Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167622

November 7, 2008

GREGORIO V. TONGKO, petitioner

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS, respondents.
DECISION
VELASCO, JR., J.:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the reversal of the March 29, 2005
Decision1 of the Court of Appeals (CA) in CA-G.R. SP No. 88253, entitled The Manufacturers Life
Insurance Co. (Phils.), Inc. v. National Labor Relations Commission and Gregorio V. Tongko. The
assailed decision set aside the Decision dated September 27, 2004 and Resolution dated December
16, 2004 rendered by the National Labor Relations Commission (NLRC) in NLRC NCR CA No. 04022004.
The Facts
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic corporation engaged in life
insurance business. Renato A. Vergel De Dios was, during the period material, its President and Chief
Executive Officer. Gregorio V. Tongko started his professional relationship with Manulife on July 1, 1977
by virtue of a Career Agent's Agreement2 (Agreement) he executed with Manulife.
In the Agreement, it is provided that:
It is understood and agreed that the Agent is an independent contractor and nothing contained
herein shall be construed or interpreted as creating an employer-employee relationship between
the Company and the Agent.
xxxx
a) The Agent shall canvass for applications for Life Insurance, Annuities, Group policies and
other products offered by the Company, and collect, in exchange for provisional receipts issued
by the Agent, money due or to become due to the Company in respect of applications or
policies obtained by or through the Agent or from policyholders allotted by the Company to the
Agent for servicing, subject to subsequent confirmation of receipt of payment by the Company
as evidenced by an Official Receipt issued by the Company directly to the policyholder.
xxxx
The Company may terminate this Agreement for any breach or violation of any of the provisions
hereof by the Agent by giving written notice to the Agent within fifteen (15) days from the time of
the discovery of the breach. No waiver, extinguishment, abandonment, withdrawal or
cancellation of the right to terminate this Agreement by the Company shall be construed for any
previous failure to exercise its right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any time without cause, by
giving to the other party fifteen (15) days notice in writing. x x x
In 1983, Tongko was named as a Unit Manager in Manulife's Sales Agency Organization. In 1990, he
became a Branch Manager. As the CA found, Tongko's gross earnings from his work at Manulife,
consisting of commissions, persistency income, and management overrides, may be summarized as
follows:.

January to December 10, 2002

P 865,096.07

2001

6,214,737.11

2000

8,003,180.38

1999

6,797,814.05

1998

4,805,166.34

1997

2,822,620.003

The problem started sometime in 2001, when Manulife instituted manpower development programs in
the regional sales management level. Relative thereto, De Dios addressed a letter dated November 6,
20014 to Tongko regarding an October 18, 2001 Metro North Sales Managers Meeting. In the letter, De
Dios stated:
The first step to transforming Manulife into a big league player has been very clear - to increase
the number of agents to at least 1,000 strong for a start. This may seem diametrically opposed
to the way Manulife was run when you first joined the organization. Since then, however,
substantial changes have taken place in the organization, as these have been influenced by
developments both from within and without the company.
xxxx
The issues around agent recruiting are central to the intended objectives hence the need for a
Senior Managers' meeting earlier last month when Kevin O'Connor, SVP - Agency, took to the
floor to determine from our senior agency leaders what more could be done to bolster
manpower development. At earlier meetings, Kevin had presented information where evidently,
your Region was the lowest performer (on a per Manager basis) in terms of recruiting in 2000
and, as of today, continues to remain one of the laggards in this area.
While discussions, in general, were positive other than for certain comments from your end
which were perceived to be uncalled for, it became clear that a one-on-one meeting with you
was necessary to ensure that you and management, were on the same plane. As gleaned from
some of your previous comments in prior meetings (both in group and one-on-one), it was not
clear that we were proceeding in the same direction.
Kevin held subsequent series of meetings with you as a result, one of which I joined briefly. In
those subsequent meetings you reiterated certain views, the validity of which we challenged
and subsequently found as having no basis.
With such views coming from you, I was a bit concerned that the rest of the Metro North
Managers may be a bit confused as to the directions the company was taking. For this reason, I
sought a meeting with everyone in your management team, including you, to clear the air, so to
speak.
This note is intended to confirm the items that were discussed at the said Metro North Region's
Sales Managers meeting held at the 7/F Conference room last 18 October.
xxxx
Issue # 2: "Some Managers are unhappy with their earnings and would want to revert to the
position of agents."

This is an often repeated issue you have raised with me and with Kevin. For this reason, I
placed the issue on the table before the rest of your Region's Sales Managers to verify its
validity. As you must have noted, no Sales Manager came forward on their own to confirm your
statement and it took you to name Malou Samson as a source of the same, an allegation that
Malou herself denied at our meeting and in your very presence.
This only confirms, Greg, that those prior comments have no solid basis at all. I now believe
what I had thought all along, that these allegations were simply meant to muddle the issues
surrounding the inability of your Region to meet its agency development objectives!
Issue # 3: "Sales Managers are doing what the company asks them to do but, in the process,
they earn less."
xxxx
All the above notwithstanding, we had your own records checked and we found that you made a
lot more money in the Year 2000 versus 1999. In addition, you also volunteered the information
to Kevin when you said that you probably will make more money in the Year 2001 compared to
Year 2000. Obviously, your above statement about making "less money" did not refer to you but
the way you argued this point had us almost believing that you were spouting the gospel of truth
when you were not. x x x
xxxx
All of a sudden, Greg, I have become much more worried about your ability to lead this group
towards the new direction that we have been discussing these past few weeks, i.e., Manulife's
goal to become a major agency-led distribution company in the Philippines. While as you claim,
you have not stopped anyone from recruiting, I have never heard you proactively push for
greater agency recruiting. You have not been proactive all these years when it comes to agency
growth.
xxxx
I cannot afford to see a major region fail to deliver on its developmental goals next year and so,
we are making the following changes in the interim:
1. You will hire at your expense a competent assistant who can unload you of much of
the routine tasks which can be easily delegated. This assistant should be so chosen as
to complement your skills and help you in the areas where you feel "may not be your cup
of tea".
You have stated, if not implied, that your work as Regional Manager may be too taxing
for you and for your health. The above could solve this problem.
xxxx
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the
North Star Branch (NSB) in autonomous fashion. x x x
I have decided to make this change so as to reduce your span of control and allow you
to concentrate more fully on overseeing the remaining groups under Metro North, your
Central Unit and the rest of the Sales Managers in Metro North. I will hold you solely
responsible for meeting the objectives of these remaining groups.
xxxx
The above changes can end at this point and they need not go any further. This, however, is
entirely dependent upon you. But you have to understand that meeting corporate objectives by
everyone is primary and will not be compromised. We are meeting tough challenges next year
and I would want everybody on board. Any resistance or holding back by anyone will be dealt
with accordingly.
Subsequently, De Dios wrote Tongko another letter dated December 18, 2001,5 terminating Tongko's
services, thus:

It would appear, however, that despite the series of meetings and communications, both oneon-one meetings between yourself and SVP Kevin O'Connor, some of them with me, as well as
group meetings with your Sales Managers, all these efforts have failed in helping you align your
directions with Management's avowed agency growth policy.
xxxx
On account thereof, Management is exercising its prerogative under Section 14 of your Agents
Contract as we are now issuing this notice of termination of your Agency Agreement with us
effective fifteen days from the date of this letter.
Therefrom, Tongko filed a Complaint dated November 25, 2002 with the NLRC against Manulife for
illegal dismissal. The case, docketed as NLRC NCR Case No. 11-10330-02, was raffled to Labor
Arbiter Marita V. Padolina.
In the Complaint, Tongko, in a bid to establish an employer-employee relationship, alleged that De Dios
gave him specific directives on how to manage his area of responsibility in the latter's letter dated
November 6, 2001. He further claimed that Manulife exercised control over him as follows:
Such control was certainly exercised by respondents over the herein complainant. It was
Manulife who hired, promoted and gave various assignments to him. It was the company who
set objectives as regards productions, recruitment, training programs and all activities pertaining
to its business. Manulife prescribed a Code of Conduct which would govern in minute detail all
aspects of the work to be undertaken by employees, including the sales process, the
underwriting process, signatures, handling of money, policyholder service, confidentiality, legal
and regulatory requirements and grounds for termination of employment. The letter of Mr. De
Dios dated 06 November 2001 left no doubt as to who was in control. The subsequent
termination letter dated 18 December 2001 again established in no uncertain terms the authority
of the herein respondents to control the employees of Manulife. Plainly, the respondents
wielded control not only as to the ends to be achieved but the ways and means of attaining such
ends.6
Tongko bolstered his argument by citing Insular Life Assurance Co., Ltd. v. NLRC
(4th Division)7 andGreat Pacific Life Assurance Corporation v. NLRC,8 which Tongko claimed to be
similar to the instant case.
Tongko further claimed that his dismissal was without basis and that he was not afforded due process.
He also cited the Manulife Code of Conduct by which his actions were controlled by the company.
Manulife then filed a Position Paper with Motion to Dismiss dated February 27, 2003,9 in which it
alleged that Tongko is not its employee, and that it did not exercise "control" over him. Thus, Manulife
claimed that the NLRC has no jurisdiction over the case.
In a Decision dated April 15, 2004, Labor Arbiter Marita V. Padolina dismissed the complaint for lack of
an employer-employee relationship. Padolina found that applying the four-fold test in determining the
existence of an employer-employee relationship, none was found in the instant case. The dispositive
portion thereof states:
WHEREFORE, premises considered, judgment is hereby rendered DISMISSING the instant
complaint for lack of jurisdiction, there being no employer-employee relationship between the
parties.
SO ORDERED.
Tongko appealed the arbiter's Decision to the NLRC which reversed the same and rendered a Decision
dated September 27, 2004 finding Tongko to have been illegally dismissed.
The NLRC's First Division, while finding an employer-employee relationship between Manulife and
Tongko applying the four-fold test, held Manulife liable for illegal dismissal. It further stated that
Manulife exercised control over Tongko as evidenced by the letter dated November 6, 2001 of De Dios
and wrote:
The above-mentioned letter shows the extent to which respondents controlled complainant's
manner and means of doing his work and achieving the goals set by respondents. The letter
shows how respondents concerned themselves with the manner complainant managed the
Metro North Region as Regional Sales Manager, to the point that respondents even had a say

on how complainant interacted with other individuals in the Metro North Region. The letter is in
fact replete with comments and criticisms on how complainant carried out his functions as
Regional Sales Manager.
More importantly, the letter contains an abundance of directives or orders that are intended to
directly affect complainant's authority and manner of carrying out his functions as Regional
Sales Manager.10 x x x
Additionally, the First Division also ruled that:
Further evidence of [respondents'] control over complainant can be found in the records of the
case. [These] are the different codes of conduct such as the Agent Code of Conduct, the
Manulife Financial Code of Conduct, and the Manulife Financial Code of Conduct Agreement,
which serve as the foundations of the power of control wielded by respondents over
complainant that is further manifested in the different administrative and other tasks that he is
required to perform. These codes of conduct corroborate and reinforce the display of
respondents' power of control in their 06 November 2001 Letter to complainant.11
The fallo of the September 27, 2004 Decision reads:
WHEREFORE, premises considered, the appealed Decision is hereby reversed and set aside.
We find complainant to be a regular employee of respondent Manulife and that he was illegally
dismissed from employment by respondents.
In lieu of reinstatement, respondent Manulife is hereby ordered to pay complainant separation
pay as above set forth. Respondent Manulife is further ordered to pay complainant backwages
from the time he was dismissed on 02 January 2002 up to the finality of this decision also as
indicated above.
xxxx
All other claims are hereby dismissed for utter lack of merit.
From this Decision, Manulife filed a motion for reconsideration which was denied by the NLRC First
Division in a Resolution dated December 16, 2004.12
Thus, Manulife filed an appeal with the CA docketed as CA-G.R. SP No. 88253. Thereafter, the CA
issued the assailed Decision dated March 29, 2005, finding the absence of an employer-employee
relationship between the parties and deeming the NLRC with no jurisdiction over the case. The CA
arrived at this conclusion while again applying the four-fold test. The CA found that Manulife did not
exercise control over Tongko that would render the latter an employee of Manulife. The dispositive
portion reads:
WHEREFORE, premises considered, the present petition is hereby GRANTED and the writ
prayed for accordingly GRANTED. The assailed Decision dated September 27, 2004 and
Resolution dated December 16, 2004 of the National Labor Relations Commission in NLRC
NCR Case No. 00-11-10330-2002 (NLRC NCR CA No. 040220-04) are hereby ANNULLED and
SET ASIDE. The Decision dated April 15, 2004 of Labor Arbiter Marita V. Padolina is hereby
REINSTATED.
Hence, Tongko filed this petition and presented the following issues:
A
The Court of Appeals committed grave abuse of discretion in granting respondents' petition for
certiorari.
B
The Court of Appeals committed grave abuse of discretion in annulling and setting aside the
Decision dated September 27, 2004 and Resolution dated December 16, 2004 in finding that
there is no employer-employee relationship between petitioner and respondent.
C

The Court of Appeals committed grave abuse of discretion in annulling and setting aside the
Decision dated September 27, 2004 and Resolution dated December 16, 2004 which found
petitioner to have been illegally dismissed and ordered his reinstatement with payment of
backwages.13
Restated, the issues are: (1) Was there an employer-employee relationship between Manulife and
Tongko? and (2) If yes, was Manulife guilty of illegal dismissal?

The Court's Ruling

This petition is meritorious.
Tongko Was An Employee of Manulife
The basic issue of whether or not the NLRC has jurisdiction over the case resolves itself into the
question of whether an employer-employee relationship existed between Manulife and Tongko. If no
employer-employee relationship existed between the two parties, then jurisdiction over the case
properly lies with the Regional Trial Court.
In the determination of whether an employer-employee relationship exists between two parties, this
Court applies the four-fold test to determine the existence of the elements of such relationship.
InPacific Consultants International Asia, Inc. v. Schonfeld, the Court set out the elements of an
employer-employee relationship, thus:
Jurisprudence is firmly settled that whenever the existence of an employment relationship is in
dispute, four elements constitute the reliable yardstick: (a) the selection and engagement of the
employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power
to control the employee's conduct. It is the so-called "control test" which constitutes the most
important index of the existence of the employer-employee relationship that is, whether the
employer controls or has reserved the right to control the employee not only as to the result of
the work to be done but also as to the means and methods by which the same is to be
accomplished. Stated otherwise, an employer-employee relationship exists where the person
for whom the services are performed reserves the right to control not only the end to be
achieved but also the means to be used in reaching such end.14
The NLRC, for its part, applied the four-fold test and found the existence of all the elements and
declared Tongko an employee of Manulife. The CA, on the other hand, found that the element of control
as an indicator of the existence of an employer-employee relationship was lacking in this case. The
NLRC and the CA based their rulings on the same findings of fact but differed in their interpretations.
The NLRC arrived at its conclusion, first, on the basis of the letter dated November 6, 2001 addressed
by De Dios to Tongko. According to the NLRC, the letter contained "an abundance of directives or
orders that are intended to directly affect complainant's authority and manner of carrying out his
functions as Regional Sales Manager." It enumerated these "directives" or "orders" as follows:
1. You will hire at your expense a competent assistant who can unload you of much of the
routine tasks which can be easily delegated. x x x
xxxx
This assistant should be hired immediately.
2. Effective immediately, Kevin and the rest of the Agency Operations will deal with the North
Star Branch (NSB) in autonomous fashion x x x.
xxxx

I have decided to make this change so as to reduce your span of control and allow you to
concentrate more fully on overseeing the remaining groups under Metro North, your Central
Unit and the rest of the Sales Managers in Metro North. x x x
3. Any resistance or holding back by anyone will be dealt with accordingly.
4. I have been straightforward in this my letter and I know that we can continue to work
together but it will have to be on my terms. Anything else is unacceptable!
The NLRC further ruled that the different codes of conduct that were applicable to Tongko served as the
foundations of the power of control wielded by Manulife over Tongko that is further manifested in the
different administrative and other tasks that he was required to perform.
The NLRC also found that Tongko was required to render exclusive service to Manulife, further
bolstering the existence of an employer-employee relationship.
Finally, the NLRC ruled that Tongko was integrated into a management structure over which Manulife
exercised control, including the actions of its officers. The NLRC held that such integration added to the
fact that Tongko did not have his own agency belied Manulife's claim that Tongko was an independent
contractor.
The CA, however, considered the finding of the existence of an employer-employee relationship by the
NLRC as far too sweeping having as its only basis the letter dated November 6, 2001 of De Dios. The
CA did not concur with the NLRC's ruling that the elements of control as pointed out by the NLRC are
"sufficient indicia of control that negates independent contractorship and conclusively establish an
employer-employee relationship between"15 Tongko and Manulife. The CA ruled that there is no
employer-employee relationship between Tongko and Manulife.
An impasse appears to have been reached between the CA and the NLRC on the sole issue of control
over an employee's conduct. It bears clarifying that such control not only applies to the work or goal to
be done but also to the means and methods to accomplish it.16 In Sonza v. ABS-CBN Broadcasting
Corporation, we explained that not all forms of control would establish an employer-employee
relationship, to wit:
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.17 (Emphasis supplied.)
We ruled in Insular Life Assurance Co., Ltd. v. NLRC (Insular) that:
It is, therefore, usual and expected for an insurance company to promulgate a set of rules to
guide its commission agents in selling its policies that they may not run afoul of the law and
what it requires or prohibits. Of such a character are the rules which prescribe the qualifications
of persons who may be insured, subject insurance applications to processing and approval by
the Company, and also reserve to the Company the determination of the premiums to be paid
and the schedules of payment. None of these really invades the agent's contractual prerogative
to adopt his own selling methods or to sell insurance at his own time and convenience, hence
cannot justifiably be said to establish an employer-employee relationship between him and the
company.18
Hence, we ruled in Insular that no employer-employee relationship existed therein. However, such
ruling was tempered with the qualification that had there been evidence that the company promulgated
rules or regulations that effectively controlled or restricted an insurance agent's choice of methods or
the methods themselves in selling insurance, an employer-employee relationship would have existed.
In other words, the Court in Insular in no way definitively held that insurance agents are not employees
of insurance companies, but rather made the same a case-to-case basis. We held:

The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from time to
time prescribe. No showing has been made that any such rules or regulations were in fact
promulgated, much less that any rules existed or were issued which effectively
controlled or restricted his choice of methods or the methods themselves of selling
insurance. Absent such showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the contract leaving Basiao "...
free to exercise his own judgment as to the time, place and means of soliciting
insurance."19 (Emphasis supplied.)
There is no conflict between our rulings in Insular and in Great Pacific Life Assurance Corporation. We
said in the latter case:
[I]t cannot be gain said that Grepalife had control over private respondents' performance as well
as the result of their efforts. A cursory reading of their respective functions as enumerated
in their contracts reveals that the company practically dictates the manner by which their
jobs are to be carried out. For instance, the District Manager must properly account, record
and document the company's funds spot-check and audit the work of the zone supervisors,
conserve the company's business in the district through reinstatements', follow up the
submission of weekly remittance reports of the debit agents and zone supervisors, preserve
company property in good condition, train understudies for the position of district manager, and
maintain his quota of sales (the failure of which is a ground for termination). On the other hand,
a zone supervisor must direct and supervise the sales activities of the debit agents under him,
conserve company property through "reinstatements", undertake and discharge the functions of
absentee debit agents, spot-check the records of debit agents, and insure proper
documentation of sales and collections by the debit agents.20 (Emphasis supplied.)
Based on the foregoing cases, if the specific rules and regulations that are enforced against insurance
agents or managers are such that would directly affect the means and methods by which such agents
or managers would achieve the objectives set by the insurance company, they are employees of the
insurance company.
In the instant case, Manulife had the power of control over Tongko that would make him its employee.
Several factors contribute to this conclusion.
In the Agreement dated July 1, 1977 executed between Tongko and Manulife, it is provided that:
The Agent hereby agrees to comply with all regulations and requirements of the Company as
herein provided as well as maintain a standard of knowledge and competency in the sale of the
Company's products which satisfies those set by the Company and sufficiently meets the
volume of new business required of Production Club membership.21
Under this provision, an agent of Manulife must comply with three (3) requirements: (1) compliance with
the regulations and requirements of the company; (2) maintenance of a level of knowledge of the
company's products that is satisfactory to the company; and (3) compliance with a quota of new
businesses.
Among the company regulations of Manulife are the different codes of conduct such as the Agent Code
of Conduct, Manulife Financial Code of Conduct, and Manulife Financial Code of Conduct Agreement,
which demonstrate the power of control exercised by the company over Tongko. The fact that Tongko
was obliged to obey and comply with the codes of conduct was not disowned by respondents.
Thus, with the company regulations and requirements alone, the fact that Tongko was an employee of
Manulife may already be established. Certainly, these requirements controlled the means and methods
by which Tongko was to achieve the company's goals.
More importantly, Manulife's evidence establishes the fact that Tongko was tasked to perform
administrative duties that establishes his employment with Manulife.
In its Comment (Re: Petition for Review dated 15 April 2005) dated August 5, 2005, Manulife attached
affidavits of its agents purportedly to support its claim that Tongko, as a Regional Sales Manager, did
not perform any administrative functions. An examination of these affidavits would, however, prove the
opposite.
In an Affidavit dated April 28, 2003,22 John D. Chua, a Regional Sales Manager of Manulife, stated:

4. On September 1, 1996, my services were engaged by Manulife as an Agency Regional Sales

Manager ("RSM") for Metro South Region pursuant to an Agency Contract. As such RSM, I
have the following functions:
1. Refer and recommend prospective agents to Manulife
2. Coach agents to become productive
3. Regularly meet with, and coordinate activities of agents affiliated to my region.
While Amada Toledo, a Branch Manager of Manulife, stated in her Affidavit dated April 29, 200323that:
3. In January 1997, I was assigned as a Branch Manager ("BM") of Manulife for the Metro North
Sector;
4. As such BM, I render the following services:
a. Refer and recommend prospective agents to Manulife;
b. Train and coordinate activities of other commission agents;
c. Coordinate activities of Agency Managers who, in turn, train and coordinate activites
of other commission agents;
d. Achieve agreed production objectives in terms of Net Annualized Commissions and
Case Count and recruitment goals; and
e. Sell the various products of Manulife to my personal clients.
While Ma. Lourdes Samson, a Unit Manager of Manulife, stated in her Affidavit dated April 28,
200324that:
3. In 1977, I was assigned as a Unit Manager ("UM") of North Peaks Unit, North Star Branch,
Metro North Region;
4. As such UM, I render the following services:
a. To render or recommend prospective agents to be licensed, trained and contracted to
sell Manulife products and who will be part of my Unit;
b. To coordinate activities of the agents under my Unit in their daily, weekly and monthly
selling activities, making sure that their respective sales targets are met;
c. To conduct periodic training sessions for my agents to further enhance their sales
skills.
d. To assist my agents with their sales activities by way of joint fieldwork, consultations
and one-on- one evaluation and analysis of particular accounts.
e. To provide opportunities to motivate my agents to succeed like conducting promos to
increase sales activities and encouraging them to be involved in company and industry
activities.
f. To provide opportunities for professional growth to my agents by encouraging them to
be a member of the LUCAP (Life Underwriters Association of the Philippines).
A comparison of the above functions and those contained in the Agreement with those cited in Great
Pacific Life Assurance Corporation25 reveals a striking similarity that would more than support a similar
finding as in that case. Thus, there was an employer-employee relationship between the parties.
Additionally, it must be pointed out that the fact that Tongko was tasked with recruiting a certain number
of agents, in addition to his other administrative functions, leads to no other conclusion that he was an
employee of Manulife.

In his letter dated November 6, 2001, De Dios harped on the direction of Manulife of becoming a major
agency-led distribution company whereby greater agency recruitment is required of the managers,
including Tongko. De Dios made it clear that agent recruitment has become the primary means by
which Manulife intends to sell more policies. More importantly, it is Tongko's alleged failure to follow this
principle of recruitment that led to the termination of his employment with Manulife. With this, it is
inescapable that Tongko was an employee of Manulife.
Tongko Was Illegally Dismissed
In its Petition for Certiorari dated January 7, 200526 filed before the CA, Manulife argued that even if
Tongko is considered as its employee, his employment was validly terminated on the ground of gross
and habitual neglect of duties, inefficiency, as well as willful disobedience of the lawful orders of
Manulife. Manulife stated:
In the instant case, private respondent, despite the written reminder from Mr. De Dios refused to
shape up and altogether disregarded the latter's advice resulting in his laggard performance
clearly indicative of his willful disobedience of the lawful orders of his superior. x x x
xxxx
As private respondent has patently failed to perform a very fundamental duty, and that is to yield
obedience to all reasonable rules, orders and instructions of the Company, as well as gross
failure to reach at least minimum quota, the termination of his engagement from Manulife is
highly warranted and therefore, there is no illegal dismissal to speak of.
It is readily evident from the above-quoted portions of Manulife's petition that it failed to cite a single
iota of evidence to support its claims. Manulife did not even point out which order or rule that Tongko
disobeyed. More importantly, Manulife did not point out the specific acts that Tongko was guilty of that
would constitute gross and habitual neglect of duty or disobedience. Manulife merely cited Tongko's
alleged "laggard performance," without substantiating such claim, and equated the same to
disobedience and neglect of duty.
We cannot, therefore, accept Manulife's position.
In Quebec, Sr. v. National Labor Relations Commission, we ruled that:
When there is no showing of a clear, valid and legal cause for the termination of employment,
the law considers the matter a case of illegal dismissal and the burden is on the employer to
prove that the termination was for a valid or authorized cause. This burden of proof
appropriately lies on the shoulders of the employer and not on the employee because a
worker's job has some of the characteristics of property rights and is therefore within the
constitutional mantle of protection. No person shall be deprived of life, liberty or property without
due process of law, nor shall any person be denied the equal protection of the laws.
Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden
of proving the validity of the termination of employment rests on the employer. Failure to
discharge this evidential burden would necessarily mean that the dismissal was not justified,
and, therefore, illegal.27
We again ruled in Times Transportation Co., Inc. v. National Labor Relations Commission that:
The law mandates that the burden of proving the validity of the termination of employment rests
with the employer. Failure to discharge this evidentiary burden would necessarily mean that the
dismissal was not justified, and, therefore, illegal. Unsubstantiated suspicions, accusations and
conclusions of employers do not provide for legal justification for dismissing employees. In case
of doubt, such cases should be resolved in favor of labor, pursuant to the social justice policy of
our labor laws and Constitution.28
This burden of proof was clarified in Community Rural Bank of San Isidro (N.E.), Inc. v. Paez to mean
substantial evidence, to wit:
The Labor Code provides that an employer may terminate the services of an employee for just
cause and this must be supported by substantial evidence. The settled rule in administrative
and quasi-judicial proceedings is that proof beyond reasonable doubt is not required in
determining the legality of an employer's dismissal of an employee, and not even a
preponderance of evidence is necessary as substantial evidence is considered sufficient.

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

reasonable mind might accept as adequate to support a conclusion, even if other minds, equally
reasonable, might conceivably opine otherwise.29
Here, Manulife failed to overcome such burden of proof. It must be reiterated that Manulife even failed
to identify the specific acts by which Tongko's employment was terminated much less support the same
with substantial evidence. To repeat, mere conjectures cannot work to deprive employees of their
means of livelihood. Thus, it must be concluded that Tongko was illegally dismissed.
Moreover, as to Manulife's failure to comply with the twin notice rule, it reasons that Tongko not being
its employee is not entitled to such notices. Since we have ruled that Tongko is its employee, however,
Manulife clearly failed to afford Tongko said notices. Thus, on this ground too, Manulife is guilty of
illegal dismissal. In Quebec, Sr., we also stated:
Furthermore, not only does our legal system dictate that the reasons for dismissing a worker
must be pertinently substantiated, it also mandates that the manner of dismissal must be
properly done, otherwise, the termination itself is gravely defective and may be declared
unlawful.30
For breach of the due process requirements, Manulife is liable to Tongko in the amount of PhP 30,000
as indemnity in the form of nominal damages.31
Finally, Manulife raises the issue of the correctness of the computation of the award to Tongko made by
the NLRC by claiming that Songco v. National Labor Relations Commission32 is inapplicable to the
instant case, considering that Songco was dismissed on the ground of retrenchment.
An examination of Songco reveals that it may be applied to the present case. In that case, Jose
Songco was a salesman of F.E. Zuellig (M), Inc. which terminated the services of Songco on the
ground of retrenchment due to financial losses. The issue raised to the Court, however, was whether
commissions are considered as part of wages in order to determine separation pay. Thus, the fact that
Songco was dismissed due to retrenchment does not hamper the application thereof to the instant
case. What is pivotal is that we ruled in Songco that commissions are part of wages for the
determination of separation pay.
Article 279 of the Labor Code on security of tenure pertinently provides that:
In cases of regular employment the employer shall not terminate the services of an employee
except for a just cause or when authorized by this Title. An employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and other privileges
and to his full backwages, inclusive of allowances, and to his other benefits or their monetary
equivalent computed from the time his compensation was withheld from him up to the time of
his actual reinstatement.
In Triad Security & Allied Services, Inc. v. Ortega, Jr. (Triad), we thus stated that an illegally dismissed
employee shall be entitled to backwages and separation pay, if reinstatement is no longer viable:
As the law now stands, an illegally dismissed employee is entitled to two reliefs, namely:
backwages and reinstatement. These are separate and distinct from each other. However,
separation pay is granted where reinstatement is no longer feasible because of strained
relations between the employee and the employer. In effect, an illegally dismissed employee is
entitled to either reinstatement, if viable, or separation pay if reinstatement is no longer viable
and backwages.33
Taking into consideration the cases of Songco and Triad, we find correct the computation of the NLRC
that the monthly gross wage of Tongko in 2001 was PhP 518,144.76. For having been illegally
dismissed, Tongko is entitled to reinstatement with full backwages under Art. 279 of the Labor Code.
Due to the strained relationship between Manulife and Tongko, reinstatement, however, is no longer
advisable. Thus, Tongko will be entitled to backwages from January 2, 2002 (date of dismissal) up to
the finality of this decision. Moreover, Manulife will pay Tongko separation pay of one (1) month salary
for every year of service that is from 1977 to 2001 amounting to PhP 12,435,474.24, considering that
reinstatement is not feasible. Tongko shall also be entitled to an award of attorney's fees in the amount
of ten percent (10%) of the aggregate amount of the above awards.
WHEREFORE, the petition is hereby GRANTED. The assailed March 29, 2005 Decision of the CA in
CA-G.R. SP No. 88253 is REVERSED and SET ASIDE. The Decision dated September 27, 2004 of
the NLRC is REINSTATED with the following modifications:

Manulife shall pay Tongko the following:

(1) Full backwages, inclusive of allowances and other benefits or their monetary equivalent from
January 2, 2002 up to the finality of this Decision;
(2) Separation pay of one (1) month salary for every year of service from 1977 up to 2001
amounting to PhP 12,435,474.24;
(3) Nominal damages of PhP 30,000 as indemnity for violation of the due process requirements;
and
(4) Attorney's fees equivalent to ten percent (10%) of the aforementioned backwages and
separation pay.
Costs against respondent Manulife.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice

WE CONCUR:

DISSENTING OPINION
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CONCHITA CARPIO MORALES

Associate Justice

DANTE O. TINGA
Associate Justice

ARTURO D. BRION
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson

CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, 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.

REYNATO S. PUNO
Chief Justice

x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x

SECOND DIVISION
G.R. No. 167622

November 7, 2008

GREGORIO V. TONGKO, petitioner

vs.
THE MANUFACTURERS LIFE INSURANCE CO. (PHILS.), INC. and RENATO A. VERGEL DE
DIOS, respondents.
DISSENTING OPINION
QUISUMBING, J.:
With due respect, I cannot concur in the majority opinion. I vote to deny the petition and affirm the
decision of the Court of Appeals holding that the National Labor Relations Commission had no
jurisdiction over this case due to the absence of an employer-employee relationship between petitioner
Gregorio V. Tongko and respondent Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife).
The majority opinion states that Manulife had the power of control over petitioner that would make him
its employee. It advances several reasons that do not persuade me.
In my view, two points require stressing: (1) Manulife has no power of control over petitioner in the
pursuit of his own business; and (2) petitioner is compensated through sales agency commissions and
not through fixed wages or salary.
Time and again, the Court has indeed applied the "four-fold" test in determining the existence of an
employer-employee relationship. This test considers the following elements: (1) the power to hire; (2)
the payment of wages; (3) the power to dismiss; and (4) the power to control, the last being the most
important element.1
The difficulty lies in correctly assessing if certain factors or elements properly indicate the presence of
control.2 The company's codes of conduct such as the Agent Code of Conduct, Manulife Financial Code
of Conduct, and Manulife Financial Code of Conduct Agreement cannot be justifiably said to establish
an employer-employee relationship. These merely served as general guidelines for agents in selling
Manulife policies in keeping with ethical principles governing the insurance business and in accordance
with the rules promulgated by the Insurance Commissioner for proper regulation of the industry. None
of these rules and regulations negated petitioner's contractual prerogative to adopt his own selling
methods or to sell insurance at his own time and convenience.4 Nor did it overturn company or industry
practices. Petitioner made his own strategy on how to generate more insurance sales. In fact, he
derived his income from the agents under him through their sales volume. He was not bound to
observe any work schedule or any working hours. He had freedom to adopt his own methods in selling
insurance policies, so long as he and his recruited agents meet their quotas.
So too, petitioner's administrative functions are not indicative of control. Such functions which consisted
of recruitment of new agents, training, and supervision were exercised over other sales agents and not
employees of Manulife. Such functions relate to the insurance agents' work in pursuit of their agency's
contractual obligations.
Neither can the Letter dated November 6, 20014 addressed by Renato A. Vergel De Dios, Manulife's
President and Chief Executive Officer, to petitioner regarding greater agency recruitment be considered
as control. While the letter reminded petitioner that his Region was the lowest performer in terms of
agency recruitment, it did not dictate how petitioner would achieve this goal. Contrary to the finding of
the main opinion,5 the letter did not contain "an abundance of directives or orders" other than
suggesting to petitioner to hire a competent assistant to whom he could unload routine tasks. It is

obvious that said assistant would be paid by petitioner as part of his agency's staff, not of the
company's office personnel.
Clearly, following industry practice, petitioner had never been an employee of Manulife. He is an
independent contractor as stated in the Career Agent's Agreement. Although he was eventually
promoted as Regional Sales Manager, the Agreement subsisted since he still received commissions
from insurance he directly sold to third persons aside from the override commissions he received from
his own recruited agents' sales. The Agreement was never changed or altered by the parties.
Anent petitioner's compensation, he was paid through commissions from premium payments instead of
fixed wages or salary. Petitioner's commissions varied, based on the computed premiums paid in full
and actually received on policies obtained through his agency. His summary of commission,
persistency, and management overrides constituted the income earned from business activities, not
traditional office employment by Manulife, as follows:

2001

P6,214,737.11

2000

P8,003,180.38

1999

P6,797,814.05

1998

P4,805,166.34

1997

P2,822,620.006

Indeed, petitioner's earnings by way of commissions varied, depending on the clientele or those who
availed of the insurance policies he procured. As also noted by the Labor Arbiter, his annual income
was duly reflected in petitioner's income tax returns as agency earnings from which were deducted
operating expenses and taxes withheld at source by Manulife. His returns did not reflect regular wages
or salaries paid by the company.
Since no employer-employee relationship existed between petitioner and Manulife, there is no basis to
award backwages and separation pay to petitioner. There is no reason to apply Songco v. National
Labor Relations Commission7 which considered commission as part of the employee's salary in the
computation of separation pay. Here, there exists no employer-employee relationship. A contrary ruling
will reverse an industry practice long accepted in the insurance business. Such reversal could prove
detrimental to the insurance public.
To reiterate, the present case does not involve an employer-employee relationship which warrants the
application of the Labor Code provisions; rather, it calls for the implementation of the Career Agent's
Agreement that should be construed in an ordinary civil action.
I vote to DENY the petition.

LEONARDO A. QUISUMBING
Associate Justice