Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. 81958 June 30, 1988

PHILIPPINE ASSOCIATION OF SERVICE EXPORTERS, INC., petitioner, vs.HON. FRANKLIN M. DRILON as Secretary of Labor and Employment, and TOMAS D. ACHACOSO, as Administrator of the Philippine Overseas Employment Administration, respondents.

Gutierrez & Alo Law Offices for petitioner.

SARMIENTO, J.:

The petitioner, Philippine Association of Service Exporters, Inc. (PASEI, for short), a firm "engaged principally in the recruitment of Filipino workers, male and female, for overseas placement," 1 challenges the Constitutional validity of Department Order No. 1, Series of 1988, of the Department of Labor and Employment, in the character of "GUIDELINES GOVERNING THE TEMPORARY SUSPENSION OF DEPLOYMENT OF FILIPINO DOMESTIC AND HOUSEHOLD WORKERS," in this petition for certiorari and prohibition. Specifically, the measure is assailed for "discrimination against males or females;" 2 that it "does not apply to all Filipino workers but only to domestic helpers and females with similar skills;" 3 and that it is violative of the right to travel. It is held likewise to be an invalid exercise of the lawmaking power, police power being legislative, and not executive, in character.

In its supplement to the petition, PASEI invokes Section 3, of Article XIII, of the Constitution, providing for worker participation "in policy and decision-making processes affecting their rights and benefits as may be provided by law." 4 Department Order No. 1, it is contended, was passed in the absence of prior consultations. It is claimed, finally, to be in violation of the Charter's non-impairment clause, in addition to the "great and irreparable injury" that PASEI members face should the Order be further enforced.

On May 25, 1988, the Solicitor General, on behalf of the respondents Secretary of Labor and Administrator of the Philippine Overseas Employment Administration, filed a Comment informing the Court that on March 8, 1988, the respondent Labor Secretary lifted the deployment ban in the states of Iraq, Jordan, Qatar, Canada, Hongkong, United States, Italy, Norway, Austria, and Switzerland. * In submitting the validity of the challenged "guidelines," the Solicitor General invokes the police power of the Philippine State.

It is admitted that Department Order No. 1 is in the nature of a police power measure. The only question is whether or not it is valid under the Constitution.

The concept of police power is well-established in this jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or property in order to promote the general welfare." 5As defined, it consists of (1) an

imposition of restraint upon liberty or property, (2) in order to foster the common good. It is not capable of an exact definition but has been, purposely, veiled in general terms to underscore its all-comprehensive embrace.

"Its scope, ever-expanding to meet the exigencies of the times, even to anticipate the future where it could be done, provides enough room for an efficient and fexible response to conditions and circumstances thus assuring the greatest benefits." 6

It finds no specific Constitutional grant for the plain reason that it does not owe its origin to the Charter. Along with the taxing power and eminent domain, it is inborn in the very fact of statehood and sovereignty. It is a fundamental attribute of government that has enabled it to perform the most vital functions of governance. Marshall, to whom the expression has been credited, 7 refers to it succinctly as the plenary power of the State "to govern its citizens." 8

"The police power of the State ... is a power coextensive with self- protection, and it is not inaptly termed the "law of overwhelming necessity." It may be said to be that inherent and plenary power in the State which enables it to prohibit all things hurtful to the comfort, safety, and welfare of society." 9

It constitutes an implied limitation on the Bill of Rights. According to Fernando, it is "rooted in the conception that men in organizing the state and imposing upon its government limitations to safeguard constitutional rights did not intend thereby to enable an individual citizen or a group of citizens to obstruct unreasonably the enactment of such salutary measures calculated to ensure communal peace, safety, good order, and welfare."10 Significantly, the Bill of Rights itself does not purport to be an absolute guaranty of individual rights and liberties "Even liberty itself, the greatest of all rights, is not unrestricted license to act according to one's will."11 It is subject to the far more overriding demands and requirements of the greater number.

Notwithstanding its extensive sweep, police power is not without its own limitations. For all its awesome consequences, it may not be exercised arbitrarily or unreasonably. Otherwise, and in that event, it defeats the purpose for which it is exercised, that is, to advance the public good. Thus, when the power is used to further private interests at the expense of the citizenry, there is a clear misuse of the power. 12

In the light of the foregoing, the petition must be dismissed.

As a general rule, official acts enjoy a presumed vahdity. 13 In the absence of clear and convincing evidence to the contrary, the presumption logically stands.

The petitioner has shown no satisfactory reason why the contested measure should be nullified. There is no question that Department Order No. 1 applies only to "female contract workers," 14 but it does not thereby make an undue discrimination between the sexes. It is well-settled that "equality before the law" under the Constitution 15 does not import a perfect Identity of rights among all men and women. It admits of classifications, provided that (1) such classifications rest on substantial distinctions; (2) they are germane to the purposes of the law; (3) they are not confined to existing conditions; and (4) they apply equally to all members of the same class. 16

The Court is satisfied that the classification made-the preference for female workers — rests on substantial distinctions.

As a matter of judicial notice, the Court is well aware of the unhappy plight that has befallen our female labor force abroad, especially domestic servants, amid exploitative working conditions marked by, in not a few cases, physical and personal abuse. The sordid tales of maltreatment suffered by migrant Filipina workers, even rape and various forms of torture, confirmed by testimonies of returning workers, are compelling motives for urgent Government action. As precisely the caretaker of Constitutional rights, the Court is called upon to protect victims of exploitation. In fulfilling that duty, the Court sustains the Government's efforts.

The same, however, cannot be said of our male workers. In the first place, there is no evidence that, except perhaps for isolated instances, our men abroad have been afficted with an Identical predicament. The petitioner has proffered no argument that the Government should act similarly with respect to male workers. The Court, of course, is not impressing some male chauvinistic notion that men are superior to women. What the Court is saying is that it was largely a matter of evidence (that women domestic workers are being ill-treated abroad in massive instances) and not upon some fanciful or arbitrary yardstick that the Government acted in this case. It is evidence capable indeed of unquestionable demonstration and evidence this Court accepts. The Court cannot, however, say the same thing as far as men are concerned. There is simply no evidence to justify such an inference. Suffice it to state, then, that insofar as classifications are concerned, this Court is content that distinctions are borne by the evidence. Discrimination in this case is justified.

As we have furthermore indicated, executive determinations are generally final on the Court. Under a republican regime, it is the executive branch that enforces policy. For their part, the courts decide, in the proper cases, whether that policy, or the manner by which it is implemented, agrees with the Constitution or the laws, but it is not for them to question its wisdom. As a co-equal body, the judiciary has great respect for determinations of the Chief Executive or his subalterns, especially when the legislature itself has specifically given them enough room on how the law should be effectively enforced. In the case at bar, there is no gainsaying the fact, and the Court will deal with this at greater length shortly, that Department Order No. 1 implements the rule-making powers granted by the Labor Code. But what should be noted is the fact that in spite of such a fiction of finality, the Court is on its own persuaded that prevailing conditions indeed call for a deployment ban.

There is likewise no doubt that such a classification is germane to the purpose behind the measure. Unquestionably, it is the avowed objective of Department Order No. 1 to "enhance the protection for Filipino female overseas workers" 17 this Court has no quarrel that in the midst of the terrible mistreatment Filipina workers have suffered abroad, a ban on deployment will be for their own good and welfare.

The Order does not narrowly apply to existing conditions. Rather, it is intended to apply indefinitely so long as those conditions exist. This is clear from the Order itself ("Pending review of the administrative and legal measures, in the Philippines and in the host countries . . ." 18), meaning to say that should the authorities arrive at a means impressed with a greater degree of permanency, the ban shall be lifted. As a stop-gap measure, it is possessed of a necessary malleability, depending on the circumstances of each case. Accordingly, it provides:

9. LIFTING OF SUSPENSION. — The Secretary of Labor and Employment

(DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are:

1. Bilateral agreements or understanding with the Philippines, and/or,

2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 19

The Court finds, finally, the impugned guidelines to be applicable to all female domestic overseas workers. That it does not apply to "all Filipina workers" 20 is not an argument for unconstitutionality. Had the ban been given universal applicability, then it would have been unreasonable and arbitrary. For obvious reasons, not all of them are similarly circumstanced. What the Constitution prohibits is the singling out of a select person or group of persons within an existing class, to the prejudice of such a person or group or resulting in an unfair advantage to another person or group of persons. To apply the ban, say exclusively to workers deployed by A, but not to those recruited by B, would obviously clash with the equal protection clause of the Charter. It would be a classic case of what Chase refers to as a law that "takes property from A and gives it to B." 21 It would be an unlawful invasion of property rights and freedom of contract and needless to state, an invalid act. 22 (Fernando says: "Where the classification is based on such distinctions that make a real difference as infancy, sex, and stage of civilization of minority groups, the better rule, it would seem, is to recognize its validity only if the young, the women, and the cultural minorities are singled out for favorable treatment. There would be an element of unreasonableness if on the contrary their status that calls for the law ministering to their needs is made the basis of discriminatory legislation against them. If such be the case, it would be difficult to refute the assertion of denial of equal protection." 23 In the case at bar, the assailed Order clearly accords protection to certain women workers, and not the contrary.)

It is incorrect to say that Department Order No. 1 prescribes a total ban on overseas deployment. From scattered provisions of the Order, it is evident that such a total ban has hot been contemplated. We quote:

5. AUTHORIZED DEPLOYMENT-The deployment of domestic helpers and workers of similar skills defined herein to the following [sic] are authorized under these guidelines and are exempted from the suspension.

5.1 Hirings by immediate members of the family of Heads of State and Government;

5.2 Hirings by Minister, Deputy Minister and the other senior government officials; and

5.3 Hirings by senior officials of the diplomatic corps and duly accredited international organizations.

5.4 Hirings by employers in countries with whom the Philippines have [sic] bilateral labor agreements or understanding.

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7. VACATIONING DOMESTIC HELPERS AND WORKERS OF SIMILAR SKILLS--Vacationing domestic helpers and/or workers of similar skills shall be allowed to process with the POEA and leave for worksite only if they are returning to the same employer to finish an existing or partially served employment contract. Those workers returning to worksite to serve a new employer shall be covered by the suspension and the provision of these guidelines.

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9. LIFTING OF SUSPENSION-The Secretary of Labor and Employment (DOLE) may, upon recommendation of the Philippine Overseas Employment Administration (POEA), lift the suspension in countries where there are:

1. Bilateral agreements or understanding with the Philippines, and/or,

2. Existing mechanisms providing for sufficient safeguards to ensure the welfare and protection of Filipino workers. 24

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The consequence the deployment ban has on the right to travel does not impair the right. The right to travel is subject, among other things, to the requirements of "public safety," "as may be provided by law." 25 Department Order No. 1 is a valid implementation of the Labor Code, in particular, its basic policy to "afford protection to labor," 26 pursuant to the respondent Department of Labor's rule-making authority vested in it by the Labor Code. 27 The petitioner assumes that it is unreasonable simply because of its impact on the right to travel, but as we have stated, the right itself is not absolute. The disputed Order is a valid qualification thereto.

Neither is there merit in the contention that Department Order No. 1 constitutes an invalid exercise of legislative power. It is true that police power is the domain of the legislature, but it does not mean that such an authority may not be lawfully delegated. As we have mentioned, the Labor Code itself vests the Department of Labor and Employment with rulemaking powers in the enforcement whereof. 28

The petitioners's reliance on the Constitutional guaranty of worker participation "in policy and decision-making processes affecting their rights and benefits" 29 is not well-taken. The right granted by this provision, again, must submit to the demands and necessities of the State's power of regulation.

The Constitution declares that:

Sec. 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all. 30

"Protection to labor" does not signify the promotion of employment alone. What concerns the Constitution more paramountly is that such an employment be above all, decent, just, and humane. It is bad enough that the country has to send its sons and daughters to strange lands because it cannot satisfy their employment needs at home. Under these circumstances, the Government is duty-bound to insure that our toiling

expatriates have adequate protection, personally and economically, while away from home. In this case, the Government has evidence, an evidence the petitioner cannot seriously dispute, of the lack or inadequacy of such protection, and as part of its duty, it has precisely ordered an indefinite ban on deployment.

The Court finds furthermore that the Government has not indiscriminately made use of its authority. It is not contested that it has in fact removed the prohibition with respect to certain countries as manifested by the Solicitor General.

The non-impairment clause of the Constitution, invoked by the petitioner, must yield to the loftier purposes targetted by the Government. 31 Freedom of contract and enterprise, like all other freedoms, is not free from restrictions, more so in this jurisdiction, where laissez faire has never been fully accepted as a controlling economic way of life.

This Court understands the grave implications the questioned Order has on the business of recruitment. The concern of the Government, however, is not necessarily to maintain profits of business firms. In the ordinary sequence of events, it is profits that suffer as a result of Government regulation. The interest of the State is to provide a decent living to its citizens. The Government has convinced the Court in this case that this is its intent. We do not find the impugned Order to be tainted with a grave abuse of discretion to warrant the extraordinary relief prayed for.

WHEREFORE, the petition is DISMISSED. No costs.

SO ORDERED.

Yap, C.J., Fernan, Narvasa, Melencio-Herrera, Cruz, Paras, Feliciano, Gancayco, Padilla, Bidin, Cortes and Griño-Aquino, JJ., concur.

Gutierrez, Jr. and Medialdea, JJ., are on leave.

Footnotes

1 Rollo, 3.

2 Id., 12.

3 Id., 13.

4 CONST., Art XIII, Sec. 3.

* Per reports, on June 14, 1988, the Government is said to have lifted the ban on five more countries: New Zealand Australia, Sweden, Spain, and West Germany. ("Maid export ban lifted in 5 states," The Manila Chronicle, June 14, 1988, p. 17, col. 2.)

5 Edu v. Ericta, No. L-32096, October 24, 1970, 35 SCRA 481, 487.

6 Supra, 488.

7 TRIBE, AMERICAN CONSTITUTIONAL LAW, 323 (1978).

8 Id.

9 Rubi v. Provincial Board of Mindoro, 39 Phil. 660, 708 (1919).

10 Edu v. Ericta, supra.

11 Rubi v. Provincial Board of Mindoro, supra, 704.

12 It is generally presumed, notwithstanding the plenary character of the lawmaking power, that the legislature must act for public purposes. In Pascual v. Secretary of Public Works [110 Phil. 331 (1960)], the Court nullified an act of Congress appropriating funds for a private purpose. The prohibition was not embodied in the Constitution then in force, however, it was presumed that Congress could not do it.

13 Ermita-Malate Hotel and Motel Operators Association, Inc. v. City Mayor of Manila, No. L-24693, July 31, 1967, 20 SCRA 849.

14 Dept. Order No. 1 (DOLE), February 10, 1988.

15 CONST., supra, Art. III, Sec. 1.

16 People v. Cayat, 68 Phil. 12 (1939).

17 Dept. Order No. 1, supra.

18 Supra.

19 Supra.

20 Rollo, Id., 13.

21 See TRIBE, Id., citing Calder v. Bull, 3 U.S. 386 (1798).

22 Id.

23 FERNANDO, THE CONSTITUTION OF THE PHILIPPINES 549-550 (1977).

24 Dept. Order No. 1, supra.

25 CONST., supra, Art. Ill, Sec. 6.

26 Pres. Decree No. 442, Art. 3.

27 Supra, Art. 5.

28 Supra.

29 CONST., supra, Art. XIII, Sec. 3.

30 Supra.

31 Heirs of Juancho Ardona v. Reyes, Nos. L-60549, 60553-60555, October 26, 1983, 125 SCRA 220.

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. L-41182-3 April 16, 1988

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs.THE COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S.CANILAO, and SEGUNDINA NOGUERA, respondents-appellees.

SARMIENTO , J.:

The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:

xxx xxx xxx

On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc., represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be withheld by the Tourist World Service, Inc.

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch, and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court ordered the dismissal of the case without prejudice.

The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her counterclaim.

On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which was elevated the instant appeal on the following assignment of errors:

I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.

IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR OWN HANDS.

V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.

VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the errors asigned the issues to be resolved are:

1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on Ermita;

2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and

3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or TWS and the appellant.

In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the end that her relationship with TWS was one of a joint business venture appellant made declarations showing:

1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and nose specialist as well as a imediately columnist had been in the travel business prior to the establishment of the joint business venture with appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre, she being the godmother of one of his children, with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February 16,1965).

2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh. 'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic] herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).

3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service, Inc., which had its own, separate office located at the Trade & Commerce Building; nor was she an employee thereof, having no participation in nor connection with said business at the Trade & Commerce Building (pp. 16-18 tsn Id.).

4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings her own business (and not for any of the business of appellee Tourist World Service, Inc.) obtained from the airline companies. She shared the 7% commissions given by the airline companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for herself (pp. 18 tsn. Id.)

5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses, aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18 tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p. 35 tsn Feb. 16,1965).

6. It was the understanding between them that appellant Mrs. Sevilla would be given the title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao (pp- 2-5, Appellants' Reply Brief)

Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World Service, Inc. and as such was designated manager. 1

xxx xxx xxx

The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of Appeal 5 rendered an affirmance.

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:

I

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF LAW.

II

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)

III

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON RELATIONS.

IV

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service, Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the

padlocking of the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference to the padlocking now questioned.

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations, pursuant to statutes then in force. 9

In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11

The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of lease covering the Tourist Worlds Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be bound by some other relation, but certainly not employment.

In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned

compensation in fuctuating amounts depending on her booking successes.

The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said, employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest, of the agent and the principal. 19 It appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist World Service, Inc. disconnected the telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World Service, Inc. did not take pains to have

them reconnected. Assuming, therefore, that it had no hand in the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as one would eject an interloper.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally, without notice to her.

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing completely its business operations, and in the process, depriving Sevilla articipation therein.

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice and fair play.

We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the defendant acted ... in bad faith. 23

We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof —

ART. 21. Any person who wilfully causes loss or injury to another in a

manner that is contrary to morals, good customs or public policy shall compensate the latter for the damage. 24

ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:

xxx xxx xxx

(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary capacity.

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages,25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under the circumstances.

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.

Costs against said private respondents.

SO ORDERED.

Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.

Footnotes

1 Rollo, 30-45.

2 Court of First Instance of Manila, Branch XIX Montesa, Agustin, Presiding Judge.

3 Rollo, Id 55; Record on Appeal, 38.

4 Record on Appeal, Id., 37-38.

5 Gaviola, Jr., RAmon, J., Reyes, Luis, and De Castro, Pacific, JJ., Conccurring

6 Rollo, Id., 124; Brief for Petitioners, 1-2.

7 Rollo, Id., 36.

8 Id., 21; emphasis in the original.

9 See Rep. Act No. 875 See also Rep. Act No. 1052, as amended by Rep. Act

No. 1787.

10 LVN Pictures, Inc. v. Philippine Musicians Guild, No. L-12582, January 28,1961, 1 SCRA 132,173 (1961); emphasis in the original.

11 Visayan Stevedore Trans. Co., et al. v. C.I.R., et al., No. L-21696, February 25,1967,19 SCRA 426 (1967).

12 Rollo, Id., 40.

13 Id 31.

14 Id., 47.

15 BAUTISTA, TREATISE ON PHILIPPINE PARTNERSHIP LAW 34 (1978).

16 Op cit 37. In Tuazon v. Balanos [95 Phil. 106 (1954)], this Court distinguished between a joint venture and a partnership but this view has since raised questions from authorities. According to Campos, there seems to be no fundamental distinction between the two forms of business combinations. CAMPOS, THE CORPORATION CODE 12 (1981).] For p of this case, we use the terms of interchangeable.

17 See rollo, id.

18 CIVIL CODE, art. 1868.

19 See VI PADILLA, CIVIL LAW 350 (1974).

20 Rollo, id., 36.

21 Id, 31.

22 Id.

23 CIVIL CODE, art. 2220.

24 Supra.

25 Supra, art. 2232.

26 Supra art. 2221.

27 Supra, art. 2224.

Republic of the PhilippinesSUPREME COURTManila

FIRST DIVISION

G.R. No. 170087 August 31, 2006

ANGELINA FRANCISCO, Petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI, TIMOTEO ACEDO, DELFIN LIZA, IRENE

BALLESTEROS, TRINIDAD LIZA and RAMON ESCUETA,Respondents.

D E C I S I O N

YNARES-SANTIAGO, J.:

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to annul and set aside the Decision and Resolution of the Court of Appeals dated October 29, 2004 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal filed by herein petitioner Angelina Francisco. The appellate court reversed and set aside the Decision of the National Labor Relations Commission (NLRC) dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which affirmed with modification the decision of the Labor Arbiter dated July 31, 2002, 4 in NLRC-NCR Case No. 30-10-0-489-01, finding that private respondents were liable for constructive dismissal.

In 1995, petitioner was hired by Kasei Corporation during its incorporation stage. She was designated as Accountant and Corporate Secretary and was assigned to handle all the accounting needs of the company. She was also designated as Liaison Officer to the City of Makati to secure business permits, construction permits and other licenses for the initial operation of the company. 5

Although she was designated as Corporate Secretary, she was not entrusted with the corporate documents; neither did she attend any board meeting nor required to do so. She never prepared any legal document and never represented the company as its Corporate Secretary. However, on some occasions, she was prevailed upon to sign documentation for the company. 6

In 1996, petitioner was designated Acting Manager. The corporation also hired Gerry Nino as accountant in lieu of petitioner. As Acting Manager, petitioner was assigned to handle recruitment of all employees and perform management administration functions; represent the company in all dealings with government agencies, especially with the Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the city government of Makati; and to administer all other matters pertaining to the operation of Kasei Restaurant which is owned and operated by Kasei Corporation. 7

For five years, petitioner performed the duties of Acting Manager. As of December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation. 8

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

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

that the company was not earning well. 10

On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the officers but she was informed that she is no longer connected with the company. 11

Since she was no longer paid her salary, petitioner did not report for work and filed an action for constructive dismissal before the labor arbiter.

Private respondents averred that petitioner is not an employee of Kasei Corporation. They alleged that petitioner was hired in 1995 as one of its technical consultants on accounting matters and act concurrently as Corporate Secretary. As technical consultant, petitioner performed her work at her own discretion without control and supervision of Kasei Corporation. Petitioner had no daily time record and she came to the office any time she wanted. The company never interfered with her work except that from time to time, the management would ask her opinion on matters relating to her profession. Petitioner did not go through the usual procedure of selection of employees, but her services were engaged through a Board Resolution designating her as technical consultant. The money received by petitioner from the corporation was her professional fee subject to the 10% expanded withholding tax on professionals, and that she was not one of those reported to the BIR or SSS as one of the company’s employees. 12

Petitioner’s designation as technical consultant depended solely upon the will of management. As such, her consultancy may be terminated any time considering that her services were only temporary in nature and dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation, private respondents submitted a list of employees for the years 1999 and 2000 duly received by the BIR showing that petitioner was not among the employees reported to the BIR, as well as a list of payees subject to expanded withholding tax which included petitioner. SSS records were also submitted showing that petitioner’s latest employer was Seiji Corporation. 13

The Labor Arbiter found that petitioner was illegally dismissed, thus:

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

1. finding complainant an employee of respondent corporation;

2. declaring complainant’s dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position without loss of seniority rights and jointly and severally pay complainant her money claims in accordance with the following computation:

a. Backwages 10/2001 – 07/2002 275,000.00

(27,500 x 10 mos.)

b. Salary Differentials (01/2001 – 09/2001) 22,500.00

c. Housing Allowance (01/2001 – 07/2002) 57,000.00

d. Midyear Bonus 2001 27,500.00

e. 13th Month Pay 27,500.00

f. 10% share in the profits of Kasei

Corp. from 1996-2001 361,175.00

g. Moral and exemplary damages 100,000.00

h. 10% Attorney’s fees 87,076.50

P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay complainant separation pay with additional backwages that would accrue up to actual payment of separation pay.

SO ORDERED. 14

On April 15, 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter, the dispositive portion of which reads:

PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay computed at one month per year of service in addition to full backwages from October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10% share in profit in the respective accounts of P100,000.00 and P361,175.00 are deleted;

3) The award of 10% attorney’s fees shall be based on salary differential award only;

4) The awards representing salary differentials, housing allowance, mid year bonus and 13th month pay are AFFIRMED.

SO ORDERED. 15

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The decision of the National Labor Relations Commissions dated April 15, 2003 is hereby REVERSED and SET ASIDE and a new one is hereby rendered dismissing the complaint filed by private respondent against Kasei Corporation, et al. for constructive dismissal.

SO ORDERED. 16

The appellate court denied petitioner’s motion for reconsideration, hence, the present recourse.

The core issues to be resolved in this case are (1) whether there was an employer-employee relationship between petitioner and private respondent Kasei Corporation; and if in the affirmative, (2) whether petitioner was illegally dismissed.

Considering the conficting findings by the Labor Arbiter and the National Labor Relations Commission on one hand, and the Court of Appeals on the other, there is a need to reexamine the records to determine which of the propositions espoused by the contending parties is supported by substantial evidence. 17

We held in Sevilla v. Court of Appeals 18 that in this jurisdiction, there has been no uniform test to determine the existence of an employer-employee relation. Generally, courts have relied on the so-called right of control test where the person for whom the

services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end. In addition to the standard of right-of-control, the existing economic conditions prevailing between the parties, like the inclusion of the employee in the payrolls, can help in determining the existence of an employer-employee relationship.

However, in certain cases the control test is not sufficient to give a complete picture of the relationship between the parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are instances when, aside from the employer’s power to control the employee with respect to the means and methods by which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity.

The better approach would therefore be to adopt a two-tiered test involving: (1) the putative employer’s power to control the employee with respect to the means and methods by which the work is to be accomplished; and (2) the underlying economic realities of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would take into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate in this case where there is no written agreement or terms of reference to base the relationship on; and due to the complexity of the relationship based on the various positions and responsibilities given to the worker over the period of the latter’s employment.

The control test initially found application in the case of Viaña v. Al-Lagadan and Piga, 19 and lately in Leonardo v. Court of Appeals, 20 where we held that there is an employer-employee relationship when the person for whom the services are performed reserves the right to control not only the end achieved but also the manner and means used to achieve that end.

In Sevilla v. Court of Appeals, 21 we observed the need to consider the existing economic conditions prevailing between the parties, in addition to the standard of right-of-control like the inclusion of the employee in the payrolls, to give a clearer picture in determining the existence of an employer-employee relationship based on an analysis of the totality of economic circumstances of the worker.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, 22 such as: (1) the extent to which the services performed are an integral part of the employer’s business; (2) the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that line of business. 23

The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. 24 In the

United States, the touchstone of economic reality in analyzing possible employment relationships for purposes of the Federal Labor Standards Act is dependency.25 By analogy, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer.

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

Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. 26 When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation. 27

It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in the latter’s line of business.

In Domasig v. National Labor Relations Commission, 28 we held that in a business establishment, an identification card is provided not only as a security measure but mainly to identify the holder thereof as a bona fide employee of the firm that issues it. Together with the cash vouchers covering petitioner’s salaries for the months stated therein, these matters constitute substantial evidence adequate to support a conclusion that petitioner was an employee of private respondent.

We likewise ruled in Flores v. Nuestro 29 that a corporation who registers its workers with the SSS is proof that the latter were the former’s employees. The coverage of Social Security Law is predicated on the existence of an employer-employee relationship.

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001 has clearly established that petitioner never acted as Corporate Secretary and that her designation as such was only for convenience. The actual nature of petitioner’s job was as Kamura’s direct assistant with the duty of acting as Liaison Officer in representing the company to secure construction permits, license to operate and other requirements imposed by government agencies. Petitioner was never entrusted with corporate documents of the company, nor required to attend the meeting of the corporation. She was never privy to the preparation of any document for the corporation, although once in a while she was required to sign prepared documentation for the company. 30

The second affidavit of Kamura dated March 7, 2002 which repudiated the December 5, 2001 affidavit has been allegedly withdrawn by Kamura himself from the records of the case. 31 Regardless of this fact, we are convinced that the allegations in the first affidavit are sufficient to establish that petitioner is an employee of Kasei Corporation.

Granting arguendo, that the second affidavit validly repudiated the first one, courts do not generally look with favor on any retraction or recanted testimony, for it could have been secured by considerations other than to tell the truth and would make solemn trials a mockery and place the investigation of the truth at the mercy of unscrupulous witnesses. 32 A recantation does not necessarily cancel an earlier declaration, but like any other testimony the same is subject to the test of credibility and should be received with caution. 33

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

The corporation constructively dismissed petitioner when it reduced her salary by P2,500 a month from January to September 2001. This amounts to an illegal termination of employment, where the petitioner is entitled to full backwages. Since the position of petitioner as accountant is one of trust and confidence, and under the principle of strained relations, petitioner is further entitled to separation pay, in lieu of reinstatement. 34

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of work resorted to when continued employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes unbearable to an employee. 35 In Globe Telecom, Inc. v. Florendo-Flores, 36 we ruled that where an employee ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation arises which creates an adverse working environment rendering it impossible for such employee to continue working for her employer. Hence, her severance from the company was not of her own making and therefore amounted to an illegal termination of employment.

In affording full protection to labor, this Court must ensure equal work opportunities regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the fragile relationship between employees and employers, we are mindful of the fact that the policy of the law is to apply the Labor Code to a greater number of employees. This would enable employees to avail of the benefits accorded to them by law, in line with the constitutional mandate giving maximum aid and protection to labor, promoting their welfare and reaffirming it as a primary social economic force in furtherance of social justice and national development.

WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of

Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET ASIDE. The Decision of the National Labor Relations Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, isREINSTATED. The case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina Francisco’s full backwages from the time she was illegally terminated until the date of finality of this decision, and separation pay representing one-half month pay for every year of service, where a fraction of at least six months shall be considered as one whole year.

SO ORDERED.

CONSUELO YNARES-SANTIAGOAssociate Justice

WE CONCUR:

ARTEMIO V. PANGANIBANChief JusticeChairperson

MA. ALICIA AUSTRIA-MARTINEZAssociate Justice

ROMEO J. CALLEJO, SR.Associate Justice

MINITA V. CHICO-NAZARIOAssociate Justice

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

Pursuant to Section 13, Article VIII 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

Footnotes

1 Rollo, pp. 9-22. Penned by Associate Justice Eloy R. Bello, Jr. and concurred in by Associate Justices Regalado E. Maambong and Lucenito N. Tagle.

2 Id. at 24-25.

3 Id. at 193-198. Penned by Presiding Commissioner Lourdes C. Javier and concurred in by Commissioner Tito F. Genilo.

4 Id. at 164-173. Penned by Labor Arbiter Eduardo J. Carpio.

5 Id. at 89.

6 Id. at 89-90.

7 Id. at 90.

8 Id.

9 Id. at 91.

10 Id.

11 Id. at 91-92.

12 Id. at 92-93.

13 Id. at 94.

14 Id. at 172-173.

15 Id. at 197-198.

16 Id. at 100.

17 Abante, Jr. v. Lamadrid Bearing & Parts Corporation, G.R. No. 159890, May 28, 2004, 430 SCRA 368, 379.

18 G.R. Nos. L-41182-3, April 15, 1988, 160 SCRA 171, 179-180, citing Visayan Stevedore Transportation Company v. Court of Industrial Relations, 125 Phil. 817, 820 (1967).

19 99 Phil. 408 (1956).

20 G.R. No. 152459, June 15, 2006.

21 Supra note 18.

22 Rutherford Food Corporation v. McComb, 331 U.S. 722, 727 (1947); 91 L.Ed. 1772, 1777 (1946).

23 See Brock v. Lauritzen, 624 F.Supp. 966 (E.D. Wisc. 1985); Real v. Driscoll Strawberry Associates, Inc., 603 F.2d 748 (9th Cir. 1979); Goldberg v. Whitaker House Cooperative, Inc., 366 U.S. 28, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961); Bartels v. Birmingham, 332 U.S. 126, 67 S.Ct. 1547, 91 L.Ed. 1947 (1947).

24 Halferty v. Pulse Drug Company, 821 F.2d 261 (5th Cir. 1987).

25 Weisel v. Singapore Joint Venture, Inc., 602 F.2d. 1185 (5th Cir. 1979).

26 Rollo, pp. 305-321.

27 Id. at 264-265.

28 330 Phil. 518, 524 (1996).

29 G.R. No. 66890, April 15, 1988, 160 SCRA 568, 571.

30 Rollo, pp. 120-121.

31 Id. at 57.

32 People v. Joya, G.R. No. 79090, October 1, 1993, 227 SCRA 9, 26-27.

33 People v. Davatos, G.R. No. 93322, February 4, 1994, 229 SCRA 647, 651.

34 Globe-Mackay Cable and Radio Corporation v. National Labor Relations Commission, G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711-712.

35 Leonardo v. National Labor Relations Commission, 389 Phil. 118, 126 (2000).

36 438 Phil. 756 (2002).

Republic of the PhilippinesSUPREME COURTManila

THIRD DIVISION

G.R. Nos. 83380-81 November 15, 1989

MAKATI HABERDASHERY, INC., JORGE LEDESMA and CECILIO G. INOCENCIO, petitioners, vs.NATIONAL LABOR RELATIONS COMMISSION, CEFERINA J. DIOSANA (Labor Arbiter, Department of Labor and Employment, National Capital Region), SANDIGAN NG MANGGAGAWANG PILIPINO (SANDIGAN)-TUCP and its members, JACINTO GARCIANO, ALFREDO C. BASCO, VICTORIO Y. LAURETO, ESTER NARVAEZ, EUGENIO L. ROBLES, BELEN N. VISTA, ALEJANDRO A. ESTRABO, VEVENCIO TIRO, CASIMIRO ZAPATA, GLORIA ESTRABO, LEONORA MENDOZA, MACARIA G. DIMPAS, MERILYN A. VIRAY, LILY OPINA, JANET SANGDANG, JOSEFINA ALCOCEBA and MARIA ANGELES,respondents.

Ledesma, Saludo & Associates for petitioners.

Pablo S. Bernardo for private respondents.

FERNAN, C.J.:

This petition for certiorari involving two separate cases filed by private respondents against herein petitioners assails the decision of respondent National Labor Relations Commission in NLRC CASE No. 7-2603-84 entitled "Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al. v. Makati Haberdashery and/or Toppers Makati, et al." and NLRC CASE No. 2-428-85 entitled "Sandigan Ng Manggagawang Pilipino (SANDIGAN)-TUCP etc., et al. v. Toppers Makati, et al.", affirming the decision of the Labor Arbiter who jointly heard and decided aforesaid cases, finding: (a) petitioners guilty of illegal dismissal and ordering them to reinstate the dismissed workers and (b) the existence of employer-employee relationship and granting respondent workers by reason thereof their various monetary claims.

The undisputed facts are as follows:

Individual complainants, private respondents herein, have been working for petitioner Makati Haberdashery, Inc. as tailors, seamstress, sewers, basters (manlililip) and "plantsadoras". They are paid on a piece-rate basis except Maria Angeles and Leonila Serafina who are paid on a monthly basis. In addition to their piece-rate, they are given a daily allowance of three (P 3.00) pesos provided they report for work before 9:30 a.m. everyday.

Private respondents are required to work from or before 9:30 a.m. up to 6:00 or 7:00 p.m. from Monday to Saturday and during peak periods even on Sundays and holidays.

On July 20, 1984, the Sandigan ng Manggagawang Pilipino, a labor organization of the respondent workers, filed a complaint docketed as NLRC NCR Case No. 7-2603-84 for

(a) underpayment of the basic wage; (b) underpayment of living allowance; (c) non-payment of overtime work; (d) non-payment of holiday pay; (e) non-payment of service incentive pay; (f) 13th month pay; and (g) benefits provided for under Wage Orders Nos. 1, 2, 3, 4 and 5. 1

During the pendency of NLRC NCR Case No. 7-2603-84, private respondent Dioscoro Pelobello left with Salvador Rivera, a salesman of petitioner Haberdashery, an open package which was discovered to contain a "jusi" barong tagalog. When confronted, Pelobello replied that the same was ordered by respondent Casimiro Zapata for his customer. Zapata allegedly admitted that he copied the design of petitioner Haberdashery. But in the afternoon, when again questioned about said barong, Pelobello and Zapata denied ownership of the same. Consequently a memorandum was issued to each of them to explain on or before February 4, 1985 why no action should be taken against them for accepting a job order which is prejudicial and in direct competition with the business of the company. 2 Both respondents allegedly did not submit their explanation and did not report for work. 3 Hence, they were dismissed by petitioners on February 4, 1985. They countered by filing a complaint for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 on February 5, 1985. 4

On June 10, 1986, Labor Arbiter Ceferina J. Diosana rendered judgment, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in NLRC NCR Case No. 2-428-85 finding respondents guilty of illegal dismissal and ordering them to reinstate Dioscoro Pelobello and Casimiro Zapata to their respective or similar positions without loss of seniority rights, with full backwages from July 4, 1985 up to actual reinstatement. The charge of unfair labor practice is dismissed for lack of merit.

In NLRC NCR Case No. 7-26030-84, the complainants' claims for underpayment re violation of the minimum wage law is hereby ordered dismissed for lack of merit.

Respondents are hereby found to have violated the decrees on the cost of living allowance, service incentive leave pay and the 13th Month Pay. In view thereof, the economic analyst of the Commission is directed to compute the monetary awards due each complainant based on the available records of the respondents retroactive as of three years prior to the filing of the instant case.

SO ORDERED. 5

From the foregoing decision, petitioners appealed to the NLRC. The latter on March 30, 1988 affirmed said decision but limited the backwages awarded the Dioscoro Pelobello and Casimiro Zapata to only one (1) year. 6

After their motion for reconsideration was denied, petitioners filed the instant petition raising the following issues:

I

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTS BETWEEN PETITIONER HABERDASHERY AND RESPONDENTS WORKERS.

II

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS WORKERS ARE ENTITLED TO MONETARY CLAIMS DESPITE THE FINDING THAT THEY ARE NOT ENTITLED TO MINIMUM WAGE.

III

THE SUBJECT DECISIONS ERRONEOUSLY CONCLUDED THAT RESPONDENTS PELOBELLO AND ZAPATA WERE ILLEGALLY DISMISSED. 7

The first issue which is the pivotal issue in this case is resolved in favor of private respondents. We have repeatedly held in countless decisions that the test of employer-employee relationship is four-fold: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct. It is the so called "control test" that is the most important element. 8This simply means the determination of whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and method by which the same is to be accomplished. 9

The facts at bar indubitably reveal that the most important requisite of control is present. As gleaned from the operations of petitioner, when a customer enters into a contract with the haberdashery or its proprietor, the latter directs an employee who may be a tailor, pattern maker, sewer or "plantsadora" to take the customer's measurements, and to sew the pants, coat or shirt as specified by the customer. Supervision is actively manifested in all these aspects — the manner and quality of cutting, sewing and ironing.

Furthermore, the presence of control is immediately evident in this memorandum issued by Assistant Manager Cecilio B. Inocencio, Jr. dated May 30, 1981 addressed to Topper's Makati Tailors which reads in part:

4. Effective immediately, new procedures shall be followed:

A. To follow instruction and orders from the undersigned Roger Valderama, Ruben Delos Reyes and Ofel Bautista. Other than this person (sic) must ask permission to the above mentioned before giving orders or instructions to the tailors.

B. Before accepting the job orders tailors must check the materials, job orders, due dates and other things to maximize the efficiency of our production. The materials should be checked (sic) if it is matched (sic) with the sample, together with the number of the job order.

C. Effective immediately all job orders must be finished one day before the due date. This can be done by proper scheduling of job order and if you will cooperate with your supervisors. If you have many due dates for certain day, advise Ruben or Ofel at once so that they can make necessary adjustment on due dates.

D. Alteration-Before accepting alteration person attending on customs (sic) must ask first or must advise the tailors regarding the due dates so that we can eliminate what we call 'Bitin'.

E. If there is any problem regarding supervisors or co-tailor inside our

shop, consult with me at once settle the problem. Fighting inside the shop is strictly prohibited. Any tailor violating this memorandum will be subject to disciplinary action.

For strict compliance. 10

From this memorandum alone, it is evident that petitioner has reserved the right to control its employees not only as to the result but also the means and methods by which the same are to be accomplished. That private respondents are regular employees is further proven by the fact that they have to report for work regularly from 9:30 a.m. to 6:00 or 7:00 p.m. and are paid an additional allowance of P 3.00 daily if they report for work before 9:30 a.m. and which is forfeited when they arrive at or after 9:30 a.m. 11

Since private respondents are regular employees, necessarily the argument that they are independent contractors must fail. As established in the preceding paragraphs, private respondents did not exercise independence in their own methods, but on the contrary were subject to the control of petitioners from the beginning of their tasks to their completion. Unlike independent contractors who generally rely on their own resources, the equipment, tools, accessories, and paraphernalia used by private respondents are supplied and owned by petitioners. Private respondents are totally dependent on petitioners in all these aspects.

Coming now to the second issue, there is no dispute that private respondents are entitled to the Minimum Wage as mandated by Section 2(g) of Letter of Instruction No. 829, Rules Implementing Presidential Decree No. 1614 and reiterated in Section 3(f), Rules Implementing Presidential Decree 1713 which explicitly states that, "All employees paid by the result shall receive not less than the applicable new minimum wage rates for eight (8) hours work a day, except where a payment by result rate has been established by the Secretary of Labor. ..." 12No such rate has been established in this case.

But all these notwithstanding, the question as to whether or not there is in fact an underpayment of minimum wages to private respondents has already been resolved in the decision of the Labor Arbiter where he stated: "Hence, for lack of sufficient evidence to support the claims of the complainants for alleged violation of the minimum wage, their claims for underpayment re violation of the Minimum Wage Law under Wage Orders Nos. 1, 2, 3, 4, and 5 must perforce fall." 13

The records show that private respondents did not appeal the above ruling of the Labor Arbiter to the NLRC; neither did they file any petition raising that issue in the Supreme Court. Accordingly, insofar as this case is concerned, that issue has been laid to rest. As to private respondents, the judgment may be said to have attained finality. For it is a well-settled rule in this jurisdiction that "an appellee who has not himself appealed cannot obtain from the appellate court-, any affirmative relief other than the ones granted in the decision of the court below. " 14

As a consequence of their status as regular employees of the petitioners, they can claim cost of living allowance. This is apparent from the provision defining the employees entitled to said allowance, thus: "... All workers in the private sector, regardless of their position, designation or status, and irrespective of the method by which their wages are paid. " 15

Private respondents are also entitled to claim their 13th Month Pay under Section 3(e) of the Rules and Regulations Implementing P.D. No. 851 which provides:

Section 3. Employers covered. — The Decree shall apply to all employers except to:

xxx xxx xxx

(e) Employers of those who are paid on purely commission, boundary, or task basis, and those who are paid a fixed amount for performing a specific work, irrespective of the time consumed in the performance thereof, except where the workers are paid on piece-rate basis in which case the employer shall be covered by this issuance insofar as such workers are concerned. (Emphasis supplied.)

On the other hand, while private respondents are entitled to Minimum Wage, COLA and 13th Month Pay, they are not entitled to service incentive leave pay because as piece-rate workers being paid at a fixed amount for performing work irrespective of time consumed in the performance thereof, they fall under one of the exceptions stated in Section 1(d), Rule V, Implementing Regulations, Book III, Labor Code. For the same reason private respondents cannot also claim holiday pay (Section 1(e), Rule IV, Implementing Regulations, Book III, Labor Code).

With respect to the last issue, it is apparent that public respondents have misread the evidence, for it does show that a violation of the employer's rules has been committed and the evidence of such transgression, the copied barong tagalog, was in the possession of Pelobello who pointed to Zapata as the owner. When required by their employer to explain in a memorandum issued to each of them, they not only failed to do so but instead went on AWOL (absence without official leave), waited for the period to explain to expire and for petitioner to dismiss them. They thereafter filed an action for illegal dismissal on the far-fetched ground that they were dismissed because of union activities. Assuming that such acts do not constitute abandonment of their jobs as insisted by private respondents, their blatant disregard of their employer's memorandum is undoubtedly an open defiance to the lawful orders of the latter, a justifiable ground for termination of employment by the employer expressly provided for in Article 283(a) of the Labor Code as well as a clear indication of guilt for the commission of acts inimical to the interests of the employer, another justifiable ground for dismissal under the same Article of the Labor Code, paragraph (c). Well established in our jurisprudence is the right of an employer to dismiss an employee whose continuance in the service is inimical to the employer's interest. 16

In fact the Labor Arbiter himself to whom the explanation of private respondents was submitted gave no credence to their version and found their excuses that said barong tagalog was the one they got from the embroiderer for the Assistant Manager who was investigating them, unbelievable.

Under the circumstances, it is evident that there is no illegal dismissal of said employees. Thus, We have ruled that:

No employer may rationally be expected to continue in employment a person whose lack of morals, respect and loyalty to his employer, regard for his employer's rules, and appreciation of the dignity and responsibility of his office, has so plainly and completely been bared.

That there should be concern, sympathy, and solicitude for the rights and welfare of the working class, is meet and proper. That in controversies between a laborer and his master, doubts reasonably arising from the evidence, or in the interpretation of agreements and writings should be resolved in the former's favor, is not an unreasonable or unfair rule. But that disregard of the employer's own rights and interests can be justified by that concern and solicitude is unjust and unacceptable. (Stanford Microsystems, Inc. v. NLRC, 157 SCRA 414-415 [1988] ).

The law is protecting the rights of the laborer authorizes neither oppression nor self-destruction of the employer.17 More importantly, while the Constitution is committed to the policy of social justice and the protection of the working class, it should not be supposed that every labor dispute will automatically be decided in favor of labor.18

Finally, it has been established that the right to dismiss or otherwise impose discriplinary sanctions upon an employee for just and valid cause, pertains in the first place to the employer, as well as the authority to determine the existence of said cause in accordance with the norms of due process. 19

There is no evidence that the employer violated said norms. On the contrary, private respondents who vigorously insist on the existence of employer-employee relationship, because of the supervision and control of their employer over them, were the very ones who exhibited their lack of respect and regard for their employer's rules.

Under the foregoing facts, it is evident that petitioner Haberdashery had valid grounds to terminate the services of private respondents.

WHEREFORE, the decision of the National Labor Relations Commission dated March 30, 1988 and that of the Labor Arbiter dated June 10, 1986 are hereby modified. The complaint filed by Pelobello and Zapata for illegal dismissal docketed as NLRC NCR Case No. 2-428-85 is dismissed for lack of factual and legal bases. Award of service incentive leave pay to private respondents is deleted.

SO ORDERED.

Gutierrez, Jr., Feliciano, Bidin and Cortes, JJ., concur.

Footnotes

1 Rollo, p. 22.

2 Rollo, pp. 105-106.

3 Rollo, p. 27.

4 Rollo, p. 23.

5 Rollo, pp. 29-30.

6 Rollo, pp. 49-50.

7 Rollo, p. 8.

8 Bautista v. Inciong, G.R. No. 52824, March 16, 1988; Continental Marble Corporation, et al. v. NLRC, G.R. No. 43825, May 9, 1988; Asim et al. v. Castro, G.R. No. 75063-64, June 30, 1988; Brotherhood Labor Unity Mov't

in the Philippines v. Zamora, 147 SCRA 49 [1987]; Investment Planning Corp. of the Phil. v. Social Security System, 21 SCRA 924 [1967]; Mafinco v. Ople, 70 SCRA 139 [1976]; Rosario Brothers v. Ople, L-53590, 131 SCRA 72 [1984]; Shipside, Inc. v. NLRC, G.R. No. 50358, 118 SCRA 99 [1982]; American President Lines v. Clave, et al., G.R. No. 51641, 114 SCRA 826 [1982].

9 Social Security System v. Court of Appeals, 156 SCRA 383 [1987].

10 Rollo, pp. 80-81.

11 Rollo, p. 44.

12 Rules and Regulations Implementing P.D. 928.

13 Rollo, p. 29.

14 Alba v. Santander, G.R. No. L-28409, April 15, 1988.

15 Section 3, Rules Implementing Wage No. 1; Section 1 Chapter 3 of the Rules Implementing Wage No. 2; Section I Chapter 3 of the Rules Implementing Wage No. 5.

16 San Miguel Corporation v. NLRC, 142 SCRA 377 [1986].

17 Manila Trading & Supply Co. v. Zulueta, 69 Phil. 485 [1939]; Allied Banking Corp. v. Castro, 156 SCRA 789, 800 [1987].

18 Sosito v. Aguinaldo Development Corp., 156 SCRA 392, 396 [1978].

19 Richardson v. Demetriou 142 SCRA 505 [1986].

Republic of the PhilippinesSUPREME COURTManila

SECOND DIVISION

G.R. No. 159333 July 31, 2006

ARSENIO T. MENDIOLA, petitioner, vs.COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents.

D E C I S I O N

PUNO, J.:

On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July 30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations Commission (NLRC), which in turn set aside the July 30, 2001 Decision4 of the labor arbiter. The labor arbiter declared illegal the

dismissal of petitioner from employment and awarded separation pay, moral and exemplary damages, and attorney's fees.

The facts are as follows:

Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation duly organized under the laws of Sweden, with principal office in Gothenburg, Sweden.

Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995, "assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on the said date."6 The Side Agreement outlines the business relationship of the parties with regard to the Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base salary and the overhead expenditures of the company shall be borne by the representative office and funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.

On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact business in the Philippines under the name of Pacfor or Pacfor Phils.7 In its application, private respondent Pacfor proposed to establish its representative office in the Philippines with the purpose of monitoring and coordinating the market activities for paper products. It also designated petitioner as its resident agent in the Philippines, authorized to accept summons and processes in all legal proceedings, and all notices affecting the corporation.8

In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing Agreement for the Representative Office Known as Pacific Forest Resources (Philippines),"9 where the salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational expenses will be borne by the representative office and funded by all parties "as equal partners," while the profits and commissions will be shared among them.

In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his 50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President, replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's representative office and not an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical company' with the purpose of dividing the income 50-50."11 Petitioner presumably knew of this arrangement from the start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes.12

Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He alleged he would have been better off remaining as an independent agent or representative of Pacfor-USA as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not have allowed Pacfor to take the profitable business of his own company, ATM Marketing Corp.14 Petitioner raised other issues, such as the rentals of office furniture, salary of the employees, company car, as well as

commissions allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office furniture and equipment rentals, amounting to more than one million dollars.15

On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's possession that belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor also required petitioner to remit more than three hundred thousand-peso Christmas giveaway fund for clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it possession of the service car.18

Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000, private respondent Pacfor stated:

Until further notice, please course all inquiries and communications for Pacific Forest Resources (Philippines) to:

Paci fic Forest Resources200 Tamal Plaza, Suite 200Corte Madera, CA, USA 94925(415) 927 1700 phone(415) 381 4358 fax

Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines.19

In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, private respondent directed said client "to please communicate directly with us on any further questions associated with these payments or any future business. Do not communicate with [Pacfor] and/or [ATM]."20

Petitioner construed these directives as a severance of the "unregistered partnership" between him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.21 In a memorandum to the employees of Pacfor Phils., dated January 29, 2001, he stated:

I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to them effective December 19, 2000. The company records were turned over only on January 26, 2001. This means our jobs with Pacific Forest were terminated effective December 19, 2000. I am concerned about your welfare. I would like to help you by offering you to work with ATM Marketing Corporation.

Please let me know if you are interested.22

On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils. Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to offset these with the remaining Christmas giveaway fund in his possession.23 Furthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils.,

wherein he was the signatory to the lease agreement.24

On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and ordered him to show cause why no disciplinary action should be taken against him. Private respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for allegedly allowing another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and business of private respondent for HEPI's principal, International Forest Products, a competitor of private respondent.25

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office premises,26 and demanded payment of his separation pay.27 On February 15, 2001, petitioner filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees with the NLRC.28

In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum dated March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined for serious misconduct and confict of interest. Private respondent charged petitioner anew with serious misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the release of an additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private respondent also accused petitioner of disloyalty and representation of conficting interests for having continued using the Pacfor Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited business for HEPI from a competitor company of private respondent Pacfor.29

Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By directing petitioner to turn over all office records and materials, regardless of whether he may have retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual diminution of his authority as resident manager. Petitioner's position as resident manager whose duty, among others, was to maintain the security of its business transactions and communications was rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads:

WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service, whichever is higher(sic), as reinstatement is no longer feasible by reason of the strained relations of the parties equivalent to five (5) months in the amount of $32,000.00 plus the sum of P250,000.00; pay complainant the sum ofP500,000.00 as moral and exemplary damages and ten percent (10%) of the amounts awarded as and for attorney's fees.

All other claims are dismissed for lack of basis.

SO ORDERED.30

Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of merit.31 It held there was no employer-employee relationship between the parties. Based on the two agreements between the parties, it concluded that petitioner is not an employee of private respondent Pacfor, but a full co-owner (50/50 equity).

The NLRC denied petitioner's Motion for Reconsideration.32

Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the ruling of the NLRC.

Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.

Hence, this appeal.34

Petitioner assigns the following errors:

A. The Respondent Court of Appeals committed reversible error and abused its discretion in rendering judgment against petitioner since jurisdiction has been acquired over the subject matter of the case as there exists employer-employee relationship between the parties.

B. The Respondent Court of Appeals committed reversible error and abused its discretion in ruling that jurisdiction over the subject matter cannot be waived and may be alleged even for the first time on appeal or considered by the court motu prop[r]io.35

The first issue is whether an employer-employee relationship exists between petitioner and private respondent Pacfor.

Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the same time be an employee of the partnership, provided there is such an agreement, which, in this case, is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of Appeals denied the appeal of petitioner, holding that "the legal basis of the complaint is not employment but perhaps partnership, co-ownership, or independent contractorship." Hence, the Labor Code cannot apply.

We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-ownership exists between the parties.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all property that may be acquired thereby and through the efforts of the members.36 The property or stock of the partnership forms a community of goods, a common fund, in which each party has a proprietary interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific partnership property.38 Each partner possesses a joint interest in the whole of partnership property. If the relation does not have this feature, it is not one of partnership.39 This essential element, the community of interest, or co-ownership of, or joint interest in partnership property is absent in the relations between petitioner and private respondent Pacfor. Petitioner is

not a part-owner of Pacfor Phils. William Gleason, private respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He stressed that petitioner knew of this arrangement from the very start, having been the one to propose to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not make a partnership.40

Besides, a corporation cannot become a member of a partnership in the absence of express authorization by statute or charter.41 This doctrine is based on the following considerations: (1) that the mutual agency between the partners, whereby the corporation would be bound by the acts of persons who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that such an arrangement would improperly allow corporate property to become subject to risks not contemplated by the stockholders when they originally invested in the corporation.42 No such authorization has been proved in the case at bar.

Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is present in the case at bar. 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 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.43

In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to $65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the power of dismissal, as may be gleaned through the various memoranda it issued against petitioner, placing the latter on preventive suspension while charging him with various offenses, including willful disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no disciplinary action should be taken against him.

Lastly and most important, private respondent Pacfor has the power of control over the means and method of petitioner in accomplishing his work.

The power of control refers merely to the existence of the power, and not to the actual exercise thereof. The principal consideration is whether the employer has the right to control the manner of doing the work, and it is not the actual exercise of the right by interfering with the work, but the right to control, which constitutes the test of the existence of an employer-employee relationship.44 In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on its behalf.

This right of control was exercised by private respondent Pacfor during the period of November to December 2000, when it directed petitioner to turn over to it all records

of Pacfor Phils.; when it ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the possession of the service car. It was also during this period when private respondent Pacfor sent letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor replied to the client's request for an invoice payment extension, and formulated a revised payment program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control over the petitioner.

Next, we shall determine if petitioner was constructively dismissed from employment.

The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits to make him feel that his presence in the company was no longer wanted. First, private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would certainly make the work of petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered petitioner to transfer title and turn over to it the possession of the service car. It also advised its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.45

Although there is no reduction of the salary of petitioner, constructive dismissal is still present because continued employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of clear discrimination, insensibility or disdain by the employer that continued employment may become so unbearable on the part of the employee so as to foreclose any choice on his part except to resign from such employment.47

The harassing acts of the private respondent are unjustified. They were undertaken when petitioner sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives against petitioner was a valid exercise of management prerogative. We remind private respondent Pacfor that the exercise of management prerogative is not absolute. "By its very nature, encompassing as it could be, management prerogative must be exercised in good faith and with due regard to the rights of labor – verily, with the principles of fair play at heart and justice in mind." The exercise of management prerogative cannot be utilized as an implement to circumvent our laws and oppress employees.48

As resident agent of private respondent corporation, petitioner occupied a position involving trust and confidence. In the light of the strained relations between the parties, the full restoration of an employment relationship based on trust and confidence is no longer possible. He should be awarded separation pay, in lieu of reinstatement.

IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the National Labor Relations Commission,

are ANNULED and SET ASIDE. The July 30, 2001 Decision of the Labor Arbiter isREINSTATED with the MODIFICATION that the amount of P250,000.00 representing an alleged increase in petitioner's salary shall be deducted from the grant of separation pay for lack of evidence.

SO ORDERED.

Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.

Footnotes

1 CA rollo, pp. 1058-1072.

2 Id. at 1105.

3 Id. at 28-37.

4 Id. at 118-139.

5 Id. at 682-683.

6 Id. at 683.

7 Rollo, p. 63.

8 Id. at 64.

9 CA rollo, p. 684. Other terms of the revised agreement include:

a) ATM and Pacfor-USA shall jointly manage Pacfor Phils.

b) Pacfor-Phils. will earn commissions at 1.5% of F.O.B. value, the computation of which shall be shown in a credit memo issued by Cellmark/Pacfor.

c) Losses, if any, will be reimbursed by Cellmark/Pacfor to ATM for ATM's share of the loss, for two consecutive years beginning with the first year of loss.

d) The revised agreement shall take effect on January 1, 1997.

e) Cash paid to the representative office by Pacific Paper belongs to Pacfor and will be held in trust by ATM.

10 Id. at 685.

11 Rollo, p. 528.

12 Id. at 527.

13 Ibid.

14 Id. at 532.

15 Id. at 539.

16 Id. at 541.

17 Id. at 544.

18 Id. at 545.

19 CA rollo, p. 829.

20 Id. at 828.

21 Rollo, pp. 546-550.

22 Id. at 553.

23 Id. at 546-550.

24 Id. at 560.

25 Id. at 554-558.

26 Id. at 560.

27 Id. at 561.

28 CA rollo, p. 652.

29 Rollo, pp. 562-563.

30 Id. at 150.

31 Id. at 231-240.

32 CA rollo, pp. 333-335.

33 Id. at 84-86.

34 Rollo, pp. 14-36.

35 Id. at 27.

36 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing Nelson v. Abraham, 177 P.2d 931 (1947); Henry v. Darnall, 246 Ill.App. 250 (1927), cited in Notes of Decisions, 7 U.L.A. 15 (1949).

37 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing Darden v. Cox, 123 So.2d 68 (1960).

38 Art. 1811 (1st par.).

39 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed.

40 Fortis v. Gutierrez Hermanos, 6 Phil. 100 (1906).

41 J.M. Tuason v. Bolanos, 95 Phil. 106 (1954); Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing 60 A.L.R.2d 917; 6 Fletcher, Cyclopedia of Corporations, Sec. 2520 (1950).

42 Esteban B. Bautista, Treatise on Philippine Partnership Law, 1978 ed., citing 13 Am.Jur. 830; 60 A.L.R.2d 913.

43 Sy v. Court of Appeals, G.R. No. 142293, February 27, 2003, 398 SCRA 301, citing Caurdanetaan Piece Workers Union v. Laguesma, 286 SCRA 401, 420 (1998); Maraguinot, Jr. v. NLRC, 284 SCRA 539, 552 (1998); APP Mutual Benefit Association, Inc. v. NLRC, 267 SCRA 47, 57 (1997); Aurora Land Projects Corp. v. NLRC, 266 SCRA 48, 59 (1997); Encyclopedia Britannica (Phils.), Inc. v. NLRC, 264 SCRA 1, 6-7 (1996).

44 Feati University v. Bautista, G.R. No. L-21278, December 27, 1966, 18 SCRA 1191, 1217, citingAmalgamated Roofing Co. v. Travelers' Ins. Co., 133 N.E. 259,

261; 300 Ill. 487.

45 CA rollo, pp. 724-733.

46 Philippine Japan Active Carbon Corp. v. NLRC, G.R. No. 83239, March 8, 1989, 171 SCRA 164.

47 Unicorn Safety Glass, Inv. v. Basarte, G.R. No. 154689, November 25, 2004, 444 SCRA 287.

48 Ibid.

FIRST DIVISION

[G.R. No. 138051. ]

JOSE Y. SONZA, petitioner, vs. ABS-CBN BROADCASTING CORPORATION, respondent.

D E C I S I O N

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari[1] assailing the Decision[2] of the Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza (“SONZA”). The Court of Appeals affirmed the findings of the National Labor Relations Commission (“NLRC”), which affirmed the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation (“ABS-CBN”) signed an Agreement (“Agreement”) with the Mel and Jay Management and Development Corporation (“MJMDC”). ABS-CBN was represented by its corporate officers while MJMDC was represented by SONZA, as President and General Manager, and Carmela

Tiangco (“TIANGCO”), as EVP and Treasurer. Referred to in the Agreement as “AGENT,” MJMDC agreed to provide SONZA’s services exclusively to ABS-CBN as talent for radio and television. The Agreement listed the services SONZA would render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, , Mondays to Fridays;

b. Co-host for Mel & Jay television program, , Sundays.[3]

ABS-CBN agreed to pay for SONZA’s services a monthly talent fee of P310,000 for the first year and P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent fees on the 10th and 25th days of the month.

On , SONZA wrote a letter to ABS-CBN’s President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalf of ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and career. We consider these acts of the station violative of the Agreement and the station as in breach thereof. In this connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under said Agreement.

Thank you for your attention.

Very truly yours,

(Sgd.)JOSE Y. SONZA

President and Gen. Manager[4]

On , SONZA filed a complaint against ABS-CBN before the Department of Labor and Employment, National Capital Region in . SONZA complained that ABS-CBN did not pay his salaries, separation pay, service incentive leave pay, 13th month pay, signing bonus, travel allowance and amounts due under the Employees Stock Option Plan (“ESOP”).

On , ABS-CBN filed a Motion to Dismiss on the ground that no employer-employee relationship existed between the parties. SONZA filed an Opposition to the motion on .

Meanwhile, ABS-CBN continued to remit SONZA’s monthly talent fees through his account at PCIBank, Quezon Avenue Branch, . In July 1996, ABS-CBN opened a new account with the same bank where ABS-CBN deposited SONZA’s talent fees and other payments due him under the Agreement.

In his Order dated , the Labor Arbiter[5] denied the motion to dismiss and directed

the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of respondent company until and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction over the instant case in this Office. And as to whether or not such claim would entitle complainant to recover upon the causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, the respondent’s plea of lack of employer-employee relationship may be pleaded only as a matter of defense. It behooves upon it the duty to prove that there really is no employer-employee relationship between it and the complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted their position papers on .

On , SONZA filed a Reply to Respondent’s Position Paper with Motion to Expunge Respondent’s Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBN’s witnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that the prevailing practice in the television and broadcast industry is to treat talents like SONZA as independent contractors.

The Labor Arbiter rendered his Decision dated dismissing the complaint for lack of jurisdiction.[6] The pertinent parts of the decision read as follows:

x x x

While Philippine jurisprudence has not yet, with certainty, touched on the “true nature of the contract of a talent,” it stands to reason that a “talent” as above-described cannot be considered as an employee by reason of the peculiar circumstances surrounding the engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent as a TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he undertook to render in accordance with his own style. The benefits conferred to complainant under the May 1994 Agreement are certainly very much higher than those generally given to employees. For one, complainant Sonza’s monthly talent fees amount to a staggering P317,000. Moreover, his engagement as a talent was covered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as he worked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to an employee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by the parties and not by reason of employer-employee relationship. As correctly put by the respondent, “All these benefits are merely talent fees and other contractual benefits and should not be deemed as ‘salaries, wages and/or other remuneration’ accorded to an employee, notwithstanding the nomenclature appended to these benefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is not controlling, but the intent of the parties to the Agreement conferring such benefit.”

The fact that complainant was made subject to respondent’s Rules and

Regulations, likewise, does not detract from the absence of employer-employee relationship. As held by the Supreme Court, “The line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means to achieve it.” (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).

x x x (Emphasis supplied)[7]

SONZA appealed to the NLRC. On , the NLRC rendered a Decision affirming the Labor Arbiter’s decision. SONZA filed a motion for reconsideration, which the NLRC denied in its Resolution dated .

On , SONZA filed a special civil action for certiorari before the Court of Appeals assailing the decision and resolution of the NLRC. On , the Court of Appeals rendered a Decision dismissing the case.[8]

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRC’s finding that no employer-employee relationship existed between SONZA and ABS-CBN. Adopting the NLRC’s decision, the appellate court quoted the following findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent of complainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of the principal itself. This fact is made particularly true in this case, as admittedly MJMDC ‘is a management company devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C. Tiangco.’ (Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a matter of fact, when complainant herein unilaterally rescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza, who himself signed the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties to the said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is the latest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement as the agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere ‘labor-only’ contractor of ABS-CBN such that there exist[s] employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find it indubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expressly admitted by the latter and MJMDC in the May 1994 Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts, the same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-appellee. As squarely apparent from complainant-appellant’s Position Paper, his claims for compensation for services, ‘13th month pay’, signing bonus and travel allowance against respondent-appellee are not based on the Labor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under Stock Purchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bears perusal:

‘Under [the May 1994 Agreement] with respondent ABS-CBN, the latter contractually bound itself to pay complainant a signing bonus consisting of shares of stocks…with FIVE HUNDRED THOUSAND PESOS (P500,000.00).

Similarly, complainant is also entitled to be paid 13th month pay based on an amount not lower than the amount he was receiving prior to effectivity of (the) Agreement’.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefit amounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.’

Thus, it is precisely because of complainant-appellant’s own recognition of the fact that his contractual relations with ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merely resigning from ABS-CBN, complainant-appellant served upon the latter a ‘notice of rescission’ of Agreement with the station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employee benefits, ‘he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of the Agreement but reserves the right to such recovery of the other benefits under said Agreement.’ (Annex 3 of the respondent ABS-CBN’s Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the Stock Purchase Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellant’s claims being anchored on the alleged breach of contract on the part of respondent-appellee, the same can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm of civil law and, thus, lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs. Villarama, 238 SCRA 267, , an action for breach of contractual obligation is intrinsically a civil dispute.[9] (Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship between SONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.[10] A special civil action for certiorari extends only to issues of want or excess of jurisdiction of the NLRC.[11] Such action cannot cover an inquiry into the correctness of the evaluation of the evidence which served as basis of the NLRC’s conclusion.[12] The Court of Appeals added that it could not re-

examine the parties’ evidence and substitute the factual findings of the NLRC with its own.[13]

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRC’S DECISION AND REFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEEN SONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE AND EVIDENCE TO SUPPORT SUCH A FINDING.[14]

The Court’s Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirming the NLRC ruling which upheld the Labor Arbiter’s dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws and jurisprudence define clearly the elements of an employer-employee relationship, this is the first time that the Court will resolve the nature of the relationship between a television and radio station and one of its “talents.” There is no case law stating that a radio and television program host is an employee of the broadcast station.

The instant case involves big names in the broadcast industry, namely Jose “Jay” Sonza, a known television and radio personality, and ABS-CBN, one of the biggest television and radio networks in the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was an employee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdiction because SONZA was an independent contractor.

Employee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courts accord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality when supported by substantial evidence.[15] Substantial evidence means such relevant evidence as a reasonable mind might accept as adequate to support a conclusion.[16] A party cannot prove the absence of substantial evidence by

simply pointing out that there is contrary evidence on record, direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal in determining where the weight of evidence lies or what evidence is credible.[17]

SONZA maintains that all essential elements of an employer-employee relationship are present in this case. Case law has consistently held that the elements of an employer-employee 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 on the means and methods by which the work is accomplished.[18] The last element, the so-called “control test”, is the most important element.[19]

A. Selection and Engagement of Employee

ABS-CBN engaged SONZA’s services to co-host its television and radio programs because of SONZA’s peculiar skills, talent and celebrity status. SONZA contends that the “discretion used by respondent in specifically selecting and hiring complainant over other broadcasters of possibly similar experience and qualification as complainant belies respondent’s claim of independent contractorship.”

Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee.

In any event, the method of selecting and engaging SONZA does not conclusively determine his status. We must consider all the circumstances of the relationship, with the control test being the most important element.

B. Payment of Wages

ABS-CBN directly paid SONZA his monthly talent fees with no part of his fees going to MJMDC. SONZA asserts that this mode of fee payment shows that he was an employee of ABS-CBN. SONZA also points out that ABS-CBN granted him benefits and privileges “which he would not have enjoyed if he were truly the subject of a valid job contract.”

All the talent fees and benefits paid to SONZA were the result of negotiations that led to the Agreement. If SONZA were ABS-CBN’s employee, there would be no need for

the parties to stipulate on benefits such as “SSS, Medicare, x x x and 13th month pay”[20] which the law automatically incorporates into every employer-employee contract.[21]Whatever benefits SONZA enjoyed arose from contract and not because of an employer-employee relationship.[22]

SONZA’s talent fees, amounting to P317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.

The payment of talent fees directly to SONZA and not to MJMDC does not negate the status of SONZA as an independent contractor. The parties expressly agreed on such mode of payment. Under the Agreement, MJMDC is the AGENT of SONZA, to whom MJMDC would have to turn over any talent fee accruing under the Agreement.

C. Power of Dismissal

For violation of any provision of the Agreement, either party may terminate their relationship. SONZA failed to show that ABS-CBN could terminate his services on grounds other than breach of contract, such as retrenchment to prevent losses as provided under labor laws.[23]

During the life of the Agreement, ABS-CBN agreed to pay SONZA’s talent fees as long as “AGENT and Jay Sonza shall faithfully and completely perform each condition of this Agreement.”[24] Even if it suffered severe business losses, ABS-CBN could not retrench SONZA because ABS-CBN remained obligated to pay SONZA’s talent fees during the life of the Agreement. This circumstance indicates an independent contractual relationship between SONZA and ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue paying SONZA’s talent fees during the remaining life of the Agreement even if ABS-CBN cancelled SONZA’s programs through no fault of SONZA.[25]

SONZA assails the Labor Arbiter’s interpretation of his rescission of the Agreement as an admission that he is not an employee of ABS-CBN. The Labor Arbiter stated that “if it were true that complainant was really an employee, he would merely resign, instead.” SONZA did actually resign from ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZA’s letter clearly bears this out.

[26] However, the manner by which SONZA terminated his relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does not determine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employee or an independent contractor, we refer to foreign case law in analyzing the present case. The Court of Appeals, First Circuit, recently held in Alberty-Vélez v. Corporación De Puerto Rico Para La Difusión Pública (“WIPR”)[27] that a television program host is an independent contractor. We quote the following findings of the court:

Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled position requiring talent and training not available on-the-job. x x x In this regard, Alberty possesses a master’s degree in public communications and journalism; is trained in dance, singing, and modeling; taught with the drama department at the University of Puerto Rico; and acted in several theater and television productions prior to her affiliation with “Desde Mi Pueblo.” Second, Alberty provided the “tools and instrumentalities” necessary for her to perform. Specifically, she provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this factor favors independent contractor status because WIPR provided the “equipment necessary to tape the show.” Alberty’s argument is misplaced. The equipment necessary for Alberty to conduct her job as host of “Desde Mi Pueblo” related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function. If we accepted this argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming “Desde Mi Pueblo.” Alberty’s contracts with WIPR specifically provided that WIPR hired her “professional services as Hostess for the Program Desde Mi Pueblo.” There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x x[28] (Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but an independent contractor. The control test is the most important test our courts apply in distinguishing an employee from an independent contractor.[29] This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well – the less control the hirer exercises, the more likely the worker is considered an independent contractor.[30]

First, SONZA contends that ABS-CBN exercised control over the means and methods of his work.

SONZA’s argument is misplaced. ABS-CBN engaged SONZA’s services specifically to co-host the “Mel & Jay” programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBN’s control. SONZA did not have to render eight hours of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as pre- and post-production staff meetings.[31] ABS-CBN could not dictate the contents of SONZA’s script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests.[32] The clear implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZA’s work.[33] ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule “for more effective programming.”[34] ABS-CBN’s sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of SONZA’s work.

SONZA claims that ABS-CBN’s power not to broadcast his shows proves ABS-CBN’s power over the means and methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZA’s show, ABS-CBN was still obligated to pay SONZA’s talent fees. Thus, even if ABS-CBN was completely dissatisfied with the means and methods of SONZA’s performance of his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZA’s show but ABS-CBN must still pay his talent fees in full.[35]

Clearly, ABS-CBN’s right not to broadcast SONZA’s show, burdened as it was by the obligation to continue paying in full SONZA’s talent fees, did not amount to control over the means and methods of the performance of SONZA’s work. ABS-CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he delivered his lines and appeared on television - did not meet ABS-CBN’s approval. This proves that ABS-CBN’s control was limited only to the result of SONZA’s work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZA’s talent fees in full until the expiry of the Agreement.

In , et al. v. Warner, et al.,[36] the United States Circuit Court of Appeals ruled that vaudeville performers were independent contractors although the management reserved the right to delete objectionable features in their shows. Since the management did not have control over the manner of performance of the skills of the artists, it could only control the result of the work by deleting objectionable features.[37]

SONZA further contends that ABS-CBN exercised control over his work by

supplying all equipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed to broadcast the “Mel & Jay” programs. However, the equipment, crew and airtime are not the “tools and instrumentalities” SONZA needed to perform his job. What SONZA principally needed were his talent or skills and the costumes necessary for his appearance. [38] Even though ABS-CBN provided SONZA with the place of work and the necessary equipment, SONZA was still an independent contractor since ABS-CBN did not supervise and control his work. ABS-CBN’s sole concern was for SONZA to display his talent during the airing of the programs.[39]

A radio broadcast specialist who works under minimal supervision is an independent contractor.[40] SONZA’s work as television and radio program host required special skills and talent, which SONZA admittedly possesses. The records do not show that ABS-CBN exercised any supervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBN’s employee because ABS-CBN subjected him to its rules and standards of performance. SONZA claims that this indicates ABS-CBN’s control “not only [over] his manner of work but also the quality of his work.”

The Agreement stipulates that SONZA shall abide with the rules and standards of performance “covering talents”[41] of ABS-CBN. The Agreement does not require SONZA to comply with the rules and standards of performance prescribed for employees of ABS-CBN. The code of conduct imposed on SONZA under the Agreement refers to the “Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Code of Ethics.”[42] The KBP code applies to broadcasters, not to employees of radio and television stations. Broadcasters are not necessarily employees of radio and television stations. Clearly, the rules and standards of performance referred to in the Agreement are those applicable to talents and not to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter is an employee of the former.[43] In this case, SONZA failed to show that these rules controlled his performance. We find that these general rules are merely guidelines towards the achievement of the mutually desired result, which are top-rating television and radio programs that comply with standards of the industry. We have ruled that:

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

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it.[44]

The case also held that one could still be an independent contractor although the hirer reserved certain supervision to insure the attainment of the desired result. The hirer, however, must not deprive the one hired from performing his services according to his own initiative.[45]

Lastly, SONZA insists that the “exclusivity clause” in the Agreement is the most extreme form of control which ABS-CBN exercised over him.

This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an employee of ABS-CBN. Even an independent contractor can validly provide his services exclusively to the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainment industry.[46] This practice is not designed to control the means and methods of work of the talent, but simply to protect the investment of the broadcast station. The broadcast station normally spends substantial amounts of money, time and effort “in building up its talents as well as the programs they appear in and thus expects that said talents remain exclusive with the station for a commensurate period of time.”[47] Normally, a much higher fee is paid to talents who agree to work exclusively for a particular radio or television station. In short, the huge talent fees partially compensates for exclusivity, as in the present case.

MJMDC as Agent of SONZA

SONZA protests the Labor Arbiter’s finding that he is a talent of MJMDC, which contracted out his services to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employee of ABS-CBN. SONZA insists that MJMDC is a “labor-only” contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved: (1) the “labor-only” contractor; (2) the employee who is ostensibly under the employ of the “labor-only” contractor; and (3) the principal who is deemed the real employer. Under this scheme, the “labor-only” contractor is the agent of the principal. The law makes the principal responsible to the employees of the “labor-only contractor” as if the principal itself directly hired or employed the employees.[48] These circumstances are not present in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as SONZA’s agent. The Agreement expressly states that MJMDC acted as the “AGENT” of SONZA. The records do not show that MJMDC acted as ABS-CBN’s agent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is a corporation organized and owned by SONZA and TIANGCO. The President and General Manager of MJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and

managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, who himself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN and SONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing the careers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any other business, not even job contracting. MJMDC does not have any other function apart from acting as agent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.[49]

Policy Instruction No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on finally settled the status of workers in the broadcast industry. Under this policy, the types of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effect of law. There is no legal presumption that Policy Instruction No. 40 determines SONZA’s status. A mere executive issuance cannot exclude independent contractors from the class of service providers to the broadcast industry. The classification of workers in the broadcast industry into only two groups under Policy Instruction No. 40 is not binding on this Court, especially when the classification has no basis either in law or in fact.

Affidavits of ABS-CBN’s Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and Rolando Cruz without giving his counsel the opportunity to cross-examine these witnesses. SONZA brands these witnesses as incompetent to attest on the prevailing practice in the radio and television industry. SONZA views the affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBN’s witnesses, he was never prevented from denying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether to conduct a formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

x x x

These verified position papers shall cover only those claims and causes of action raised in the complaint excluding those that may have been amicably settled, and shall be

accompanied by all supporting documents including the affidavits of their respective witnesses which shall take the place of the latter’s direct testimony. x x x

Section 4. Determination of Necessity of Hearing. – Immediately after the submission of the parties of their position papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formal trial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, ask clarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevant documentary evidence, if any from any party or witness.[50]

The Labor Arbiter can decide a case based solely on the position papers and the supporting documents without a formal trial.[51] The holding of a formal hearing or trial is something that the parties cannot demand as a matter of right.[52] If the Labor Arbiter is confident that he can rely on the documents before him, he cannot be faulted for not conducting a formal trial, unless under the particular circumstances of the case, the documents alone are insufficient. The proceedings before a Labor Arbiter are non-litigious in nature. Subject to the requirements of due process, the technicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedings before a Labor Arbiter.

Talents as Independent Contractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainment industries to treat talents like SONZA as independent contractors. SONZA argues that if such practice exists, it is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution[53] arises only if there is an employer-employee relationship under labor laws. Not every performance of services for a fee creates an employer-employee relationship. To hold that every person who renders services to another for a fee is an employee - to give meaning to the security of tenure clause - will lead to absurd results.

Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press.

Different Tax Treatment of Talents and Broadcasters

The National Internal Revenue Code (“NIRC”)[54] in relation to Republic Act No. 7716,[55] as amended by Republic Act No. 8241,[56] treats talents, television and radio broadcasters differently. Under the NIRC, these professionals are subject to the 10% value-added tax (“VAT”) on services they render. Exempted from the VAT are those under an employer-employee relationship.[57] This different tax treatment accorded to talents and broadcasters bolters our conclusion that they are independent contractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZA’s Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13th month pay, separation pay, service incentive leave, signing bonus, travel allowance, and amounts due under the Employee Stock Option Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZA’s claims are all based on the May 1994 Agreement and stock option plan, and not on the Labor Code. Clearly, the present case does not call for an application of the Labor Code provisions but an interpretation and implementation of the May 1994 Agreement. In effect, SONZA’s cause of action is for breach of contract which is intrinsically a civil dispute cognizable by the regular courts.[58]

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, and Azcuna, JJ., concur.

[1] Under Rule 45 of the Rules of Court.

[2] Penned by Associate Justice Eugenio S. Labitoria with Associate Justices Jesus M. Elbinias and Marina L. Buzon concurring.

[3] Rollo, p. 150.

[4] Ibid., p. 204.

[5] Donato G. Quinto, Jr.

[6] Rollo, pp. 114-130.

[7] Ibid., pp. 123-125.

[8] Ibid., p. 39.

[9] Rollo, pp. 37-39.

[10] Ibid., p. 39.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] Ibid., p. 269.

[15] Fleischer Company, Inc. v . National Labor Relations Commission, G.R. No. 121608 , 26 March 2001, 355 SCRA 105; AFP Mutual Benefit Association, Inc. v . NLRC, G.R. No. 102199, 28 January 1997, 267 SCRA 47; Cathedral School of Technology v. NLRC, G.R. No. 101438, 13 October 1992, 214 SCRA 551. See also Ignacio v. Coca-Cola Bottlers Phils., Inc., 417 Phil. 747 (2001); Gonzales v . National Labor Relations Commission, G.R. No. 131653, 26 March 2001, 355 SCRA 195; Sandigan Savings and Loan Bank, Inc. v. NLRC, 324 Phil. 348 (1996); Magnolia Dairy Products Corporation v. NLRC, 322 Phil. 508 (1996).

[16] Madlos v. NLRC, 324 Phil. 498 (1996).

[17] Domasig v . National Labor Relations Commission, G.R. No. 118101 , , 261 SCRA 779.

[18] De Los Santos v. NLRC, 423 Phil. 1020 (2001); Traders Royal Bank v. NLRC, 378 Phil. 1081 (1999); Aboitiz Shipping Employees Association v. National Labor Relations Commission, G.R. No. 78711, 27 June 1990, 186 SCRA 825; Ruga v. National Labor Relations Commission, G.R. Nos. 72654-61, 22 January 1990, 181 SCRA 266.

[19] Ibid.

[20] Paragraph 10 of the Agreement provides: “The COMPANY shall provide him with the following benefits: SSS, Medicare, Healthcare, executive life and accident insurance, and a 13th-month pay based on an amount not lower than the amount he was receiving prior to the effectivity of this Agreement.”

[21] Presidential Decree No. 851 (Requiring All Employers to Pay their Employees a 13th-month Pay) for the 13th month pay; Republic Act No. 1161 (Social Security Law) for the SSS benefits; and Republic Act No. 7875 (National Health

Insurance Act of 1995) for the Philhealth insurance.

[22] Article 1157 of the Civil Code explicitly provides:

Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (Emphasis supplied)

[23] See Article 283, Labor Code.

[24] Paragraph 7 of the Agreement states: “Provided that the AGENT and Jay Sonza shall faithfully and completely perform each condition of this Agreement for and in consideration of the aforesaid services by the AGENT and its talent, the COMPANY agrees to pay the AGENT for the first year of this Agreement the amount of THREE HUNDRED TEN THOUSAND PESOS ONLY (P310,000.00) per month, payable on the 10th and 25th of each month. For the second and third year of this Agreement, the COMPANY shall pay the amount of THREE HUNDRED SEVENTEEN THOUSAND PESOS ONLY (P317,000.00) per month, payable likewise on the 10th and 25th of the each month.”

[25] Paragraph 11 of the Agreement states: “ In the event of cancellation of this Agreement through no fault of the AGENT and its talent, COMPANY agrees to pay the full amount specified in this Agreement for the remaining period covered by this Agreement, provided that the talent shall not render any service for or in any other radio or television production of any person, firm, corporation or any entity competing with the COMPANY until the expiry hereof.”

[26] The opening sentence of the second paragraph of SONZA’s letter reads:

“As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs and career. xxx”

[27] 361 F.3d 1, .

[28] See also Spirides v. Reinhardt, 486 F. Supp. 685 (1980).

[29] In the , aside from the right of control test, there are the “economic reality” test and the “multi-factor test.” The tests are drawn from statutes, regulations, rules,

policies, rulings, case law and the like. The “right of control” test applies under the federal Internal Revenue Code (“IRC”). The “economic reality” test applies to the federal Fair Labor Standards Act (“FLSA”).[29] The California Division of Labor Standards Enforcement (“DLSE”) uses a hybrid of these two tests often referred to as the “multi-factor test” in determining who an employee is.

Most courts in the have utilized the control test to determine whether one is an employee. Under this test, a court must consider the hiring party’s right to control the manner and means by which the product is accomplished. Among other factors relevant to this inquiry are the skills required; the source of the instrumentalities and tools; the location of the work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party; the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party. (www.piercegorman.com, quoted from the article entitled “Management-side employment law advice for the entertainment industry” with subtitle “Classification of Workers: Independent Contractors versus Employee” by David Albert Pierce, Esq.)

[30] www.piercegorman.com, quoted from the article entitled “Management-side employment law advice for the entertainment industry” with subtitle “Classification of Workers: Independent Contractors versus Employee” by David Albert Pierce, Esq.

[31] Paragraph 4 of the Agreement provides: “AGENT will make available Jay Sonza for rehearsals and tapings of the Programs on the day and time set by the producer and director of the Programs and to attend pre and post production staff meetings.”

[32] Paragraph 15 of the Agreement provides: “AGENT, talent shall not use the Programs as a venue to broadcast or announce any criticism on any operational, administrative, or legal problems, situations or other matter which may occur, exist or alleged to have occurred or existed within the COMPANY. Likewise, AGENT, talent shall, in accordance with good broadcast management and ethics, take up with the proper officers of the COMPANY suggestions or criticisms on any matter or condition affecting the COMPANY or its relation to the public or third parties.”

[33] In Zhengxing v. Nathanson, 215 F.Supp.2d 114, citing Redd v. Summers, 232 F.3d 933 (D.C. Cir.), plaintiff’s superior was not involved in the actual performance that produced the final product.

[34] Paragraph 3 of the Agreement provides: “The COMPANY reserves the right to modify the program format and likewise change airtime schedule for more effective programming.”

[35] The right not to broadcast an independent contractor’s show also gives the radio and television station protection in case it deems the contents of the show libelous.

[36] 157 F.2d 26, .

[37] Ibid.

[38] In Zhengxing v. Nathanson, 215 F.Supp.2d 114, , plaintiff was also provided with the place of work and equipment to be used.

[39] In the Alberty case, the US Court of Appeals rejected Alberty’s contention that WIPR provided the “equipment necessary to tape the show.” The court held there that “the equipment necessary for Alberty to conduct her job as program host related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function.” Since Alberty provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance, she provided the “tools and instrumentalities” necessary for her to perform. The US Court of Appeals added that if it accepted Alberty’s argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration.

The Alberty case further ruled that “while ‘control’ over the manner, location, and hours of work is often critical to the independent contractor/employee analysis, it must be considered in light of the work performed and the industry at issue. Considering the tasks that an actor performs, the court does not believe that the sort of control identified by Alberty necessarily indicates employee status.”

[40] In Zhengxing, a Chinese language broadcaster and translator was deemed an independent contractor because she worked under minimal supervision. The court also found that plaintiff was required to possess specialized knowledge before commencing her position as a broadcaster.

[41] Paragraph 13 of the Agreement provides: “AGENT agrees that talent shall abide by the rules, regulations and standards of performance of the COMPANY covering talents, and that talent is bound to comply with the Television and Radio Code of the Kapisanan ng mga Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY as its Code of Ethics. AGENT shall perform and keep all of the duties and obligations assumed or entered by the AGENT hereunder using its best talents and abilities. Any violation of or non-conformity with this provision by talent shall be a valid and sufficient ground for the immediate termination of the Agreement.” (Emphasis supplied)

[42] Ibid.

[43] AFP Mutual Benefit Association, Inc. v. NLRC, G.R. No. 102199, , 267 SCRA 47.

[44] Ibid.

[45] Supra note 36.

[46] Rollo, p. 302.

[47] Ibid.

[48] The second paragraph of Article 106 of the Labor Code reads:

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.

[49] Rollo, p. 90.

[50] New Rules of Procedure of the National Labor Relations Commission, as amended by Resolution 3-99, series of 1999.

[51] University of the Immaculate v. U.I.C. Teaching and Non-Teaching Personnel and Employees , 414 Phil. 522 (2001).

[52] Philippine Bus Corp. v. NLRC, 417 Phil. 81 (2001).

[53] Section 3, Article XIII of the Constitution.

[54] Republic Act No. 8424. BIR Revenue Regulations No. 19-99 also provides the following:

SECTION 1. Scope. — Pursuant to the provisions of Sections 244 and 108 of the National Internal Revenue Code of 1997, in relation to Section 17 of Republic Act No. 7716, as amended by Section 11 of Republic Act 8241, these Regulations are hereby promulgated to govern the imposition of value-added tax on sale of services by persons engaged in the practice of profession or calling and professional services rendered by general professional partnerships; services rendered by actors, actresses, talents, singers and emcees, radio and television broadcasters and choreographers; musical, radio, movie, television and stage directors; and professional athletes.

SECTION 2. Coverage. — Beginning , general professional partnerships, professionals and persons described above shall be governed by the provisions of Revenue Regulation No. 7-95, as amended, otherwise known as the “Consolidated Value-Added Tax Regulations”. xxx

[55] Otherwise known as the Expanded Value-Added Tax Law.

[56] Act amending Republic Act No. 7716, otherwise known as the Expanded Value-Added Tax Law and other pertinent provisions of the National Internal Revenue Code, as amended (December 20, 1996).

[57] Section 109 of the NIRC provides:

Exempt transactions. – The following shall be exempt from the value-added tax:

xxx

(o) Services rendered by individuals pursuant to an employer-employee relationship; xxx

[58] Singapore Airlines Ltd. v. Hon. Cruz, etc., et al., 207 Phil. 585 (1983).

FIRST DIVISION

[G.R. No. 98107. August 18, 1997]

BENJAMIN C. JUCO, petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION and NATIONAL HOUSING CORPORATION,respondents.

D E C I S I O N

HERMOSISIMA, JR., J.:

This is a petition for certiorari to set aside the Decision of the National Labor Relations Commission (NLRC) dated March 14, 1991, which reversed the Decision dated May 21, 1990 of Labor Arbiter Manuel R. Caday, on the ground of lack of jurisdiction.

Petitioner Benjamin C. Juco was hired as a project engineer of respondent National Housing Corporation (NHC) from November 16, 1970 to May 14, 1975. On May 14, 1975, he was separated from the service for having been implicated in a crime of theft and/or malversation of public funds.

On March 25, 1977, petitioner filed a complaint for illegal dismissal against the

NHC with the Department of Labor.

On September 17, 1977, the Labor Arbiter rendered a decision dismissing the complaint on the ground that the NLRC had no jurisdiction over the case.[1]

Petitioner then elevated the case to the NLRC which rendered a decision on December 28, 1982, reversing the decision of the Labor Arbiter.[2]

Dissatisfied with the decision of the NLRC, respondent NHC appealed before this Court and on January 17, 1985, we rendered a decision, the dispositive portion thereof reads as follows:

“WHEREFORE, the petition is hereby GRANTED. The questioned decision of the respondent National Labor Relations Commission is SET ASIDE. The decision of the Labor Arbiter dismissing the case before it for lack of jurisdiction is REINSTATED.”[3]

On January 6, 1989, petitioner filed with the Civil Service Commission a complaint for illegal dismissal, with preliminary mandatory injunction.[4]

On February 6, 1989, respondent NHC moved for the dismissal of the complaint on the ground that the Civil Service Commission has no jurisdiction over the case.[5]

On April 11, 1989, the Civil Service Commission issued an order dismissing the complaint for lack of jurisdiction. It ratiocinated that:

“The Board finds the comment and/or motion to dismiss meritorious. It was not disputed that NHC is a government corporation without an original charter but organized/created under the Corporate Code.

Article IX, Section 2 (1) of the 1987 Constitution provides:

‘The civil service embraces all branches, subdivisions, instrumentalities and agencies of the government, including government owned and controlled corporations with original charters.’ (underscoring supplied)

From the aforequoted constitutional provision, it is clear that respondent NHC is not within the scope of the civil service and is therefore beyond the jurisdiction of this board. Moreover, it is pertinent to state that the 1987 Constitution was ratified and became effective on February 2, 1987.

WHEREFORE, for lack of jurisdiction, the instant complaint is hereby dismissed.”[6]

On April 28, 1989, petitioner filed with respondent NLRC a complaint for illegal dismissal with preliminary mandatory injunction against respondent NHC.[7]

On May 21, 1990, respondent NLRC thru Labor Arbiter Manuel R. Caday ruled that petitioner was illegally dismissed from his employment by respondent as there was evidence in the record that the criminal case against him was purely fabricated, prompting the trial court to dismiss the charges against him. Hence, he concluded that the dismissal was illegal as it was devoid of basis, legal or factual.

He further ruled that the complaint is not barred by prescription considering that

the period from which to reckon the reglementary period of four years should be from the date of the receipt of the decision of the Civil Service Commission promulgated on April 11, 1989. He also ratiocinated that:

“It appears x x x complainant filed the complaint for illegal dismissal with the Civil Service Commission on January 6, 1989 and the same was dismissed on April 11, 1989 after which on April 28, 1989, this case was filed by the complainant. Prior to that, this case was ruled upon by the Supreme Court on January 17, 1985 which enjoined the complainant to go to the Civil Service Commission which in fact, complainant did. Under the circumstances, there is merit on the contention that the running of the reglementary period of four (4) years was suspended with the filing of the complaint with the said Commission. Verily, it was not the fault of the respondent for failing to file the complaint as alleged by the respondent but due to, in the words of the complainant, a ‘legal knot’ that has to be untangled.”[8]

Thereafter, the Labor Arbiter rendered a decision, the dispositive portion of which reads:

"Premises considered, judgment is hereby rendered declaring the dismissal of the complainant as illegal and ordering the respondent to immediately reinstate him to his former position without loss of seniority rights with full back wages inclusive of allowance and to his other benefits or equivalent computed from the time it is withheld from him when he was dismissed on March 27, 1977, until actually reinstated.”[9]

On June 1, 1990, respondent NHC filed its appeal before the NLRC and on March 14, 1991, the NLRC promulgated a decision which reversed the decision of Labor Arbiter Manuel R. Caday on the ground of lack of jurisdiction.[10]

The primordial issue that confronts us is whether or not public respondent committed grave abuse of discretion in holding that petitioner is not governed by the Labor Code.

Under the laws then in force, employees of government-owned and /or controlled corporations were governed by the Civil Service Law and not by the Labor Code. Hence,

Article 277 of the Labor Code (PD 442) then provided:

"The terms and conditions of employment of all government employees, including employees of government-owned and controlled corporations shall be governed by the Civil Service Law, rules and regulations x x x.”

The 1973 Constitution, Article II-B, Section 1(1), on the other hand provided:

“The Civil Service embraces every branch, agency, subdivision and instrumentality of the government, including government-owned or controlled corporations.”

Although we had earlier ruled in National Housing Corporation v. Juco,[11] that employees of government-owned and/or controlled corporations, whether created by special law or formed as subsidiaries under the general Corporation Law, are governed by the Civil Service Law and not by the Labor Code, this ruling has been supplanted by

the 1987 Constitution. Thus, the said Constitution now provides:

“The civil service embraces all branches, subdivision, instrumentalities, and agencies of the Government, including government owned or controlled corporations with original charter.” (Article IX-B, Section 2[1])

In National Service Corporation (NASECO) v. National Labor Relations Commission,[12] we had the occasion to apply the present Constitution in deciding whether or not the employees of NASECO are covered by the Civil Service Law or the Labor Code notwithstanding that the case arose at the time when the 1973 Constitution was still in effect. We ruled that the NLRC has jurisdiction over the employees of NASECO on the ground that it is the 1987 Constitution that governs because it is the Constitution in place at the time of the decision. Furthermore, we ruled that the new phrase “with original charter” means that government-owned and controlled corporations refer to corporations chartered by special law as distinguished from corporations organized under the Corporation Code. Thus, NASECO which had been organized under the general incorporation stature and a subsidiary of the National Investment Development Corporation, which in turn was a subsidiary of the Philippine National Bank, is excluded from the purview of the Civil Service Commission.

We see no cogent reason to depart from the ruling in the aforesaid case.

In the case at bench, the National Housing Corporation is a government owned corporation organized in 1959 in accordance with Executive Order No. 399, otherwise known as the Uniform Charter of Government Corporation, dated January 1, 1959. Its shares of stock are and have been one hundred percent (100%) owned by the Government from its incorporation under Act 1459, the former corporation law. The government entities that own its shares of stock are the Government Service Insurance System, the Social Security System, the Development Bank of the Philippines, the National Investment and Development Corporation and the People’s Homesite and Housing Corporation.[13]Considering the fact that the NHA had been incorporated under act 1459, the former corporation law, it is but correct to say that it is a government-owned or controlled corporation whose employees are subject to the provisions of the Labor Code. This observation is reiterated in recent case of Trade Union of the Philippines and Allied Services (TUPAS) v. National Housing Corporation,[14] where we held that the NHA is now within the jurisdiction of the Department of Labor and Employment, it being a government-owned and/or controlled corporation without an original charter. Furthermore, we also held that the workers or employees of the NHC (now NHA) undoubtedly have the right to form unions or employee’s organization and that there is no impediment to the holding of a certification election among them as they are covered by the Labor Code.

Thus, the NLRC erred in dismissing petitioner’s complaint for lack of jurisdiction because the rule now is that the Civil Service now covers only government-owned or controlled corporations with original charters.[15] Having been incorporated under the Corporation Law, its relations with its personnel are governed by the Labor Code and come under the jurisdiction of the National Labor Relations Commission.

One final point. Petitioners have been tossed from one forum to another for a simple illegal dismissal case. It is but apt that we put an end to his dilemma in the interest of justice.

WHEREFORE, the decision of the NLRC in NLRC NCR-04-02036089 dated March 14, 1991 is hereby REVERSED and the Decision of the Labor Arbiter dated May 21, 1990 is REINSTATED.

SO ORDERED.

Padilla, (Chairman), Bellosillo, Vitug, and Kapunan, JJ., concur.

[1] Rollo, pp. 20-21.

[2] Id., pp. 22-26.

[3] Id., pp. 27-37.

[4] Id., pp. 38-42.

[5] Id., pp. 43-47.

[6] Id., p. 52.

[7] Id., pp. 53-58.

[8] Id., p. 68.

[9] Id., p. 69.

[10] Id., pp. 78-86.

[11] 134 SCRA 172 (1985).

[12] 168 SCRA 122 [1988].

[13] National Housing Corporation vs. Juco, 134 SCRA 172 (1985).

[14] 173 SCRA 33 (1989).

[15] PNOC-Energy Development Corporation v. NLRC, 201 SCRA 487 1991 The NHC (now NHA)

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-69870 November 29, 1988

NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L. PEREZ, petitioners, vs.THE HONORABLE THIRD DIVISION, NATIONAL LABOR RELATIONS COMMISSION, MINISTRY OF LABOR AND EMPLOYMENT, MANILA AND EUGENIA C. CREDO, respondents.

G.R. No. 70295 November 29,1988

EUGENIA C. CREDO, petitioner, vs.NATIONAL LABOR RELATIONS COMMISSION, NATIONAL SERVICES CORPORATION AND ARTURO L. PEREZ, respondents.

The Chief Legal Counsel for respondents NASECO and Arturo L. Perez.

Melchor R. Flores for petitioner Eugenia C. Credo.

PADILLA, J.:

Consolidated special civil actions for certiorari seeking to review the decision * of the Third Division, National Labor Relations Commission in Case No. 11-4944-83 dated 28 November 1984 and its resolution dated 16 January 1985 denying motions for reconsideration of said decision.

Eugenia C. Credo was an employee of the National Service Corporation (NASECO), a domestic corporation which provides security guards as well as messengerial, janitorial and other similar manpower services to the Philippine National Bank (PNB) and its agencies. She was first employed with NASECO as a lady guard on 18 July 1975. Through the years, she was promoted to Clerk Typist, then Personnel Clerk until she became Chief of Property and Records, on 10 March 1980. 1

Sometime before 7 November 1983, Credo was administratively charged by Sisinio S. Lloren, Manager of Finance and Special Project and Evaluation Department of NASECO, stemming from her non-compliance with Lloren's memorandum, dated 11 October 1983, regarding certain entry procedures in the company's Statement of Billings Adjustment. Said charges alleged that Credo "did not comply with Lloren's instructions to place some corrections/additional remarks in the Statement of Billings Adjustment; and when [Credo] was called by Lloren to his office to explain further the said instructions, [Credo] showed resentment and behaved in a scandalous manner by shouting and uttering remarks of disrespect in the presence of her co-employees." 2

On 7 November 1983, Credo was called to meet Arturo L. Perez, then Acting General Manager of NASECO, to explain her side before Perez and NASECO's Committee on Personnel Affairs in connection with the administrative charges filed against her. After said meeting, on the same date, Credo was placed on "Forced Leave" status for 1 5 days, effective 8 November 1983. 3

Before the expiration of said 15-day leave, or on 18 November 1983, Credo filed a complaint, docketed as Case No. 114944-83, with the Arbitration Branch, National Capital Region, Ministry of Labor and Employment, Manila, against NASECO for placing her on forced leave, without due process. 4

Likewise, while Credo was on forced leave, or on 22 November 1983, NASECO's Committee on Personnel Affairs deliberated and evaluated a number of past acts of misconduct or infractions attributed to her. 5 As a result of this deliberation, said committee resolved:

1. That, respondent [Credo] committed the following offenses in the Code of Discipline, viz:

OFFENSE vs. Company Interest & Policies

No. 3 — Any discourteous act to customer, officer and employee of client company or officer of the Corporation.

OFFENSE vs. Public Moral

No. 7 — Exhibit marked discourtesy in the course of official duties or use of profane or insulting language to any superior officer.

OFFENSE vs. Authority

No. 3 — Failure to comply with any lawful order or any instructions of a superior officer.

2. That, Management has already given due consideration to respondent's [Credo] scandalous actuations for several times in the past. Records also show that she was reprimanded for some offense and did not question it. Management at this juncture, has already met its maximum tolerance point so it has decided to put an end to respondent's [Credo] being an undesirable employee. 6

The committee recommended Credo's termination, with forfeiture of benefits. 7

On 1 December 1983, Credo was called age to the office of Perez to be informed that she was being charged with certain offenses. Notably, these offenses were those which NASECO's Committee on Personnel Affairs already resolved, on 22 November 1983 to have been committed by Credo.

In Perez's office, and in the presence of NASECO's Committee on Personnel Affairs, Credo was made to explain her side in connection with the charges filed against her; however, due to her failure to do so, 8 she was handed a Notice of Termination, dated 24 November 1983, and made effective 1 December 1983. 9 Hence, on 6 December 1983, Credo filed a supplemental complaint for illegal dismissal in Case No. 11-4944-83, alleging absence of just or authorized cause for her dismissal and lack of opportunity to be heard. 10

After both parties had submitted their respective position papers, affidavits and other documentary evidence in support of their claims and defenses, on 9 May 1984, the labor arbiter rendered a decision: 1) dismissing Credo's complaint, and 2) directing NASECO to pay Credo separation pay equivalent to one half month's pay for every year of service. 11

Both parties appealed to respondent National Labor Relations Commission (NLRC) which, on 28 November 1984, rendered a decision: 1) directing NASECO to reinstate Credo to her former position, or substantially equivalent position, with six (6) months' backwages and without loss of seniority rights and other privileges appertaining thereto, and 2) dismissing Credo's claim for attorney's fees, moral and exemplary damages. As a consequence, both parties filed their respective motions for reconsideration, 12 which the NLRC denied in a resolution of 16 January 1985. 13

Hence, the present recourse by both parties. In G.R. No. 68970, petitioners challenge as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which ordered Credo's reinstatement with backwages. 14 Petitioners contend that in arriving at said questioned order, the NLRC acted with grave abuse of discretion in finding that: 1) petitioners violated the requirements mandated by law on termination, 2) petitioners failed in the burden of proving that the termination of Credo was for a valid or authorized cause, 3) the alleged infractions committed by Credo were not proven or, even if proved, could be considered to have been condoned by petitioners, and 4) the termination of Credo was not for a valid or authorized cause. 15

On the other hand, in G.R. No. 70295, petitioner Credo challenges as grave abuse of discretion the dispositive portion of the 28 November 1984 decision which dismissed her claim for attorney's fees, moral and exemplary damages and limited her right to backwages to only six (6) months. 16

As guidelines for employers in the exercise of their power to dismiss employees for just causes, the law provides that:

Section 2. Notice of dismissal. — Any employer who seeks to dismiss a worker shall furnish him a written notice stating the particular acts or omission constituting the grounds for his dismissal.

xxx xxx xxx

Section 5. Answer and Hearing. — The worker may answer the allegations stated against him in the notice of dismissal within a reasonable period from receipt of such notice. The employer shall afford the worker ample opportunity to be heard and to defend himself with the assistance of his representative, if he so desires.

Section 6. Decision to dismiss. — The employer shall immediately notify a worker in writing of a decision to dismiss him stating clearly the reasons therefor. 17

These guidelines mandate that the employer furnish an employee sought to be dismissed two (2) written notices of dismissal before a termination of employment can be legally effected. These are the notice which apprises the employee of the particular acts or omissions for which his dismissal is sought and the subsequent notice which informs the employee of the employer's decision to dismiss him.

Likewise, a reading of the guidelines in consonance with the express provisions of law on protection to labor 18(which encompasses the right to security of tenure) and the broader dictates of procedural due process necessarily mandate that notice of the employer's decision to dismiss an employee, with reasons therefor, can only be issued after the employer has afforded the employee concerned ample opportunity to be heard and to defend himself.

In the case at bar, NASECO did not comply with these guidelines in effecting Credo's dismissal. Although she was apprised and "given the chance to explain her side" of the charges filed against her, this chance was given so perfunctorily, thus rendering illusory Credo's right to security of tenure. That Credo was not given ample opportunity to be heard and to defend herself is evident from the fact that the compliance with the injunction to apprise her of the charges filed against her and to afford her a chance to prepare for her defense was dispensed in only a day. This is not effective compliance with the legal requirements aforementioned.

The fact also that the Notice of Termination of Credo's employment (or the decision to dismiss her) was dated 24 November 1983 and made effective 1 December 1983 shows that NASECO was already bent on terminating her services when she was informed on 1 December 1983 of the charges against her, and that any hearing which NASECO thought of affording her after 24 November 1983 would merely be pro forma or an exercise in futility.

Besides, Credo's mere non-compliance with Lorens memorandum regarding the entry procedures in the company's Statement of Billings Adjustment did not warrant the severe penalty of dismissal of the NLRC correctly held that:

... on the charge of gross discourtesy, the CPA found in its Report, dated 22 November 1983 that, "In the process of her testimony/explanations she again exhibited a conduct unbecoming in front of NASECO Officers and argued to Mr. S. S. Lloren in a sarcastic and discourteous manner, notwithstanding, the fact that she was inside the office of the Acctg. General Manager." Let it be noted, however, that the Report did not even describe how the so called "conduct unbecoming" or "discourteous manner" was done by complainant. Anent the "sarcastic" argument of complainant, the purported transcript 19 of the meeting held on 7 November 1983 does not indicate any sarcasm on the part of complainant. At the most, complainant may have sounded insistent or emphatic about her work being more complete than the work of Ms. de Castro, yet, the complaining officer signed the work of Ms. de Castro and did not sign hers.

As to the charge of insubordination, it may be conceded, albeit unclear, that complainant failed to place same corrections/additional remarks in the Statement of Billings Adjustments as instructed. However, under the circumstances obtaining, where complainant strongly felt that she was being discriminated against by her superior in relation to other employees, we are of the considered view and so hold, that a reprimand would have sufficed for the infraction, but certainly not termination from services. 20

As this Court has ruled:

... where a penalty less punitive would suffice, whatever missteps may be committed by labor ought not to be visited with a consequence so severe. It is not only because of the law's concern for the working man. There is, in addition, his family to consider. Unemployment brings untold hardships and sorrows on those dependent on the wage-earner. 21

Of course, in justifying Credo's termination of employment, NASECO claims as additional lawful causes for dismissal Credo's previous and repeated acts of insubordination, discourtesy and sarcasm towards her superior officers, alleged to have been committed from 1980 to July 1983. 22

If such acts of misconduct were indeed committed by Credo, they are deemed to have been condoned by NASECO. For instance, sometime in 1980, when Credo allegedly "reacted in a scandalous manner and raised her voice" in a discussion with NASECO's Acting head of the Personnel Administration 23 no disciplinary measure was taken or meted against her. Nor was she even reprimanded when she allegedly talked 'in a shouting or yelling manner" with the Acting Manager of NASECO's Building Maintenance and Services Department in 1980 24 or when she allegedly "shouted" at NASECO's Corporate Auditor "in front of his subordinates displaying arrogance and unruly behavior" in 1980, or when she allegedly shouted at NASECO's Internal Control Consultant in 1981. 25 But then, in sharp contrast to NASECO's penchant for ignoring the aforesaid acts of misconduct, when Credo committed frequent tardiness in August and September 1983, she was reprimanded. 26

Even if the allegations of improper conduct (discourtesy to superiors) were satisfactorily proven, NASECO's condonation thereof is gleaned from the fact that on 4 October 1983, Credo was given a salary adjustment for having performed in the job "at least [satisfactorily]" 27 and she was then rated "Very Satisfactory" 28as regards job performance, particularly in terms of quality of work, quantity of work, dependability, cooperation, resourcefulness and attendance.

Considering that the acts or omissions for which Credo's employment was sought to be legally terminated were insufficiently proved, as to justify dismissal, reinstatement is proper. For "absent the reason which gave rise to [the employee's] separation from employment, there is no intention on the part of the employer to dismiss the employee concerned." 29 And, as a result of having been wrongfully dismissed, Credo is entitled to three (3) years of backwages without deduction and qualification. 30

However, while Credo's dismissal was effected without procedural fairness, an award of exemplary damages in her favor can only be justified if her dismissal was effected in a wanton, fraudulent, oppressive or malevolent manner. 31 A judicious examination of the record manifests no such conduct on the part of management. However, in view of the attendant circumstances in the case, i.e., lack of due process in effecting her dismissal, it is reasonable to award her moral damages. And, for having been compelled to litigate because of the unlawful actuations of NASECO, a reasonable award for attorney's fees in her favor is in order.

In NASECO's comment 32 in G.R. No. 70295, it is belatedly argued that the NLRC has no jurisdiction to order Credo's reinstatement. NASECO claims that, as a government corporation (by virtue of its being a subsidiary of the National Investment and Development Corporation (NIDC), a subsidiary wholly owned by the Philippine

National Bank (PNB), which in turn is a government owned corporation), the terms and conditions of employment of its employees are governed by the Civil Service Law, rules and regulations. In support of this argument, NASECO cites National Housing Corporation vs. JUCO, 33 where this Court held that "There should no longer be any question at this time that employees of government-owned or controlled corporations are governed by the civil service law and civil service rifes and regulations."

It would appear that, in the interest of justice, the holding in said case should not be given retroactive effect, that is, to cases that arose before its promulgation on 17 January 1985. To do otherwise would be oppressive to Credo and other employees similarly situated, because under the same 1973 Constitution ,but prior to the ruling in National Housing Corporation vs. Juco, this Court had recognized the applicability of the Labor Code to, and the authority of the NLRC to exercise jurisdiction over, disputes involving terms and conditions of employment in government owned or controlled corporations, among them, the National Service Corporation (NASECO).<äre||anº•1àw> 34

Furthermore, in the matter of coverage by the civil service of government-owned or controlled corporations, the 1987 Constitution starkly varies from the 1973 Constitution, upon which National Housing Corporation vs. Jucois based. Under the 1973 Constitution, it was provided that:

The civil service embraces every branch, agency, subdivision, and instrumentality of the Government, including every government-owned or controlled corporation. ... 35

On the other hand, the 1987 Constitution provides that:

The civil service embraces all branches, subdivisions, instrumentalities, and agencies of the Government, including government-owned or controlled corporations with original charter. 36 (Emphasis supplied)

Thus, the situations sought to be avoided by the 1973 Constitution and expressed by the Court in the National Housing . Corporation case in the following manner —

The infirmity of the respondents' position lies in its permitting a circumvention or emasculation of Section 1, Article XII-B of the constitution. It would be possible for a regular ministry of government to create a host of subsidiary corporations under the Corporation Code funded by a willing legislature. A government-owned corporation could create several subsidiary corporations. These subsidiary corporations would enjoy the best of two worlds. Their officials and employees would be privileged individuals, free from the strict accountability required by the Civil Service Decree and the regulations of the Commission on Audit. Their incomes would not be subject to the competitive restrains of the open market nor to the terms and conditions of civil service employment. Conceivably, all government-owned or controlled corporations could be created, no longer by special charters, but through incorporations under the general law. The Constitutional amendment including such corporations in the embrace of the civil service would cease to have application. Certainly, such a situation cannot be allowed to exist. 37

appear relegated to relative insignificance by the 1987 Constitutional provision that

the Civil Service embraces government-owned or controlled corporations with original charter; and, therefore, by clear implication, the Civil Service does not include government-owned or controlled corporations which are organized as subsidiaries of government-owned or controlled corporations under the general corporation law.

The proceedings in the 1986 Constitutional Commission also shed light on the Constitutional intent and meaning in the use of the phrase "with original charter." Thus

THE PRESIDING OFFICER (Mr. Trenas) Commissioner Romulo is recognized.

MR. ROMULO. I beg the indulgence of the Committee. I was reading the wrong provision.

I refer to Section 1, subparagraph I which reads:

The Civil Service embraces all branches, subdivisions, instrumentalities, and agencies of the government, including government-owned or controlled corporations.

My query: Is Philippine Airlines covered by this provision? MR. FOZ. Will the Commissioner please state his previous question?

MR. ROMULO. The phrase on line 4 of Section 1, subparagraph 1, under the Civil Service Commission, says: "including government-owned or controlled corporations.' Does that include a corporation, like the Philippine Airlines which is government-owned or controlled?

MR. FOZ. I would like to throw a question to the Commissioner. Is the Philippine Airlines controlled by the government in the sense that the majority of stocks are owned by the government?

MR. ROMULO. It is owned by the GSIS. So, this is what we might call a tertiary corporation. The GSIS is owned by the government. Would this be covered because the provision says "including government-owned or controlled corporations."

MR. FOZ. The Philippine Airlines was established as a private corporation. Later on, the government, through the GSIS, acquired the controlling stocks. Is that not the correct situation?

MR. ROMULO. That is true as Commissioner Ople is about to explain. There was apparently a Supreme Court decision that destroyed that distinction between a government-owned corporation created under the Corporation Law and a government-owned corporation created by its own charter.

MR. FOZ. Yes, we recall the Supreme Court decision in the case of NHA vs. Juco to the effect that all government corporations irrespective of the manner of creation, whether

by special charter or by the private Corporation Law, are deemed to be covered by the civil service because of the wide-embracing definition made in this section of the existing 1973 Constitution. But we recall the response to the question of Commissioner Ople that our intendment in this provision is just to give a general description of the civil service. We are not here to make any declaration as to whether employees of government-owned or controlled corporations are barred from the operation of laws, such as the Labor Code of the Philippines.

MR. ROMULO. Yes.

MR. OPLE. May I be recognized, Mr. Presiding Officer, since my name has been mentioned by both sides.

MR. ROMULO. I yield part of my time.

THE PRESIDING OFFICER (Mr.Trenas). Commissioner Ople is recognized.

MR. OPLE. In connection with the coverage of the Civil Service Law in Section 1 (1), may I volunteer some information that may be helpful both to the interpellator and to the Committee. Following the proclamation of martial law on September 21, 1972, this issue of the coverage of the Labor Code of the Philippines and of the Civil Service Law almost immediately arose. I am, in particular, referring to the period following the coming into force and effect of the Constitution of 1973, where the Article on the Civil Service was supposed to take immediate force and effect. In the case of LUZTEVECO, there was a strike at the time. This was a government-controlled and government-owned corporation. I think it was owned by the PNOC with just the minuscule private shares left. So, the Secretary of Justice at that time, Secretary Abad Santos, and myself sat down, and the result of that meeting was an opinion of the Secretary of Justice which 9 became binding immediately on the government that government corporations with original charters, such as the GSIS, were covered by the Civil Service Law and corporations spun off from the GSIS, which we called second generation corporations functioning as private subsidiaries, were covered by the Labor Code. Samples of such second generation corporations were the Philippine Airlines, the Manila

Hotel and the Hyatt. And that demarcation worked very well. In fact, all of these companies I have mentioned as examples, except for the Manila Hotel, had collective bargaining agreements. In the Philippine Airlines, there were, in fact, three collective bargaining agreements; one, for the ground people or the PALIA one, for the fight attendants or the PASAC and one for the pilots of the ALPAC How then could a corporation like that

be covered by the Civil Service law? But, as the Chairman of the Committee pointed out, the Supreme Court decision in the case of NHA vs. Juco unrobed the whole thing. Accordingly, the Philippine Airlines, the Manila Hotel and the Hyatt are now considered under that decision covered by the Civil Service Law. I also recall that in the emergency meeting of the Cabinet convened for this purpose at the initiative of the Chairman of the Reorganization Commission, Armand Fabella, they agreed to allow the CBA's to lapse before applying the full force and effect of the Supreme Court decision. So, we were in the awkward situation when the new government took over. I can agree with Commissioner Romulo when he said that this is a problem which I am not exactly sure we should address in the deliberations on the Civil Service Law or whether we should be content with what the Chairman said that Section 1 (1) of the Article on the Civil Service is just a general description of the coverage of the Civil Service and no more.

Thank you, Mr. Presiding Officer.

MR. ROMULO. Mr. Presiding Officer, for the moment, I would be satisfied if the Committee puts on records that it is not their intent by this provision and the phrase "including government-owned or controlled corporations" to cover such companies as the Philippine Airlines.

MR. FOZ. Personally, that is my view. As a matter of fact, when this draft was made, my proposal was really to eliminate, to drop from the provision, the phrase "including government- owned or controlled corporations."

MR. ROMULO. Would the Committee indicate that is the intent of this provision?

MR. MONSOD. Mr. Presiding Officer, I do not think the Committee can make such a statement in the face of an absolute exclusion of government-owned or controlled corporations. However, this does not preclude the Civil Service Law to prescribe different rules and procedures, including emoluments for employees of proprietary corporations, taking into consideration the nature of their operations. So, it is a general coverage but it does not preclude a distinction of the rules between the two types of enterprises.

MR. FOZ. In other words, it is something that should be left to the legislature to decide. As I said before, this is just a general description and we are not making any declaration whatsoever.

MR. MONSOD. Perhaps if Commissioner Romulo would like a definitive understanding of the coverage and the Gentleman wants to exclude government-owned or controlled corporations like Philippine Airlines, then the recourse is to offer an amendment as to the coverage, if the Commissioner

does not accept the explanation that there could be a distinction of the rules, including salaries and emoluments.

MR. ROMULO. So as not to delay the proceedings, I will reserve my right to submit such an amendment.

xxx xxx xxx

THE PRESIDING OFFICE (Mr. Trenas) Commissioner Romulo is recognized.

MR. ROMULO. On page 2, line 5, I suggest the following amendment after "corporations": Add a comma (,) and the phrase EXCEPT THOSE EXERCISING PROPRIETARY FUNCTIONS.

THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?

SUSPENSION OF SESSION

MR. MONSOD. May we have a suspension of the session?

THE PRESIDING OFFICER (Mr. Trenas). The session is suspended.

It was 7:16 p.m.

RESUMPTION OF SESSION

At 7:21 p.m., the session was resumed.

THE PRESIDING OFFICER (Mr. Trenas). The session is resumed.

Commissioner Romulo is recognized.

MR. ROMULO. Mr. Presiding Officer, I am amending my original proposed amendment to now read as follows: "including government-owned or controlled corporations WITH ORIGINAL CHARTERS." The purpose of this amendment is to indicate that government corporations such as the GSIS and SSS, which have original charters, fall within the ambit of the civil service. However, corporations which are subsidiaries of these chartered agencies such as the Philippine Airlines, Manila Hotel and Hyatt are excluded from the coverage of the civil service.

THE PRESIDING OFFICER (Mr. Trenas). What does the Committee say?

MR. FOZ. Just one question, Mr. Presiding Officer. By the term "original charters," what exactly do we mean?

MR. ROMULO. We mean that they were created by law, by an act of Congress, or by special law.

MR. FOZ. And not under the general corporation law.

MR. ROMULO. That is correct. Mr. Presiding Officer.

MR. FOZ. With that understanding and clarification, the Committee accepts the amendment.

MR. NATIVIDAD. Mr. Presiding officer, so those created by the general corporation law are out.

MR. ROMULO. That is correct: 38

On the premise that it is the 1987 Constitution that governs the instant case because it is the Constitution in place at the time of decision thereof, the NLRC has jurisdiction to accord relief to the parties. As an admitted subsidiary of the NIDC, in turn a subsidiary of the PNB, the NASECO is a government-owned or controlled corporation without original charter.

Dr. Jorge Bocobo, in his Cult of Legalism, cited by Mr. Justice Perfecto in his concurring opinion in Gomez vs. Government Insurance Board (L-602, March 31, 1947, 44 O.G. No. 8, pp. 2687, 2694; also published in 78 Phil. 221) on the effectivity of the principle of social justice embodied in the 1935 Constitution, said:

Certainly, this principle of social justice in our Constitution as generously conceived and so tersely phrased, was not included in the fundamental law as a mere popular gesture. It was meant to (be) a vital, articulate, compelling principle of public policy. It should be observed in the interpretation not only of future legislation, but also of all laws already existing on November 15, 1935. It was intended to change the spirit of our laws, present and future. Thus, all the laws which on the great historic event when the Commonwealth of the Philippines was born, were susceptible of two interpretations strict or liberal, against or in favor of social justice, now have to be construed broadly in order to promote and achieve social justice. This may seem novel to our friends, the advocates of legalism but it is the only way to give life and significance to the above-quoted principle of the Constitution. If it was not designed to apply to these existing laws, then it would be necessary to wait for generations until all our codes and all our statutes shall have been completely charred by removing every provision inimical to social justice, before the policy of social justice can become really effective. That would be an absurd conclusion. It is more reasonable to hold that this constitutional principle applies to all legislation in force on November 15, 1935, and all laws thereafter passed.

WHEREFORE, in view of the foregoing, the challenged decision of the NLRC is AFFIRMED with modifications. Petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295, are ordered to: 1) reinstate Eugenia C. Credo to her former position at the time of her termination, or if such reinstatement is not possible, to place her in a substantially equivalent position, with three (3) years backwages, from 1 December 1983, without qualification or deduction, and without loss of seniority rights and other privileges appertaining thereto, and 2) pay Eugenia C. Credo P5,000.00 for moral damages and P5,000.00 for attorney's fees.

If reinstatement in any event is no longer possible because of supervening events, petitioners in G.R. No. 69870, who are the private respondents in G.R. No. 70295 are ordered to pay Eugenia C. Credo, in addition to her backwages and damages as above described, separation pay equivalent to one-half month's salary for every year of service, to be computed on her monthly salary at the time of her termination on 1 December 1983.

SO ORDERED.

Fernan, C.J., Melencio-Herrera, Paras, Feliciano, Gancayco, Bidin, Sarmiento, Cortes, Griño-Aquino, Medialdea and Regalado, JJ., concur.

Narvasa, J., is on leave.

Gutierrez, Jr., J., in the result.

Separate Opinions

CRUZ, J., concurring:

While concurring with Mr. Justice Padilla's well-researched ponencia, I have to express once again my disappointment over still another avoidable ambiguity in the 1987 Constitution.

It is clear now from the debates of the Constitutional Commission that the government-owned or controlled corporations included in the Civil Service are those with legislative charters. Excluded are its subsidiaries organized under the Corporation Code.

If that was the intention, the logical thing, I should imagine, would have been to simply say so. This would have avoided the suggestion that there are corporations with duplicate charters as distinguished from those with original charters.

All charters are original regardless of source unless they are amended. That is the acceptable distinction. Under the provision, however, the charter is still and always original even if amended as long it was granted by the legislature.

It would have been clearer, I think, to say "including government owned or controlled corporations with legislative charters." Why this thought did not occur to the Constitutional Commission places one again in needless puzzlement.

Separate Opinions

CRUZ, J., concurring:

While concurring with Mr. Justice Padilla's well-researched ponencia, I have to express once again my disappointment over still another avoidable ambiguity in the 1987 Constitution.

It is clear now from the debates of the Constitutional Commission that the government-owned or controlled corporations included in the Civil Service are those with legislative charters. Excluded are its subsidiaries organized under the Corporation Code.

If that was the intention, the logical thing, I should imagine, would have been to simply say so. This would have avoided the suggestion that there are corporations with duplicate charters as distinguished from those with original charters.

All charters are original regardless of source unless they are amended. That is the acceptable distinction. Under the provision, however, the charter is still and always original even if amended as long it was granted by the legislature.

It would have been clearer, I think, to say "including government owned or controlled corporations with legislative charters." Why this thought did not occur to the Constitutional Commission places one again in needless puzzlement.

Footnotes

* Signed by Guillermo C. Medina, Presiding Commissioner, Gabriel M. Gatchalian and Miguel B. Varela, Commissioners; the last one concurring in the result.

1 Rollo (G.R. No. 69870), p. 122

2 Ibid., p. 123.

3 Ibid.

4 Ibid., p. 22.

5 Ibid., p. 62.

6 Ibid., p. 63.

7 Ibid.

8 Ibid., p. 66.

9 Ibid., p. 65.

10 Ibid., p. 25.

11 Ibid., p. 104.

12 Ibid., p. 126.

13 Ibid., p. 148.

14 Ibid., p. 8.

15 Ibid.

16 Rollo, (G.R. No. 70295), p. 8.

17 Rule XIV, Book V, Implementing Rules and Regulations.

18 Constitution (1973), Art. II, Sec. 9; Constitution (1 987), Art. II, Sec. 18; Labor Code, Art. III.

19 Rollo, (G.R. No. 69870), p. 57-59.

20 Ibid., p. 125.

21 Almira vs. B.F. Goodrich Philippine, Inc., 58 SCRA 120.

22 Rollo, (G.R. No. 69870), p. 2-5.

23 Ibid., p. 13.

24 Ibid.

25 Ibid.

26 Ibid.

27 Ibid., p. 91.

28 Ibid., p. 78.

29 Pepito vs. Secretary of Labor, 98 SCRA 454.

30 Ibid.

31 Civil Code, Art. 2232.

32 Rollo (G.R. No. 70295), p. 125.

33 134 SCRA 172.

34 Philippine Air Line, Inc. vs. NLRC, 124 SCRA 583; Philippine Air Lines, Inc. vs. NLRC, 126 SCRA 223 and National Service Corporation vs. Leogardo, Jr., 130 SCRA 502.

35 Constitution, 1973, Art. II-B, Sec. I(1).

36 Constitution (1987), Art. IX-B, Sec. 2(l).

37 134 SCRA 182-183.

38 Record of the Constitutional Commission, Vol. I, pp. 583-585.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 78763 July 12,1989

MANILA ELECTRIC COMPANY, petitioner, vs.THE NATIONAL LABOR RELATIONS COMMISSION, and APOLINARIO M. SIGNO, respondents.

Angara, Abello, Concepcion, Regala & Cruz for petitioner.

Dominador Maglalang for private respondent.

MEDIALDEA, J.:

This is a petition for certiorari under Rule 65 of the Rules of Court seeking the annulment of the resolution of the respondent National Labor Relations Commission dated March 12, 1987 (p. 28, Rollo) in NLRC Case No. NCR-8-3808-83, entitled, "Apolinario M. Signo, Complainant, versus Manila Electric Company, Respondents", affirming the decision of the Labor Arbiter which ordered the

reinstatement of private respondent herein, Apolinario Signo, to his former position without backwages.

The antecedent facts are as follows:

Private respondent Signo was employed in petitioner company as supervisor-leadman since January 1963 up to the time when his services were terminated on May 18, 1983.

In 1981, a certain Fernando de Lara filed an application with the petitioner company for electrical services at his residence at Peñafrancia Subdivision, Marcos Highway, Antipolo, Rizal. Private respondent Signo facilitated the processing of the said application as well as the required documentation for said application at the Municipality of Antipolo, Rizal. In consideration thereof, private respondent received from Fernando de Lara the amount of P7,000.00. Signo thereafter filed the application for electric services with the Power Sales Division of the company.

It was established that the area where the residence of de Lara was located is not yet within the serviceable point of Meralco, because the place was beyond the 30-meter distance from the nearest existing Meralco facilities. In order to expedite the electrical connections at de Lara's residence, certain employees of the company, including respondent Signo, made it appear in the application that the sari-sari store at the corner of Marcos Highway, an entrance to the subdivision, is applicant de Lara's establishment, which, in reality is not owned by the latter.

As a result of this scheme, the electrical connections to de Lara's residence were installed and made possible. However, due to the fault of the Power Sales Division of petitioner company, Fernando de Lara was not billed for more than a year.

Petitioner company conducted an investigation of the matter and found respondent Signo responsible for the said irregularities in the installation. Thus, the services of the latter were terminated on May 18, 1983.

On August 10 1983, respondent Signo filed a complaint for illegal dismissal, unpaid wages, and separation pay.

After the parties had submitted their position papers, the Labor Arbiter rendered a decision (p. 79, Rollo) on April 29, 1985, which stated, inter alia:

Verily, complainant's act of inducing the Meralco employees to effectuate the installation on Engr. de Lara's residence prejudiced the respondent, and therefore, complainant himself had indeed became a participant in the transactions, although not directly, which turned out to be illegal, not to mention that some of the materials used therein belongs to Meralco, some of which were inferior quality. . . .

While complainant may deny the violation, he cannot do away with company's Code on Employee Discipline, more particularly Section 7, par. 8 and Section 6, par. 24 thereof However, as admitted by the respondent, the infraction of the above cited Code is punishable by reprimand to dismissal."

... . And in this case, while considering that complainant indeed committed the above-cited infractions of company Code of Employee Discipline, We shall also consider his records of uninterrupted twenty (20) years of

service coupled with two (2) commendations for honesty. Likewise, We shall take note that subject offense is his first, and therefore, to impose the extreme penalty of dismissal is certainly too drastic. A penalty short of dismissal is more in keeping with justice, and adherence to compassionate society.

WHEREFORE, respondent Meralco is hereby directed to reinstate complainant Apolinario M. Signo to his former position as Supervisor Leadman without backwages, considering that he is not at all faultless. He is however, here warned, that commission of similar offense in the future, shall be dealt with more severely.

SO ORDERED.

Both parties appealed from the decision to the respondent Commission. On March 12, 1987, the respondent Commission dismissed both appeals for lack of merit and affirmed in toto the decision of the Labor Arbiter.

On June 23, 1987, the instant petition was filed with the petitioner contending that the respondent Commission committed grave abuse of discretion in affirming the decision of the Labor Arbiter. A temporary restraining order was issued by this Court on August 3, 1987, enjoining the respondents from enforcing the questioned resolution of the respondent Commission.

The issue to resolve in the instant case is whether or not respondent Signo should be dismissed from petitioner company on grounds of serious misconduct and loss of trust and confidence.

Petitioner contends that respondent Signo violated Sections 6 and 7 of the company's Code on Employee Discipline, which provide:

Section 6, Par. 24—Encouraging, inducing or threatening another employee to perform an act constituting a violation of this Code or of company work, rules or an offense in connection with the official duties of the latter, or allowing himself to be persuaded, induced or infuenced to commit such offense.

Penalty—Reprimand to dismissal, depending upon the gravity of the offense.

Section 7, Par. 8—Soliciting or receiving money, gift, share, percentage or benefits from any person, personally or through the mediation of another, to perform an act prejudicial to the Company.

Penalty—Dismissal. (pp. 13-14, Rollo)

Petitioner further argues that the acts of private respondent constituted breach of trust and caused the petitioner company economic losses resulting from the unbilled electric consumption of de Lara; that in view thereof, the dismissal of private respondent Signo is proper considering the circumstances of the case.

The power to dismiss is the normal prerogative of the employer. An employer, generally, can dismiss or lay-off an employee for just and authorized causes enumerated under Articles 282 and 283 of the Labor Code. However, the right of an employer to freely discharge his employees is subject to regulation by the State,

basically in the exercise of its paramount police power. This is so because the preservation of the lives of the citizens is a basic duty of the State, more vital than the preservation of corporate profits (Euro-Linea, Phil. Inc. v. NLRC, G.R. No. 75782, December 1, 1987,156 SCRA 78).

There is no question that herein respondent Signo is guilty of breach of trust and violation of company rules, the penalty for which ranges from reprimand to dismissal depending on the gravity of the offense. However, as earlier stated, the respondent Commission and the Labor Arbiter found that dismissal should not be meted to respondent Signo considering his twenty (20) years of service in the employ of petitioner, without any previous derogatory record, in addition to the fact that petitioner company had awarded him in the past, two (2) commendations for honesty. If ever the petitioner suffered losses resulting from the unlisted electric consumption of de Lara, this was found to be the fault of petitioner's Power Sales Division.

We find no reason to disturb these findings. Well-established is the principle that findings of administrative agencies which have acquired expertise because their jurisdiction is confined to specific matters are generally accorded not only respect but even finality. Judicial review by this Court on labor cases does not go so far as to evaluate the sufficiency of the evidence upon which the proper labor officer or office based his or its determination but is limited to issues of jurisdiction or grave abuse of discretion (Special Events and Central Shipping Office Workers Union v. San Miguel Corporation, G.R. Nos. L-51002-06, May 30,1983,122 SCRA 557).

This Court has held time and again, in a number of decisions, that notwithstanding the existence of a valid cause for dismissal, such as breach of trust by an employee, nevertheless, dismissal should not be imposed, as it is too severe a penalty if the latter has been employed for a considerable length of time in the service of his employer. (Itogon-Suyoc Mines, Inc. v. NLRC, et al., G.R. No. L- 54280, September 30,1982,117 SCRA 523; Meracap v. International Ceramics Manufacturing Co., Inc., et al., G.R. Nos. L-48235-36, July 30,1979, 92 SCRA 412; Sampang v. Inciong, G.R. No. 50992, June 19,1985,137 SCRA 56; De Leon v. NLRC, G.R. No. L-52056, October 30,1980, 100 SCRA 691; Philippine Airlines, Inc. v. PALEA, G.R. No. L-24626, June 28, 1974, 57 SCRA 489).

In a similar case, this Court ruled:

As repeatedly been held by this Court, an employer cannot legally be compelled to continue with the employment of a person who admittedly was guilty of breach of trust towards his employer and whose continuance in the service of the latter is patently inimical to its interest. The law in protecting the rights of the laborers, authorized neither oppression nor self- destruction of the employer.

However, taking into account private respondent's 'twenty-three (23) years of service which undisputedly is unblemished by any previous derogatory record' as found by the respondent Commission itself, and since he has been under preventive suspension during the pendency of this case, in the absence of a showing that the continued employment of private respondent would result in petitioner's oppression or self-destruction, We are of the considered view that his dismissal is a drastic punishment. ... .

xxx xxx xxx

The ends of social and compassionate justice would therefore be served if private respondent is reinstated but without backwages in view of petitioner's obvious good faith. (Itogon- Suyoc Mines, Inc. v. NLRC, et al., 11 7 SCRA 528)

Further, in carrying out and interpreting the Labor Code's provisions and its implementing regulations, the workingman's welfare should be the primordial and paramount consideration. This kind of interpretation gives meaning and substance to the liberal and compassionate spirit of the law as provided for in Article 4 of the New Labor Code which states that "all doubts in the implementation and interpretation of the provisions of the Labor Code including its implementing rules and regulations shall be resolved in favor of labor" (Abella v. NLRC, G.R. No. 71812, July 30,1987,152 SCRA 140).

In view of the foregoing, reinstatement of respondent Signo is proper in the instant case, but without the award of backwages, considering the good faith of the employer in dismissing the respondent.

ACCORDINGLY, premises considered, the petition is hereby DISMISSED and the assailed decision of the National Labor Relations Commission dated March 12, 1987 is AFFIRMED. The temporary restraining order issued on August 3, 1987 is lifted.

SO ORDERED.

Narvasa, Cruz, Gancayco and Griño-Aquino, JJ., concur.