on its own account, under its own responsibility, and according to its own manner and method free from the control and direction of the petitioner in all matters connected with the performance of the work, except as to the result thereof; and since CAMPCO held itself out to petitioner as a legitimate job contractor, respondents, as owners-members of CAMPCO, were estopped from denying or refuting the same.

Petitioner further averred that Department Order No. 10, amending the rules implementing Books III and VI of the Labor Code, as amended, promulgated by the DOLE on 30 May 1997, explicitly recognized the arrangement between petitioner and CAMPCO as permissible contracting and subcontracting, to wit –

Section 6. Permissible contracting and subcontracting. – Subject to the conditions set forth in Section 3(d) and (e) and Section 5 hereof, the principal may engage the services of a contractor or subcontractor for the performance of any of the following;

(a) Works or services temporarily or occasionally needed to meet abnormal increase in the demand of products or services, provided that the normal production capacity or regular workforce of the principal cannot reasonably cope with such demands;

(b) Works or services temporarily or occasionally needed by the principal for undertakings requiring expert or highly technical personnel to improve the management or operations of an enterprise;

(c) Services temporarily needed for the introduction or promotion of new products, only for the duration of the introductory or promotional period;

(d) Works or services not directly related or not integral to the main business or operation of the principal, including casual work, janitorial, security, landscaping, and messengerial services, and work not related to manufacturing processes in manufacturing establishments;

(e) Services involving the public display of manufacturer’s products which does not involve the act of selling or issuance of receipts or invoices;

53


(f) Specialized works involving the use of some particular, unusual, or peculiar skills, expertise, tools or equipment the performance of which is beyond the competence of the regular workforce or production capacity of the principal; and

(g) Unless a reliever system is in place among the regular workforce, substitute services for absent regular employees, provided that the period of service shall be coextensive with the period of absence and the same is made clear to the substitute employee at the time of engagement. The phrase "absent regular employees" includes those who are serving suspensions or other disciplinary measures not amounting to termination of employment meted out by the principal, but excludes those on strike where all the formal requisites for the legality of the strike have been prima facie complied with based on the records filed with the National Conciliation and Mediation Board.

According to petitioner, the services rendered by CAMPCO constituted permissible job contracting under the afore-quoted paragraphs (a), (c), and (g), Section 6 of DOLE Department Order No. 10, series of 1997.

After the parties had submitted their respective Position Papers, the Labor Arbiter promulgated its Decision20 on 11 June 1999, ruling entirely in favor of petitioner, ratiocinating thus –

After judicious review of the facts, narrated and supporting documents adduced by both parties, the undersigned finds [and] holds that CAMPCO is not engaged in labor-only contracting.

Had it not been for the issuance of Department Order No. 10 that took effect on June 22, 1997 which in the contemplation of Law is much later compared to the Order promulgated by the Undersecretary Cresencio Trajano of Department of [L]abor and Employment, the undersigned could safely declared [sic] otherwise. However, owing to the principle observed and followed in legal practice that the later law or jurisprudence controls, the reliance to Secretary Trajano’s order is overturned.

Labor-only contracting as amended by Department [O]rder No. 10 is defined in this wise:

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"Labor-only contracting is prohibited under this Rule is an arrangement where the contractor or subcontractor merely recruits, supplied [sic] or places workers to perform a job, work or service for a principal, and the following elements are present:

i) The contractor or sub-contractor does not have substantial capital or investment to actually perform the job, work, or service under its own account & responsibility, and

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

Verification of the records reveals that per Annexes "J" and "K" of [herein petitioner DolePhil’s] position paper, which are the yearly audited Financial Statement and Balance Sheet of CAMPCO shows [sic] that it has more than substantial capital or investment in order to qualify as a legitimate job contractor.

We likewise recognize the validity of the contract entered into and between CAMPCO and [petitioner] for the former to assists [sic] the latter in its operations and in the performance of odd jobs – such as the augmentation of regular manning particularly during peaks in operation, work back logs, absenteeism and excessive leave availment of respondent’s regular employees. The rule is well-settled that labor laws discourage interference with an employer’s judgment in the conduct of his business. Even as the law is solicitors [sic] 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 (Yuco Chemical Industries vs. Ministry of [L]abor, GR No. 75656, May 28, 1990).

CAMPCO being engaged in legitimate contracting, cannot therefore declared [sic] as guilty of labor-only contracting which [herein respondents] want us to believe.

The second issue is likewise answered in the negative. The reason is plain and simple[,] section 12 of Department [O]rder No. 10 states:

"Section 12. Employee-employer relationship. Except in cases provided for in Section 13, 14, 15 & 17, the contractor or subcontractor shall be considered the

55


employer of the contractual employee for purposes of enforcing the provisions of the Code."

The Resolution of NLRC 5th division, promulgated on March 14, 1 1995 [sic] categorically declares:

"Judging from the very nature of the terms and conditions of their hiring, the Commission finds the complainants to have been engaged to perform work, although necessary or desirable to the business of respondent company, for a definite period or what is community called TERM EMPLOYMENT. It is clear from the evidence and record that the nature of the business and operation of respondent company has its peaks and valleys and therefore, it is not difficult to discern, inclement weather, or high availment by regular workers of earned leave credits, additional workers categorized as casuals, or temporary, are needed to meet the exigencies." (Underlining in the original)

The validity of fixed-period employment has been consistently upheld by the Supreme [C]ourt in a long line of cases, the leading case of which is Brent School, Inc. vs. Zamora & Alegre, GR No. 48494, February 5, 1990. Thus at the end of the contract the employer-employee relationship is terminated. It behooves upon us to rule that herein complainants cannot be declared regular rank and file employees of the [petitioner] company.

Anent the third issue, [respondents] dismally failed to provide us the exact figures needed for the computation of their wage differentials. To simply alleged [sic] that one is underpaid of his wages is not enough. No bill of particulars was submitted. Moreover, the Order of RTWPB Region XI, Davao City dated February 21, 1996 exempts [petitioner] company from complying Wage Order No. 04 [sic] in so far as such exemption applies only to workers who are not covered by the Collective Bargaining Agreement, for the period January 1 to December 31, 1995,. [sic] In so far as [respondents] were not privies to the CBA, they were the workers referred to by RTWPB’s Order. [H]ence, [respondents’] claims for wage differentials are hereby dismissed for lack of factual basis.

We find no further necessity in delving into the issues raised by [respondents] regarding moral damages and attorney’s fees for being moot and academic because of the findings that CAMPCO does not engaged [sic] in labor-only

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contracting and that [respondents] cannot be declared as regular employees of [petitioner].

WHEREFORE, premises considered, judgment is hereby rendered in the above-entitled case, dismissing the complaint for lack of merit.

Respondents appealed the Labor Arbiter’s Decision to the NLRC, reiterating their position that they should be recognized as regular employees of the petitioner since CAMPCO was a mere labor-only contractor, as already declared in the previous Orders of DOLE Regional Director Parel, dated 19 October 1993, and DOLE Undersecretary Trajano, dated 15 September 1994, which already became final and executory. The NLRC, in its Resolution,21 dated 29 February 2000, dismissed the appeal and affirmed the Labor Arbiter’s Decision, reasoning as follows –

We find no merit in the appeal.

The concept of conclusiveness of judgment under the principle of "res judicata" means that where between the first case wherein judgment is rendered and the second case wherein such judgment is invoked, there is identity of parties, but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined and not as to matters merely involved therein (Viray, etc. vs. Marinas, et al., 49 SCRA 44). There is no denying that the order of the Department of Labor and Employment, Regional Office No. XI in case No. RI100-9310-RI-355, which the complainants perceive to have sealed the status of CAMPCO as labor-only contractor, proceeded from the visitorial and enforcement power of the Department Secretary under Article 128 of the Labor Code. Acting on reports that the cooperatives, including CAMPCO, that operated and offered services at [herein petitioner] company were engaging in labor-only contracting activities, that Office conducted a routinary inspection over the records of said cooperatives and consequently, found the latter to be engaging in labor-only contracting activities. This being so, [petitioner] company was not a real party-in-interest in said case, but the cooperatives concerned. Therefore, there is no identity of parties between said case and the present case which means that the afore-said ruling of the DOLE is not binding and conclusive upon [petitioner] company.

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It is not correct, however, to say, as the Labor Arbiter did, that the afore-said ruling of the Department of Labor and Employment has been overturned by Department Order No. 10. It is a basic principle that "once a judgment becomes final it cannot be disturbed, except for clerical errors or when supervening events render its execution impossible or unjust" (Sampaguita Garmens [sic] Corp. vs. NLRC, G. R. No. 102406, June 7, 1994). Verily, the subsequent issuance of Department Order No. 10 cannot be construed as supervening event that would render the execution of said judgment impossible or unjust. Department Order No. 10 refers to the ramification of some provisions of the Rules Implementing Articles 106 and 109 of the Labor Code, without substantially changing the definition of "labor-only" or "job’ contracting.

Well-settled is the rule that to qualify as an independent job contractor, one has either substantial capital "or" investment in the form of tools, equipment and machineries necessary to carry out his business (see Virginia Neri, et al. vs. NLRC, et al., G.R. Nos. 97008-89, July 23, 1993). CAMPCO has admittedly a paid-up capital of P4,562,470.25 and this is more than enough to qualify it as an independent job contractor, as aptly held by the Labor Arbiter.

WHEREFORE, the appeal is DISMISSED for lack of merit and the appealed decision is AFFIRMED.

Petition for Certiorari with the Court of Appeals

Refusing to concede defeat, respondents filed with the Court of Appeals a Petition for Certiorari under Rule 65 of the revised Rules of Civil Procedure, asserting that the NLRC acted without or in excess of its jurisdiction and with grave abuse of discretion amounting to lack of jurisdiction when, in its Resolution, dated 29 February 2000, it (1) ruled that CAMPCO was a bona fide independent job contractor with substantial capital, notwithstanding the fact that at the time of its organization and registration with CDA, it only had a paid-up capital of P6,600.00; and (2) refused to apply the doctrine of res judicata against petitioner. The Court of Appeals, in its Decision,22 dated 20 May 2002, granted due course to respondents’ Petition, and set aside the assailed NLRC Decision. Pertinent portions of the Court of Appeals Decision are reproduced below –

In the case at bench, it was established during the proceedings before the [NLRC] that CAMPCO has a substantial capital. However, having a substantial capital does

58


not per se qualify CAMPCO as a job contractor. In order to be considered an independent contractor it is not enough to show substantial capitalization or investment in the form of tools, equipment, machinery and work premises. The conjunction "and," in defining what a job contractor is, means that aside from having a substantial capital or investment in the form of tools, equipment, machineries, work premise, and other materials which are necessary in the conduct of his business, the contractor must be able to prove that it also carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof. [Herein petitioner DolePhil] has failed to prove, except for the substantial capital requirement, that CAMPCO has met the other requirements. It was not established that CAMPCO is engaged or carries on an independent business. In the performance of the respective tasks of workers deployed by CAMPCO with [petitioner], it was not established that CAMPCO undertook the contract of work it entered with [petitioner] under its own account and its own responsibility. It is [petitioner] who provides the procedures to be followed by the workers in the performance of their assigned work. The workers deployed by CAMPCO to [petitioner] performed activities which are directly related to the principal business or operations of the employer in which workers are habitually employed since [petitioner] admitted that these workers were engaged to perform the job of other regular employees who cannot report for work.

Moreover, [NLRC] likewise gravely erred in not giving weight to the Order dated 19 October 1993 issued by the Office of the Secretary of the Department of Labor and Employment, through Undersecretary Cresencio Trajano, which affirmed the findings of the Department of Labor and Employment Regional Office, Region XI, Davao City that Cannery Multi-Purpose Cooperative is one of the cooperatives engaged in labor-only contracting activities.

In the exercise of the visitorial and enforcement power of the Department of Labor and Employment, an investigation was conducted among the cooperatives organized and existing in Polomolok, South Cotabato, relative to labor-only contracting activities. One of the cooperatives investigated was Cannery Multi-Purpose Cooperative. After the investigation, the Department of Labor and

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Employment, Regional Office No. XI, Davao City, through its Regional Director, issued the Order dated 19 October 1993, stating:

"WHEREFORE, premises considered, ADVENTURER’S MULTI PURPOSE COOPERATIVE, HUMAN RESOURCE MULTI PURPOSE SKILLED COOPERATIVE and CANNERY MULTI PURPOSE COOPERATIVE are hereby declared to be engaged in labor only contracting which is a prohibited activity. The same cooperatives are therefore ordered to cease and desist from further engaging in such activities.

x x x x

SO ORDERED."

Cannery Multi Purpose Cooperative, together with the other cooperatives declared as engaged in labor-only contracting activity, appeal the above-findings to the Secretary of the Department of Labor and Employment. Their appeal was dismissed for lack of merit as follows:: [sic]

x x x x

[NLRC] held that CAMPCO, being not a real party-in interest in the above-case, the said ruling is not binding and conclusive upon [petitioner]. This Court, however, finds the contrary.

CAMPCO was one of the cooperatives investigated by the Department of Labor and Employment, Regional Office No. XI, Davao City, pursuant to Article 128 of the Labor Code. It was one of the appellants before the Secretary of the Department of Labor questioning the decision of the Regional Director of DOLE, Regional Office No. XI, Davao City. This Court noted that in the proceedings therein, and as mentioned in the decision rendered by Undersecretary Cresencio B. Trajano of the Department of Labor and Employment, Manila, regarding the cooperatives’ appeal thereto, the parties therein, including Cannery Multi-Purpose Cooperative, submitted to the said office their position papers and Articles of Cooperatives and Certification of Registrations [sic] on 30 August 1993. This is a clear indicia that CAMPCO participated in the proceedings therein. [NLRC], therefore, committed grave abuse of discretion amounting to lack or excess of jurisdiction when it held that CAMPCO was never a party to the said case.

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[Petitioner] invokes Section 6 of Department Order No. 10, series of 1997, issued by the Department of Labor and Employment which took effect on 22 June 1997. The said section identified the circumstances which are permissible job contracting, to wit:

x x x x

[Petitioner’s] main contention is based on the decisions rendered by the labor arbiter and [NLRC] which are both anchored on Department Order No. 10 issued by the Department of Labor and Employment. The said department order provided for several flexible working relations between a principal, a contractor or subcontractor and the workers recruited by the latter and deployed to the former. In the case at bench, [petitioner] posits that the engagement of [petitioner] of the workers deployed by CAMPCO was pursuant to D.O. No. 10, Series of 1997.

However, on 8 May 2001, the Department of Labor and Employment issued Department Order No. 3, series of 2001, revoking Department Order No. 10, series of 1997. The said department order took effect on 29 May 2001.

x x x x

Under Department Order No. 3, series of 2001, some contracting and outsourcing arrangements are no longer legitimate modes of employment relation. Having revoked Department Order No. 10, series of 1997, [petitioner] can no longer support its argument by relying on the revoked department order.

Considering that [CAMPCO] is not a job contractor, but one engaged in labor-only contracting, CAMPCO serves only as an agent of [petitioner] pursuant to par. (b) of Sec. 9, Rule VIII, Book III of the Implementing Rules and Regulations of the Labor Code, stating,

x x x x

However, the Court cannot declare that [herein respondents] are regular employees of [petitioner]. x x x

x x x x

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In the case at bench, although [respondents] were engaged to perform activities which are usually necessary or desirable in the usual business or trade of private respondent, it is apparent, however, that their services were engaged by [petitioner] only for a definite period. [Petitioner’s] nature of business and operation has its peaks. In order to meet the demands during peak seasons they necessarily have to engage the services of workers to work only for a particular season. In the case of [respondents], when they were deployed by CAMPCO with [petitioner] and were assigned by the latter at its cannery department, they were aware that they will be working only for a certain duration, and this was made known to them at the time they were employed, and they agreed to the same.

x x x x

The non-rehiring of some of the petitioners who were allegedly put on a "floating status’ is an indication that their services were no longer needed. They attained their "floating status" only after they have finished their contract of employment, or after the duration of the season that they were employed. The decision of [petitioner] in not rehiring them means that their services were no longer needed due to the end of the season for which they were hired. And this Court reiterates that at the time they were deployed to [petitioner’s] cannery division, they knew that the services they have to render or the work they will perform are seasonal in nature and consequently their employment is only for the duration of the season.

ACCORDINGLY, in view of the foregoing, the instant petition for certiorari is hereby GRANTED DUE COURSE. The decision dated 29 February 2000 and Resolution dated 19 December 2000 rendered by [NLRC] are herebySET ASIDE. In place thereof, it is hereby rendered that:

1. Cannery Multi-Purpose Cooperative is a labor-only contractor as defined under the Labor Code of the Philippines and its implementing rules and regulations; and that

2. DOLE Philippines Incorporated is merely an agent or intermediary of Cannery Multi-Purpose Cooperative.

All other claims of [respondents] are hereby DENIED for lack of basis.

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Both petitioner and respondents filed their respective Motions for Reconsideration of the foregoing Decision, dated 20 May 2002, prompting the Court of Appeals to promulgate an Amended Decision on 27 November 2003, in which it ruled in this wise:

This court examined again the documentary evidence submitted by the [herein petitioner] and we rule not to disturb our findings in our Decision dated May 20, 2002. It is our opinion that there was no competent evidence submitted that would show that CAMPCO is engaged to perform a specific and special job or service which is one of the strong indicators that an entity is an independent contractor. The articles of cooperation and by-laws of CAMPCO do not show that it is engaged in performing a specific and special job or service. What is clear is that it is a multi-purpose cooperative organized under RA No. 6938, nothing more, nothing less.

As can be gleaned from the contract that CAMPCO entered into with the [petitioner], the undertaking of CAMPCO is to provide [petitioner] with workforce by assisting the company in its daily operations and perform odd jobs as may be assigned. It is our opinion that CAMPCO merely acted as recruitment agency for [petitioner]. CAMPCO by supplying manpower only, clearly conducted itself as ‘labor-only" contractor. As can be gleaned from the service contract, the work performed by the [herein respondents] are directly related to the main business of the [petitioner]. Clearly, the requisites of "labor-only" contracting are present in the case at bench.

In view of the above ruling, we find it unnecessary to discuss whether the Order of Undersecretary Trajano finding that CAMPCO is a "labor-only" contractor is a determining factor or constitutes res judicata in the case at bench. Our findings that CAMPCO is a "labor-only" contractor is based on the evidence presented vis-à-vis the rulings of the Supreme Court on the matter.

Since, the argument that the [petitioner] is the real employer of the [respondents], the next question that must be answered is – what is the nature of the employment of the petitioners?

x x x x

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The afore-quoted [Article 280 of the Labor Code, as amended] provides for two kinds of employment, namely: (1) regular (2) casual. In our Decision, we ruled that the [respondents] while performing work necessary and desirable to the business of the [petitioner] are seasonal employees as their services were engaged by the [petitioner] for a definite period or only during peak season.

In the most recent case of Hacienda Fatima v. National Federation of Sugarcane Workers Food and General Trade, the Supreme Court ruled that for employees to be excluded from those classified as regular employees, it is not enough that they perform work or services that are seasonal in nature. They must have also been employedonly for the duration of one season. It is undisputed that the [respondents’] services were engaged by the [petitioner] since 1993 and 1994. The instant complaint was filed in 1996 when the [respondents] were placed on floating status. Evidently, [petitioner] employed the [respondents] for more than one season. Therefore, the general rule on regular employment is applicable. The herein petitioners who performed their jobs in the workplace of the [petitioner] every season for several years, are considered the latter’s regular employees for having performed works necessary and desirable to the business of the [petitioner]. The [petitioner’s] eventual refusal to use their services—even if they were ready, able and willing to perform their usual duties whenever these were available—and hiring other workers to perform the tasks originally assigned to [respondents] amounted to illegal dismissal of the latter. We thus, correct our earlier ruling that the herein petitioners are seasonal workers. They are regular employees within the contemplation of Article 280 of the Labor Code and thus cannot be dismissed except for just or authorized cause. The Labor Code provides that when there is a finding of illegal dismissal, the effect is that the employee dismissed shall be reinstated to his former position without loss of seniority rights with backwages from the date of his dismissal up to his actual reinstatement.

This court however, finds no basis for the award of damages and attorney’s fees in favor of the petitioners.

WHEREFORE, the Decision dated May 20, 2002 rendered by this Court is hereby AMENDED as follows:

1) [Petitioner] DOLE PHILIPPINES is hereby declared the employer of the [respondents].

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2) [Petitioner] DOLE PHILIPPINES is hereby declared guilty of illegal dismissal and ordered to immediately reinstate the [respondents] to their former position without loss of seniority rights and other benefits, and to pay each of the [respondents] backwages from the date of the filing of illegal dismissal on December 19, 1996 up to actual reinstatement, the same to be computed by the labor arbiter.

3) The claims for damages and attorney’s fees are hereby denied for lack of merit.

No costs.23

The Petition at Bar

Aggrieved by the Decision, dated 20 May 2002, and the Amended Decision, dated 27 November 2003, of the Court of Appeals, petitioner filed the instant Petition for Review on Certiorari under Rule 45 of the revised Rules of Civil Procedure, in which it made the following assignment of errors –

I.

THE COURT OF APPEALS HAS DEPARTED FROM THE USUAL COURSE OF JUDCIAL PROCEEDINGS WHEN IT MADE ITS OWN FACTUAL FINDINGS AND DISREGARDED THE UNIFORM AND CONSISTENT FACTUAL FINDINGS OF THE LABOR ARBITER AND THE NLRC, WHICH MUST BE ACCORDED GREAT WEIGHT, RESPECT AND EVEN FINALITY. IN SO DOING, THE COURT OF APPEALS EXCEEDED ITS AUTHORITY ON CERTIORARI UNDER RULE 65 OF THE RULES OF COURT.

II.

THE COURT OF APPEALS HAS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH THE CONSTITUTION, LAW, APPLICABLE RULES AND REGULATIONS AND DECISIONS OF THE SUPREME COURT IN NOT HOLDING THAT DEPARTMENT ORDER NO. 10, SERIES OF 1997 IS THE APPLICABLE REGULATION IN THIS CASE. IN GIVING RETROACTIVE APPLICATION TO DEPARTMENT ORDER NO. 3, SERIES OF 2001, THE COURT OF APPEALS VIOLATED THE CONSTITUTIONAL PROVISION AGAINST

65


IMPAIRMENT OF CONTRACTS AND DEPRIVED PETITIONER OF THE DUE PROCESS OF THE LAW.

III.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN GIVING WEIGHT TO THE ORDER DATED 19 OCTOBER 1993 ISSUED BY THE OFFICE OF SECRETARY OF LABOR, WHICH AFFIRMED THE FINDINGS OF THE DOLE REGIONAL OFFICE (REGION XI, DAVAO CITY) THAT CAMPCO IS ONE OF THE COOPERATIVES ENGAGED IN LABOR-ONLY CONTRACTING ACTIVITIES.

IV.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN NOT RULING THAT RESPONDENTS, BY ACTIVELY REPRESENTING THEMSELVES AND WARRANTING THAT THEY ARE ENGAGED IN LEGITIMATE JOB CONTRACTING, ARE BARRED BY THE EQUITABLE PRINCIPLE OF ESTOPPEL FROM ASSERTING THAT THEY ARE REGULAR EMPLOYEES OF PETITIONER.

V.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT CAMPCO IS ENGAGED IN THE PROHIBITED ACT OF "LABOR-ONLY CONTRACTING" DESPITE THERE BEING SUBSTANTIAL EVIDENCE TO THE CONTRARY.

VI.

THE COURT OF APPEALS HAS DETERMINED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND JURISPRUDENCE IN RULING THAT PETITIONER IS THE EMPLOYER OF RESPONDENTS AND THAT PETITIONER IS GUILTY OF ILLEGAL DISMISSAL.24

This Court’s Ruling

I

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Anent the first assignment of error, petitioner argues that judicial review under Rule 65 of the revised Rules of Civil Procedure is limited only to issues concerning want or excess or jurisdiction or grave abuse of discretion. The special civil action for certiorari is a remedy designed to correct errors of jurisdiction and not mere errors of judgment. It is the contention of petitioner that the NLRC properly assumed jurisdiction over the parties and subject matter of the instant case. The errors assigned by the respondents in their Petition for Certiorari before the Court of Appeals do not pertain to the jurisdiction of the NLRC; they are rather errors of judgment supposedly committed by the the NLRC, in its Resolution, dated 29 February 2000, and are thus not the proper subject of a petition for certiorari. Petitioner also posits that the Petition for Certiorari filed by respondents with the Court of Appeals raised questions of fact that would necessitate a review by the appellate court of the evidence presented by the parties before the Labor Arbiter and the NLRC, and that questions of fact are not a fit subject for a special civil action for certiorari.

It has long been settled in the landmark case of St. Martin Funeral Home v. NLRC,25 that the mode for judicial review over decisions of the NLRC is by a petition for certiorari under Rule 65 of the revised Rules of Civil Procedure. The different modes of appeal, namely, writ of error (Rule 41), petition for review (Rules 42 and 43), and petition for review on certiorari (Rule 45), cannot be availed of because there is no provision on appellate review of NLRC decisions in the Labor Code, as amended.26 Although the same case recognizes that both the Court of Appeals and the Supreme Court have original jurisdiction over such petitions, it has chosen to impose the strict observance of the hierarchy of courts. Hence, a petition for certiorari of a decision or resolution of the NLRC should first be filed with the Court of Appeals; direct resort to the Supreme Court shall not be allowed unless the redress desired cannot be obtained in the appropriate courts or where exceptional and compelling circumstances justify an availment of a remedy within and calling for the exercise by the Supreme Court of its primary jurisdiction.

The extent of judicial review by certiorari of decisions or resolutions of the NLRC, as exercised previously by the Supreme Court and, now, by the Court of Appeals, is described in Zarate v. Olegario,27 thus –

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The rule is settled that the original and exclusive jurisdiction of this Court to review a decision of respondent NLRC (or Executive Labor Arbiter as in this case) in a petition for certiorari under Rule 65 does not normally include an inquiry into the correctness of its evaluation of the evidence. Errors of judgment, as distinguished from errors of jurisdiction, are not within the province of a special civil action for certiorari, which is merely confined to issues of jurisdiction or grave abuse of discretion. It is thus incumbent upon petitioner to satisfactorily establish that respondent Commission or executive labor arbiter acted capriciously and whimsically in total disregard of evidence material to or even decisive of the controversy, in order that the extraordinary writ of certiorari will lie. By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is equivalent to lack of jurisdiction, and it must be shown that the discretion was exercised arbitrarily or despotically. For certiorari to lie, there must be capricious, arbitrary and whimsical exercise of power, the very antithesis of the judicial prerogative in accordance with centuries of both civil law and common law traditions.

The Court of Appeals, therefore, can grant the Petition for Certiorari if it finds that the NLRC, in its assailed decision or resolution, committed grave abuse of discretion by capriciously, whimsically, or arbitrarily disregarding evidence which is material or decisive of the controversy; and the Court of Appeals can not make this determination without looking into the evidence presented by the parties. Necessarily, the appellate court can only evaluate the materiality or significance of the evidence, which is alleged to have been capriciously, whimsically, or arbitrarily disregarded by the NLRC, in relation to all other evidence on record.

As this Court elucidated in Garcia v. National Labor Relations Commission28 --

[I]n Ong v. People, we ruled that certiorari can be properly resorted to where the factual findings complained of are not supported by the evidence on record. Earlier, in Gutib v. Court of Appeals, we emphasized thus:

[I]t has been said that a wide breadth of discretion is granted a court of justice in certiorari proceedings. The cases in which certiorari will issue cannot be defined, because to do so would be to destroy its comprehensiveness and usefulness. So wide is the discretion of the court that authority is not wanting to show that certiorari is more discretionary than either prohibition or mandamus. In the

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exercise of our superintending control over inferior courts, we are to be guided by all the circumstances of each particular case "as the ends of justice may require." So it is that the writ will be granted where necessary to prevent a substantial wrong or to do substantial justice.

And in another case of recent vintage, we further held:

In the review of an NLRC decision through a special civil action for certiorari, resolution is confined only to issues of jurisdiction and grave abuse of discretion on the part of the labor tribunal. Hence, the Court refrains from reviewing factual assessments of lower courts and agencies exercising adjudicative functions, such as the NLRC. Occasionally, however, the Court is constrained to delve into factual matters where, as in the instant case, the findings of the NLRC contradict those of the Labor Arbiter.

In this instance, the Court in the exercise of its equity jurisdiction may look into the records of the case and re-examine the questioned findings. As a corollary, this Court is clothed with ample authority to review matters, even if they are not assigned as errors in their appeal, if it finds that their consideration is necessary to arrive at a just decision of the case. The same principles are now necessarily adhered to and are applied by the Court of Appeals in its expanded jurisdiction over labor cases elevated through a petition for certiorari; thus, we see no error on its part when it made anew a factual determination of the matters and on that basis reversed the ruling of the NLRC.

II

The second assignment of error delves into the significance and application to the case at bar of the two department orders issued by DOLE. Department Order No. 10, series of 1997, amended the implementing rules of Books III and VI of the Labor Code, as amended. Under this particular DOLE department order, the arrangement between petitioner and CAMPCO would qualify as permissible contracting. Department Order No. 3, series of 2001, revoked Department Order No. 10, series of 1997, and reiterated the prohibition on labor-only contracting.

Attention is called to the fact that the acts complained of by the respondents occurred well before the issuance of the two DOLE department orders in 1997 and 2001. The Service Contract between DOLE and CAMPCO was executed on 17

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August 1993. Respondents started working for petitioner sometime in 1993 and 1994. While some of them continued to work for petitioner, at least until the filing of the Complaint, others were put on "stay home status" at various times in 1994, 1995, and 1996. Respondents filed their Complaint with the NLRC on 19 December 1996.

A basic rule observed in this jurisdiction is that no statute, decree, ordinance, rule or regulation shall be given retrospective effect unless explicitly stated.29 Since there is no provision at all in the DOLE department orders that expressly allowed their retroactive application, then the general rule should be followed, and the said orders should be applied only prospectively.

Which now brings this Court to the question as to what was the prevailing rule on labor-only contracting from 1993 to 1996, the period when the occurrences subject of the Complaint before the NLRC took place.

Article 106 of the Labor Code, as amended, permits legitimate job contracting, but prohibits labor-only contracting. The said provision reads –

ART. 106. Contractor or subcontractor. – Whenever an employer enters into a contract with another person for the performance of the former’s work, the employees of the contractor and of the latter’s subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to such employees to the extent of the work performed under the contract, in the same manner and extent that he is liable to employees directly employed by him.

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

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

To implement the foregoing provision of the Labor Code, as amended, Sections 8 and 9, Rule VIII, Book III of the implementing rules, in force since 1976 and prior to their amendment by DOLE Department Order No. 10, series of 1997, provided as follows –

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

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

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

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

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

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

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

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

Since these statutory and regulatory provisions were the ones in force during the years in question, then it was in consideration of the same that DOLE Regional Director Parel and DOLE Undesrsecretary Trajano issued their Orders on 19 September 1993 and 15 September 1994, respectively, both finding that CAMPCO was engaged in labor-only contracting. Petitioner, in its third assignment of error, questions the weight that the Court of Appeals gave these orders in its Decision, dated 20 May 2002, and Amended Decision, dated 27 November 2003.

III

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE Undersecretary Trajano, dated 15 September 1994, were issued pursuant to the visitorial and enforcement power conferred by the Labor Code, as amended, on the DOLE Secretary and his duly authorized representatives, to wit –

ART. 128. Visitorial and enforcement power. – (a) The Secretary of Labor or his duly authorized representatives, including labor regulation officers, shall have access to employer’s records and premises at any time of the day or night whenever work is being undertaken therein, and the right to copy therefrom, to question any employee and investigate any fact, condition or matter which may be necessary to determine violations or which may aid in the enforcement of this Code and of any labor law, wage order or rules and regulations pursuant thereto.

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(b) Notwithstanding the provisions of Articles 129 and 217 of this Code to the contrary, and in cases where the relationship of employer-employee still exists, the Secretary of Labor and Employment or his duly authorized representatives shall have the power to issue compliance orders to give effect to the labor standards provisions of this Code and other labor legislation based on the findings of labor employment and enforcement officers or industrial safety engineers made in the course of inspection. The Secretary or his duly authorized representatives shall issue writs of execution to the appropriate authority for the enforcement of their orders, except in cases where the employer contests the findings of the labor employment and enforcement officer and raises issues supported by documentary proofs which were not considered in the course of inspection.

An order issued by the duly authorized representative of the Secretary of Labor and Employment under this article may be appealed to the latter. In case said order involves a monetary award, an appeal by the employer may be perfected only upon the posting of a cash or surety bond issued by a reputable bonding company duly accredited by the Secretary of Labor and Employment in the amount equivalent to the monetary award in the order appealed from. (Emphasis supplied.)

Before Regional Director Parel issued his Order, dated 19 September 1993, a Task Force investigated the operations of cooperatives in Polomolok, South Cotabato, and submitted a report identifying six cooperatives that were engaged in labor-only contracting, one of which was CAMPCO. In a conference before the DOLE Regional Office, the cooperatives named by the Task Force were given the opportunity to explain the nature of their activities in relation to petitioner; and, the cooperatives, as well as petitioner, submitted to the DOLE Regional Office their position papers and other supporting documents to refute the findings of the Task Force. It was only after these procedural steps did Regional Director Parel issued his Order finding that three cooperatives, including CAMPCO, were indeed engaged in labor-only contracting and were directed to cease and desist from further engaging in such activities. On appeal, DOLE Undersecretary Trajano, by authority of the DOLE Secretary, affirmed Regional Director Parel’s Order. Upon denial of the Motion for Reconsideration filed by the cooperatives, and no further

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appeal taken therefrom, the Order of DOLE Undersecretary Trajano, dated 15 September 1994, became final and executory.

Petitioner avers that the foregoing Orders of the authorized representatives of the DOLE Secretary do not constitute res judicata in the case filed before the NLRC. This Court, however, believes otherwise and finds that the final and executory Orders of the DOLE Secretary or his authorized representatives should bind the NLRC.

It is obvious that the visitorial and enforcement power granted to the DOLE Secretary is in the nature of a quasi-judicial power. Quasi-judicial power has been described by this Court in the following manner –

Quasi-judicial or administrative adjudicatory power on the other hand is the power of the administrative agency to adjudicate the rights of persons before it. It is the power to hear and determine questions of fact to which the legislative policy is to apply and to decide in accordance with the standards laid down by the law itself in enforcing and administering the same law. The administrative body exercises its quasi-judicial power when it performs in a judicial manner an act which is essentially of an executive or administrative nature, where the power to act in such manner is incidental to or reasonably necessary for the performance of the executive or administrative duty entrusted to it. In carrying out their quasi-judicial functions the administrative officers or bodies are required to investigate facts or ascertain the existence of facts, hold hearings, weigh evidence, and draw conclusions from them as basis for their official action and exercise of discretion in a judicial nature. Since rights of specific persons are affected it is elementary that in the proper exercise of quasi-judicial power due process must be observed in the conduct of the proceedings.30 (Emphasis supplied.)

The DOLE Secretary, under Article 106 of the Labor Code, as amended, exercise quasi-judicial power, at least, to the extent necessary to determine violations of labor standards provisions of the Code and other labor legislation. He can issue compliance orders and writs of execution for the enforcement of his orders. As evidence of the importance and binding effect of the compliance orders of the DOLE Secretary, Article 128 of the Labor Code, as amended, further provides –

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ART. 128. Visitorial and enforcement power. –

x x x x

(d) It shall be unlawful for any person or entity to obstruct, impede, delay or otherwise render ineffective the orders of the Secretary of Labor or his duly authorized representatives issued pursuant to the authority granted under this article, and no inferior court or entity shall issue temporary or permanent injunction or restraining order or otherwise assume jurisdiction over any case involving the enforcement orders issued in accordance with this article.

The Orders of DOLE Regional Director Parel, dated 19 September 1993, and of DOLE Undersecretary Trajano, dated 15 September 1994, consistently found that CAMPCO was engaging in labor-only contracting. Such finding constitutes res judicata in the case filed by the respondents with the NLRC.

It is well-established in this jurisdiction that the decisions and orders of administrative agencies, rendered pursuant to their quasi-judicial authority, have upon their finality, the force and binding effect of a final judgment within the purview of the doctrine of res judicata. The rule of res judicata, which forbids the reopening of a matter once judicially determined by competent authority, applies as well to the judicial and quasi-judicial acts of public, executive or administrative officers and boards acting within their jurisdiction as to the judgments of courts having general judicial powers. The orderly administration of justice requires that the judgments or resolutions of a court or quasi-judicial body must reach a point of finality set by the law, rules and regulations, so as to write finis to disputes once and for all. This is a fundamental principle in the Philippine justice system, without which there would be no end to litigations.31

Res judicata has dual aspects, "bar by prior judgment" and "conclusiveness of judgment." This Court has previously clarified the difference between the two –

Section 49, Rule 39 of the Revised Rules of Court lays down the dual aspects of res judicata in actions in personam. to wit:

"Effect of judgment. - The effect of a judgment or final order rendered by a court or judge of the Philippines, having jurisdiction to pronounce the judgment or order, may be as follows:

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x x x x

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

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto."

Section 49(b) enunciates the first concept of res judicata known as "bar by prior judgment," whereas, Section 49(c) is referred to as "conclusiveness of judgment."

There is "bar by former judgment" when, between the first case where the judgment was rendered, and the second case where such judgment is invoked, there is identity of parties, subject matter and cause of action. When the three identities are present, the judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. But where between the first case wherein Judgment is rendered and the second case wherein such judgment is invoked, there is only identity of parties but there is no identity of cause of action, the judgment is conclusive in the second case, only as to those matters actually and directly controverted and determined, and not as to matters merely involved therein. This is what is termed "conclusiveness of judgment."

The second concept of res judicata, conclusiveness of judgment, is the one applicable to the case at bar.

The same parties who participated in the proceedings before the DOLE Regional Office are the same parties involved in the case filed before the NLRC. CAMPCO, on behalf of its members, attended the conference before the DOLE Regional Office; submitted its position paper; filed an appeal with the DOLE Secretary of the Order of DOLE Regional Director Parel; and moved for reconsideration of the subsequent Order of DOLE Undersecretary Trajano. Petitioner, although not expressly named as a respondent in the DOLE investigation, was a necessary party thereto, considering that CAMPCO was rendering services to petitioner

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solely. Moreover, petitioner participated in the proceedings before the DOLE Regional Office, intervening in the matter through a letter sent by its Senior Legal Officer, dated 24 May 1993, and submitting its own position paper.

While the causes of action in the proceedings before the DOLE and the NLRC differ, they are, in fact, very closely related. The DOLE Regional Office conducted an investigation to determine whether CAMPCO was violating labor laws, particularly, those on labor-only contracting. Subsequently, it ruled that CAMPCO was indeed engaging in labor-only contracting activities, and thereafter ordered to cease and desist from doing so. Respondents came before the NLRC alleging illegal dismissal by the petitioner of those respondents who were put on "stay home status," and seeking regularization of respondents who were still working for petitioner. The basis of their claims against petitioner rests on the argument that CAMPCO was a labor-only contractor and, thus, merely an agent or intermediary of petitioner, who should be considered as respondents’ real employer. The matter of whether CAMPCO was a labor-only contractor was already settled and determined in the DOLE proceedings, which should be conclusive and binding upon the NLRC. What were left for the determination of the NLRC were the issues on whether there was illegal dismissal and whether respondents should be regularized.

This Court also notes that CAMPCO and DOLE still continued with their Service Contract despite the explicit cease and desist orders rendered by authorized DOLE officials. There is no other way to look at it except that CAMPCO and DOLE acted in complete defiance and disregard of the visitorial and enforcement power of the DOLE Secretary and his authorized representatives under Article 128 of the Labor Code, as amended. For the NLRC to ignore the findings of DOLE Regional Director Parel and DOLE Undersecretary Trajano is an unmistakable and serious undermining of the DOLE officials’ authority.

IV

In petitioner’s fourth assignment of error, it points out that the Court of Appeals erred in not holding respondents estopped from asserting that they were regular employees of petitioner since respondents, as owners-members of CAMPCO, actively represented themselves and warranted that they were engaged in legitimate job contracting.

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This Court cannot sustain petitioner’s argument.

It is true that CAMPCO is a cooperative composed of its members, including respondents. Nonetheless, it cannot be denied that a cooperative, as soon as it is registered with the CDA, attains a juridical personality of its own,32separate and distinct from its members; much in the same way that a corporation has a juridical personality separate and distinct from its stockholders, known as the doctrine of corporate fiction. The protection afforded by this doctrine is not absolute, but the exception thereto which necessitates the piercing of the corporate veil can only be made under specified circumstances. In Traders Royal Bank v. Court of Appeals,33 this Court ruled that –

Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this is merely an equitable remedy, and maybe awarded only in cases when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a person.

Piercing the veil of corporate entity requires the court to see through the protective shroud which exempts its stockholders from liabilities that ordinarily, they could be subject to, or distinguishes one corporation from a seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another, disregarding, thus, his, her, or its rights. It is the corporate entity which the law aims to protect by this doctrine.

Using the above-mentioned guidelines, is petitioner entitled to a piercing of the "cooperative identity" of CAMPCO? This Court thinks not.

It bears to emphasize that the piercing of the corporate veil is an equitable remedy, and among the maxims of equity are: (1) he who seeks equity must do equity, and (2) he who comes into equity must come with clean hands. Hence, a litigant may be denied relief by a court of equity on the ground that his conduct has been inequitable, unfair, dishonest, fraudulent, or deceitful as to the controversy in issue.34

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Petitioner does not come before this Court with clean hands. It is not an innocent party in this controversy.

Petitioner itself admitted that it encouraged and even helped the establishment of CAMPCO and the other cooperatives in Polomolok, South Cotabato. These cooperatives were established precisely to render services to petitioner. It is highly implausible that the petitioner was lured into entering into the Service Contract with CAMPCO in 1993 on the latter’s misrepresentation and false warranty that it was an independent job contractor. Even if it is conceded that petitioner was indeed defrauded into believing that CAMPCO was an independent contractor, then the DOLE proceedings should have placed it on guard. Remember that petitioner participated in the proceedings before the DOLE Regional Office, it cannot now claim ignorance thereof. Furthermore, even after the issuance of the cease and desist order on CAMPCO, petitioner still continued with its prohibited service arrangement with the said cooperative. If petitioner was truly defrauded by CAMPCO and its members into believing that the cooperative was an independent job contractor, the more logical recourse of petitioner was to have the Service Contract voided in the light of the explicit findings of the DOLE officials that CAMPCO was engaging in labor-only contracting. Instead, petitioner still carried on its Service Contract with CAMPCO for several more years thereafter.

V

As previously discussed, the finding of the duly authorized representatives of the DOLE Secretary that CAMPCO was a labor-only contractor is already conclusive. This Court cannot deviate from said finding.

This Court, though, still notes that even an independent review of the evidence on record, in consideration of the proper labor statutes and regulations, would result in the same conclusion: that CAMPCO was engaged in prohibited activities of labor-only contracting.

The existence of an independent and permissible contractor relationship is generally established by the following criteria: whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work

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to another; the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the premises tools, appliances, materials and labor; and the mode, manner and terms of payment.35

While there is present in the relationship of petitioner and CAMPCO some factors suggestive of an independent contractor relationship (i.e., CAMPCO chose who among its members should be sent to work for petitioner; petitioner paid CAMPCO the wages of the members, plus a percentage thereof as administrative charge; CAMPCO paid the wages of the members who rendered service to petitioner), many other factors are present which would indicate a labor-only contracting arrangement between petitioner and CAMPCO.36

First, although petitioner touts the multi-million pesos assets of CAMPCO, it does well to remember that such were amassed in the years following its establishment. In 1993, when CAMPCO was established and the Service Contract between petitioner and CAMPCO was entered into, CAMPCO only had P6,600.00 paid-up capital, which could hardly be considered substantial.37 It only managed to increase its capitalization and assets in the succeeding years by continually and defiantly engaging in what had been declared by authorized DOLE officials as labor-only contracting.

Second, CAMPCO did not carry out an independent business from petitioner. It was precisely established to render services to petitioner to augment its workforce during peak seasons. Petitioner was its only client. Even as CAMPCO had its own office and office equipment, these were mainly used for administrative purposes; the tools, machineries, and equipment actually used by CAMPCO members when rendering services to the petitioner belonged to the latter.

Third, petitioner exercised control over the CAMPCO members, including respondents. Petitioner attempts to refute control by alleging the presence of a CAMPCO supervisor in the work premises. Yet, the mere presence within the premises of a supervisor from the cooperative did not necessarily mean that CAMPCO had control over its members. Section 8(1), Rule VIII, Book III of the implementing rules of the Labor Code, as amended, required for permissible job contracting that the contractor undertakes the contract work

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on his account, under his own responsibility, according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof. As alleged by the respondents, and unrebutted by petitioner, CAMPCO members, before working for the petitioner, had to undergo instructions and pass the training provided by petitioner’s personnel. It was petitioner who determined and prepared the work assignments of the CAMPCO members. CAMPCO members worked within petitioner’s plantation and processing plants alongside regular employees performing identical jobs, a circumstance recognized as an indicium of a labor-only contractorship.38

Fourth, CAMPCO was not engaged to perform a specific and special job or service. In the Service Contract of 1993, CAMPCO agreed to assist petitioner in its daily operations, and perform odd jobs as may be assigned. CAMPCO complied with this venture by assigning members to petitioner. Apart from that, no other particular job, work or service was required from CAMPCO, and it is apparent, with such an arrangement, that CAMPCO merely acted as a recruitment agency for petitioner. Since the undertaking of CAMPCO did not involve the performance of a specific job, but rather the supply of manpower only, CAMPCO clearly conducted itself as a labor-only contractor.39

Lastly, CAMPCO members, including respondents, performed activities directly related to the principal business of petitioner. They worked as can processing attendant, feeder of canned pineapple and pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant, and etc., functions which were, not only directly related, but were very vital to petitioner’s business of production and processing of pineapple products for export.

The findings enumerated in the preceding paragraphs only support what DOLE Regional Director Parel and DOLE Undersecretary Trajano had long before conclusively established, that CAMPCO was a mere labor-only contractor.

VI

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The declaration that CAMPCO is indeed engaged in the prohibited activities of labor-only contracting, then consequently, an employer-employee relationship is deemed to exist between petitioner and respondents, since CAMPCO shall be considered as a mere agent or intermediary of petitioner.

Since respondents are now recognized as employees of petitioner, this Court is tasked to determine the nature of their employment. In consideration of all the attendant circumstances in this case, this Court concludes that respondents are regular employees of petitioner.

Article 280 of the Labor Code, as amended, reads –

ART. 280. Regular and Casual Employment. – The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary and 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 engagement of the employee or where the work or services to be performed is seasonal in nature and the employment is for the duration of the season.

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

This Court expounded on the afore-quoted provision, thus –

The primary standard, therefore, of determining a regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. 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 her performance is not continuous or merely intermittent, the law

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deems the repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of the activity to the business. Hence, the employment is also considered regular, but only with respect to such activity and while such activity exists.40

In the instant Petition, petitioner is engaged in the manufacture and production of pineapple products for export.1âwphi1Respondents rendered services as processing attendant, feeder of canned pineapple and pineapple processing, nata de coco processing attendant, fruit cocktail processing attendant, and etc., functions they performed alongside regular employees of the petitioner. There is no doubt that the activities performed by respondents are necessary or desirable to the usual business of petitioner.

Petitioner likewise want this Court to believe that respondents’ employment was dependent on the peaks in operation, work backlogs, absenteeism, and excessive leaves. However, bearing in mind that respondents all claimed to have worked for petitioner for over a year, a claim which petitioner failed to rebut, then respondent’s continued employment clearly demonstrates the continuing necessity and indispensability of respondents’ employment to the business of petitioner.

Neither can this Court apply herein the ruling of the NLRC in the previous case involving petitioner and the individual workers they used to hire before the advent of the cooperatives, to the effect that the employment of these individual workers were not regular, but rather, were valid "term employments," wherein the employer and employee knowingly and voluntarily agreed to employment for only a limited or specified period of time. The difference between that case and the one presently before this Court is that the members of CAMPCO, including respondents, were not informed, at the time of their engagement, that their employment shall only be for a limited or specified period of time. There is absence of proof that the respondents were aware and had knowingly and voluntarily agreed to such term employment. Petitioner did not enter into individual contracts with the CAMPCO members, but executed a Service Contract with CAMPCO alone. Although the Service Contract of 1993 stated that it shall be for a specific period, from 1 July to 31 December 1993, petitioner and CAMPCO continued the service arrangement beyond 1993. Since there was no written renewal of the Service Contract,41 there was no further indication that the

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engagement by petitioner of the services of CAMPCO members was for another definite or specified period only.

Respondents, as regular employees of petitioner, are entitled to security of tenure. They could only be removed based on just and authorized causes as provided for in the Labor Code, as amended, and after they are accorded procedural due process. Therefore, petitioner’s acts of placing some of the respondents on "stay home status" and not giving them work assignments for more than six months were already tantamount to constructive and illegal dismissal.42

In summary, this Court finds that CAMPCO was a labor-only contractor and, thus, petitioner is the real employer of the respondents, with CAMPCO acting only as the agent or intermediary of petitioner. Due to the nature of their work and length of their service, respondents should be considered as regular employees of petitioner. Petitioner constructively dismissed a number of the respondents by placing them on "stay home status" for over six months, and was therefore guilty of illegal dismissal. Petitioner must accord respondents the status of regular employees, and reinstate the respondents who it constructively and illegally dismissed, to their previous positions, without loss of seniority rights and other benefits, and pay these respondents’ backwages from the date of filing of the Complaint with the NLRC on 19 December 1996 up to actual reinstatement.

WHEREFORE, in view of the foregoing, the instant Petition is DENIED and the Amended Decision, dated 27 November 2003, rendered by the Court of Appeals in CA-G.R. SP No. 63405 is AFFIRMED.

Costs against the petitioner.

SO ORDERED.

MINITA V. CHICO-NAZARIOAssociate Justice

WE CONCUR:

ARTEMIO V. PANGANIBANChief JusticeChairperson

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CONSUELO YNARES-SANTIAGOAssociate Justice

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

ROMEO J. CALLEJO, SR.Associate Justice

C E R T I F I C A T I O N

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the

case was assigned to the writer of the opinion of the Court’s Division.

ARTEMIO V. PANGANIBANChief Justice


Manila

THIRD DIVISION

G.R. No. 131247 January 25, 1999

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PRUBANKERS ASSOCIATION, petitioner, vs.PRUDENTIAL BANK & TRUST COMPANY, respondent.

PANGANIBAN, J.:

Wage distortion presupposes an increase in the compensation of the lower ranks in an office hierarchy wirhout a corresponding raise for higher-tiered employees in the same region of the country, resulting in the elimination or the severe diminution of the distinction between the two groups. Such distortion does not arise when a wage order gives employees in one branch of a bank higher compensation than that given to their counterparts in other regions occupying the same pay scale, who are not covered by said wage order. In short, the implementation of wage orders in one region but not in others does not in itself necessarily result in wage distortion.

The Case

Before us is a Petition for Review on Certiorari, challenging the November 6, 1997 Decision 1 of the Court of Appeals in CA-GR SP No. 42525. The dispositive portion of the challenged Decision reads:

WHEREFORE, the petition is GRANTED. The assailed decision of the Voluntary Arbitration Committee dated June 18, 1996 is hereby REVERSED and SET ASIDE for having been issued with grave abuse of discretion tantamount to lack of or excess of jurisdiction, and a new judgment is rendered finding that no wage distortion resulted from the petitioner's separate and regional implementation of Wage Order No. VII-03 at its Cebu, Mabolo and P. del Rosario.

The June 18, 1996 Decision of the Voluntary Arbitration Commitee, 2 which the Court of Appeals reversed and set aside, disposed as follows:

WHEREFORE, it is hereby ruled that the Bank's separate and regional implementation of Wage Order No. VII-03 at its Cebu, Mabolo and P. del Rosario branches created a wage distortion in the Bank nationwide which should be resolved in accordance with Art. 124 of the Labor Code. 3

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The Facts

The facts of the case are summarized by the Court of Appeals thus:

On November 18, 1993, the Regional Tripartite Wages and Productivity Board of Region V issued Wage Order No. RB 05-03 which provided for a Cost of Living Allowance (COLA) to workers in the private sector who ha[d] rendered service for at least three (3) months before its effectivity, and for the same period [t]hereafter, in the following categories: SEVENTEEN PESOS AND FIFTY CENTAVOS (P17.50) in the cities of Naga and Legaspi; FIFTEEN PESOS AND FIFTY CENTAVOS (P15.50) in the municipalities of Tabaco, Daraga, Pili and the city of Iriga; and TEN PESOS (P10.00) for all other areas in the Bicol Region.

Subsequently on November 23, 1993, the Regional Tripartite Wages and Productivity Board of Region VII issued Wage Order No. RB VII-03, which directed the integration of the COLA mandated pursuant to Wage Order No. RO VII-02-A into the basic pay of all workers. It also established an increase in the minimum wage rates for all workers and and employees in the private sector as follows: by Ten Pesos (P10.00) in the cities of Cebu, Mandaue and Lapulapu; Five Pesos (P5.00) in the municipalities of Compostela, Liloan, Consolacion, Cordova, Talisay, Minglanilla, Naga and the cities of Davao, Toledo, Dumaguete, Bais, Canlaon and Tagbilaran.

The petitioner then granted a COLA of P17.50 to its employees at its Naga Branch, the only branch covered by Wage Order No. RB 5-03, and integrated the P150.00 per month COLA into the basic pay of its rank-and-file employees at its Cebu, Mabolo and P. del Rosario branches, the branches covered by Wage Order No. RB VII-03.

On June 7, 1994, respondent Prubankers Association wrote the petitioner requesting that the Labor Management Committee be immediately convened to discuss and resolve the alleged wage distortion created in the salary structure upon the implementation of the said wage orders. Respondent Association then demanded in the Labor Management Committee meetings that the petitioner extend the application of the wage orders to its employees outside Regions V and

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VII, claiming that the regional implementation of the said orders created a wage distortion in the wage rates of petitioner's employees nationwide. As the grievance could not be settled in the said meetings, the parties agreed to submit the matter to voluntary arbitration. The Arbitration Committee formed for that purpose was composed of the following: public respondent Froilan M. Bacungan as Chairman, with Attys. Domingo T. Anonuevo and Emerico O. de Guzman as members. The issue presented before the Committee was whether or not the bank's separate and regional implementation of Wage Order No. 5-03 at its Naga Branch and Wage Order No. VII-03 at its Cebu, Mabolo and P. del Rosario branches, created a wage distortion in the bank nationwide.

The Arbitration Committee on June 18, 1996 rendered questioned decision. 4

Ruling of the Court of Appeals

In ruling that there was no wage distortion, the Court of Appeals held that the variance in the salary rates of employees in different regions of the country was justified by RA 6727. It noted that "the underlying considerations in issuing the wage orders are diverse, based on the distinctive situations and needs existing in each region. Hence, there is no basis to apply the salary increases imposed by Wage Order No. VII-03 to employees outside of Region VII." Furthermore, the Court of Appeals ruled that "the distinctions between each employee group in the region are maintained, as all employees were granted an increase in minimum wage rate. 5

The Issues

In its Memorandum, petitioner raises the following issues: 6

I

Whether or not the Court of Appeals departed from the usual course of judicial procedure when it disregarded the factual findings of the Voluntary Arbitration Committee as to the existence of wage distortion.

II

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Whether or not the Court of Appeals committed grave error in law when it ruled that wage distortion exists only within a region and not nationwide.

III

Whether or not the Court of Appeals erred in implying that the term "establishment" as used in Article 125 of the Labor Code refers to the regional branches of the bank and not to the bank as a whole.

The main issue is whether or not a wage distortion resulted from respondent's implementation of the aforecited Wage Orders. As a preliminary matter, we shall also take up the question of forum-shopping.

The Court's Ruling

The petition is devoid of merit. 7

Preliminary Issue: Forum-Shopping

Respondent asks for the dismissal of the petition because petitioner allegedly engaged in forum-shopping. It maintains that petitioner failed to comply with Section 2 of Rule 42 of the Rules of Court, which requires that parties must certify under oath that they have not commenced any other action involving the same issues in the Supreme Court, the Court of Appeals, or different divisions thereof, or any other tribunal or agency; if there is such other action or proceeding, they must state the status of the same; and if they should thereafter learn that a similar action or proceeding has been filed or is pending before the said courts, they should promptly inform the aforesaid courts or any other tribunal or agency within five days therefrom. Specifically, petitioner accuses respondent of failing to inform this Court of the pendency of NCMB-NCR-RVA-O4-012-97 entitled "In Re: Voluntary Arbitration between Prudential Bank and Prubankers Association" (hereafter referred to as "voluntary arbitration case"), an action involving issues allegedly similar to those raised in the present controversy.

In its Reply, petitioner effectively admits that the voluntary arbitration case was already pending when it filed the present petition. However, it claims no violation of the rule against forum-shopping, because there is no identity of causes of action and issues between the two cases.

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We sustain the respondent. The rule on forum-shopping was first included in Section 17 of the Interim Rules and Guidelines issued by this Court on January 11, 1983, which imposed a sanction in this wise: "A violation of the rule shall constitute contempt of court and shall be a cause for the summary dismissal of both petitions, without prejudice to the taking of appropriate action against the counsel or party concerned." Thereafter, the Court restated the rule in Revised Circular No. 28-91 and Administrative Circular No. 04-94. Ultimately, the rule was embodied in the 1997 amendments to the Rules of Court.

As explained by this Court in First Philippine International Bank v. Court of Appeals, 8 forum-shopping exists where the elements of litis pendentia are present, and where a final judgment in one case will amount to res judicata in the other. Thus, there is forum-shopping when, between an action pending before this Court and another one, there exist: "a) identity of parties, or at least such parties as represent the same interests in both actions, b) identity of rights asserted and relief prayed for, the relief being founded on the same facts, and c) the identity of the two preceding particulars is such that any judgement rendered in the other action, will, regardless of which party is successful amount to res judicata in the action under consideration; said requisites also constitutive of the requisites for auter action pendant or lis pendens." 9 Another case elucidates the consequence of forum-shopping: "[W]here a litigant sues the same party against whom another action or actions for the alleged violation of the same right and the enforcement of the same relief is/are still pending, the defense oflitis pendentia in one case is a bar to the others; and, a final judgment in one would constitute res judicata and thus would cause the dismissal of the rest." 10

The voluntary arbitration case involved the issue of whether the adoption by the Bank of regionalized hiring rates was valid and binding. On the other hand, the issue now on hand revolves around the existence of a wage distortion arising from the Bank's separate and regional implementation of the two Wage Orders in the affected branches. A closer look would show that, indeed, the requisites of forum-shopping are present.

First, there is identity of parties. Both cases are between the Bank and the Association acting on behalf of all its members. Second, although the respective issues and reliefs prayed for in the two cases are stated differently, both actions boil down to one single issue: the validity of the Bank's regionalization of its wage

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structure based on RA 6727. Even if the voluntary arbitration case calls for striking, down the Bank's regionalized hiring scheme while the instant petition calls for the correction of the alleged wage distortion caused by the regional implementation of Wage Order No. VII-03, the ultimate relief prayed for in both cases is the maintenance of the Bank's national wage structure. Hence, the final disposition of one would constitute res judicata in the other. Thus, forum-shopping is deemed to exist and, on this basis, the summary dismissal of both actions is indeed warranted.

Nonetheless, we deem it appropriate to pass upon the main issue on its merit in view of its importance.

Main Issue: Wage Distortion

The statutory definition of wage distortion is found in Article 124 of the Labor Code, as amended by Republic Act No. 6727, which reads:

Art. 124. Standards/Criteria for Minimum Wage Fixing — . . .

As used herein, a wage distortion shall mean a situation where an increase in prescribed wage results in the elimination of severe contraction of intentional quantitative differences in wage or salary rates between and among employee groups in an establishment as to effectively obliterate the distinctions embodied in such wage structure based on skills, length of service, or other logical bases of differentiation.

Elaborating on this statutory definition, this Court ruled: "Wage distortion presupposes a classification of positions and ranking of these positions at various levels. One visualizes a hierarchy of positions with corresponding ranks basically in terms of wages and other emoluments. Where a significant change occurs at the lowest level of positions in terms of basic wage without a corresponding change in the other level in the hierarchy of positions, negating as a result thereof the distinction between one level of position from the next higher level, and resulting in a parity between the lowest level and the next higher level or rank, between new entrants and old hires, there exists a wage distortion. . . . . The concept of a wage distortion assumes an existing grouping or classification of employees which establishes distinctions among such employees on some

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relevant or legitimate basis. This classification is reflected in a differing wage rate for each of the existing classes of employees" 11

Wage distortion involves four elements:

1. An existing hierarchy of positions with corresponding salary rates

2. A significant change in the salary rate of a lower pay class without a concomitant increase in the salary rate of a higher one

3. The elimination of the distinction between the two levels

4. The existence of the distortion in the same region of the country

In the present case, it is clear that no wage distortion resulted when respondent implemented the subject Wage Orders in the covered branches. In the said branches, there was an increase in the salary rates of all pay classes. Furthermore, the hierarchy of positions based on skills, lengh of service and other logical bases of differentiation was preserved. In other words, the quantitative difference in compensation between different pay classes remained the same in all branches in the affected region. Put differently, the distinction between Pay Class 1 and Pay Class 2, for example, was not eliminated as a result of the implementation of the two Wage Orders in the said region. Hence, it cannot be said that there was a wage distortion.

Petitioner argues that a wage distortion exists, because the implementation of the two Wage Orders has resulted in the discrepancy in the compensation of employees of similar pay classification in different regions. Hence, petitioner maintains that, as a result of the two Wage Orders, the employees in the affected regions have higher compensation than their counterparts of the same level in other regions. Several tables are presented by petitioner to illustrate that the employees in the regions covered by the Wage Orders are receiving more than their counterparts in the same pay scale in other regions.

The Court is not persuaded. A wage parity between employees in different rungs, is not at issue here, but a wage disparity between employees in the same rung but located in different regions of the country.

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Contrary to petitioner's postulation, a disparity in wages between employees holding similar positions but in different regions does not constitute wage distortion as contemplated by law. As previously enunciated, it is the hierarchy of positions and the disparity of their corresponding wages and other emoluments that are sought to be preserved by the concept of wage distortion. Put differently, a wage distortion arises when a wage order engenders wage parity between employees in different rungs of the organizational ladder of the same establishment. It bears emphasis that wage distortion involves a parity in the salary rates of different pay classes which, as a result, eliminates the distinction between the different ranks in the same region.

Different Regional Wages

Mandated by RA 6727

Petitioner's claim of wage distortion must also be denied for one other reason. The difference in wages between employees in the same pay scale in different regions is not the mischief sought to be banished by the law. In fact, Republic Act No. 6727 (the Wage Rationalization Act), recognizes "existing regional disparities in the cost of living." Section 2 of said law provides:

Sec 2. It is hereby declared the policy of the State to rationalize the fixing of minimum wages and to promote productivity-improvement and gain-sharing measures to ensure a decent standard of living for the workers and their families; to guarantee the rights of labor to its just share in the fruits of production; to enhance employment generation in the countryside through industry dispersal; and to allow business and industry reasonable returns on investment, expansion and growth.

The State shall promote collective bargaining as the primary mode of settling wages and other terms and conditions of employment; and whenever necessary, the minimum wage rates shall be adjusted in a fair and equitable manner, considering existing regional disparities in the cost of living and other socio-economic factors and the national economic and social development plans.

RA 6727 also amended Article 124 of the Labor Code, thus:

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Art. 124. Standards/Criteria for Minimum Wage Fixing. — The regional minimum wages to be established by the Regional Board shall be as nearly adequate as is economically feasible to maintain the minimum standards of living necessary for the health, efficiency and general well-being of the employees within the frame work of the national economic and social development program. In the determination of such regional minimum wages, the Regional Board shall, among other relevant factors, consider the following:

a. The demand for living wages;b. Wage adjustment vis-a-vis the consumer price index;c. The cost of living and changes or increases therein;d. The needs of workers and their families;e. The need to induce industries to invest in the countryside;f. Improvements in standards of living;g. The prevailing wage levels;h. Fair return of the capital invested and capacity to pay of employers;

I. Effects on employment generation and family income; andII. The equitable distribution of income and wealth along the imperatives

of social and economic development.

From the above-quoted rationale of the law, as well as the criteria enumerated, a disparity in wages between employees with similar positions in different regions is necessarily expected. In insisting that the employees of the same pay class in different regions should receive the same compensation, petitioner has apparently misunderstood both the meaning of wage distortion and the intent of the law to regionalize wage rates.

It must be understood that varying in each region of the country are controlling factors such as the cost of living; supply and demand of basic goods, services and necessities; and the purchasing power of the peso. Other considerations underscore the necessity of the law. Wages in some areas may be increased in order to prevent migration to the National Capital Region and, hence, to decongest the metropolis. Therefore, what the petitioner herein bewails is precisely what the law provides in order to achieve its purpose.

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Petitioner claims that it "does not insist that the Regional Wage Boards created pursuant to RA 6727 do not have the authority to issue wage orders based on the distinctive situations and needs existing in each region. So also, . . . it does not insist that the [B]ank should not implement regional wage orders. Neither does it seek to penalize the Bank for following Wage Order VII-03. . . . What it simply argues is that it is wrong for the Bank to peremptorily abandon a national wage structure and replace the same with a regionalized structure in violation of the principle of equal pay for equal work. And, it is wrong to say that its act of abandoning its national wage structure is mandated by law."

As already discussed above, we cannot sustain this argument. Petitioner contradicts itself in not objecting, on the one hand, to the right of the regional wage boards to impose a regionalized wage scheme; while insisting, on the other hand, on a national wage structure for the whole Bank. To reiterate, a uniform national wage structure is antithetical to the purpose of RA 6727.

The objective of the law also explains the wage disparity in the example cited by petitioner: Armae Librero, though only in Pay Class 4 in Mabolo, was, as a result of the Wage Order, receiving more than Bella Cristobal, who was already in Pay Class 5 in Subic. 12 RA 6727 recognizes that there are different needs for the different situations in different regions of the country. The fact that a person is receiving more in one region does not necessarily mean that he or she is better off than a person receiving less in another region. We must consider, among others, such factors as cost of living, fulfillment of national economic goals, and standard of living. In any event, this Court, in its decisions, merely enforces the law. It has no power to pass upon its wisdom or propriety.

Equal Pay for Equal Work

Petitioner also avers that the implementation of the Wage Order in only one region violates the equal-pay-for-equal-work principle. This is not correct. At the risk of being repetitive, we stress that RA 6727 mandates that wages in every region must be set by the particular wage board of that region, based on the prevailing situation therein. Necessarily, the wages in different regions will not be uniform. Thus, under RA 6727, the minimum wage in Region 1 may be different from that in Region 13, because the socioeconomic conditions in the two regions are different.

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Meaning of "Establishment"

Petitioner further contends that the Court of Appeals erred in interpreting the meaning of "establishment" in relation to wage distortion. It quotes the RA 6727 Implementing Rules, specifically Section 13 thereof which speaks of "workers working in branches or agencies of establishments in or outside the National Capital Region." Petitioner infers from this that the regional offices of the Bank do not themselves constitute, but are simply branches of, the establishment which is the whole bank. In effect, petitioner argues that wage distortion covers the pay scales even of employees in different regions, and not only those of employees in the same region or branch. We disagree.

Sec. 13 provides that the "minimum wage rates of workers working in branches or agencies of establishments in or outside the National Capital Region shall be those applicable in the place where they are sanctioned" The last part of the sentence was omitted by petitioner in its argument. Given the entire phrase, it is clear that the statutory provision does not support petitioner's view that "establishment" includes all branches and offices in different regions.

Further negating petitioner's theory is NWPC Guideline No. 1 (S. 1992) entitled "Revised Guidelines on Exemption From Compliance With the Prescribed Wage/Cost of Living Allowance Increases Granted by the Regional Tripartite Wages and Productivity Board," which states that "establishment" "refers to an economic unit which engages in one or predominantly one kind of economic activity with a single fixed location."

Management Practice

Petitioner also insists that the Bank has adopted a uniform wage policy, which has attained the status of an established management practice; thus, it is estopped from implementing a wage order for a specific region only. We are not persuaded. Said nationwide uniform wage policy of the Bank had been adopted prior to the enactment of RA 6727. After the passage of said law, the Bank was mandated to regionalize its wage structure. Although the Bank implemented Wage Order Nos. NCR-01 and NCR-02 nationwide instead of regionally even after the effectivity of RA 6727, the Bank at the time was still uncertain about how to follow the new law. In any event, that single instance cannot be constitutive of "management practice."

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WHEREFORE, the petition is DENIED and the assailed Decision is AFFIRMED. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Romero, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

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