LABOR STANDARDS

TOPIC: Article 82 Managerial Employees

GR No. 101761
National Sugar Refineries Corporation (NASURECO) vs.
NLRC and NBSR Supervisory Union, (PACIWU) TUCP
March 24, 1993
A cursory perusal of the Job Value Contribution Statements 7 of the union
members will readily show that these supervisory employees are under
the direct supervision of their respective department superintendents and
that generally they assist the latter in planning, organizing, staffing,
directing, controlling communicating and in making decisions in attaining
the company's set goals and objectives.
Supervisory employees discharging functions that qualify them as officers
or members of the managerial staff considered exempt from the coverage
of Article 82 of the Labor Code and therefore, not entitled to overtime,
rest day and holiday pay.
Payment of the questioned benefits has not ripened into a contractual
obligation as payment thereof was made at a time when they were
rightfully entitled thereto.
Entitlement to benefits provided by law requires prior compliance with the
conditions set forth therein.
Ponente: Justice Regalado
FACTS:
NASURECO is a corporation which is fully owned and controlled by the Government.
The Batangas Refinery was privatized pursuant to law. Private respondent union
represents the former supervisors of the NASURECO Batangas Sugar Refinery.
June 1998, petitioner implemented a Job Evaluation (JE) Program affecting all
employees, from rank-and-file to department heads. The JE Program was designed
to rationalize the duties and functions of all positions, re-establish levels of
responsibility, and recognize both wage and operational structures. Jobs were
ranked according to effort, responsibility, training and working conditions and
relative worth of the job. As a result, all positions were re-evaluated, and all
employees including the members of respondent union were granted salary
adjustments and increases in benefits commensurate to their actual duties and
functions.
With the implementation of the JE Program, the following adjustments were made:
(1) The members of respondent union were re-classified under levels S-5 to S-8
which are considered managerial staff for purposes of compensation and
benefits;
1

(2) There was an increase in basic pay of the average of 50% of their basic pay
prior to the JE Program, with the union members now enjoying a wide gap
(P1,269.00 per month) in basic pay compared to the highest paid rank-andfile employee;
(3) Longevity pay was increased on top of alignment adjustments;
(4) They were entitled to increased company COLA of P225.00 per month;
(5) There was a grant of P100.00 allowance for rest day/holiday work.
Two years after, respondent union filed
a complaint for non-payment of
overtime, rest day and holiday pay allegedly in violation of Art. 100 of the Labor
Code
Labor Arbiter: Unions favor, directed NASURECO to the individual members of
complainant union the usual overtime pay, rest day pay and holiday pay enjoyed by
them instead of the P100.00 special allowance and pay the individual members of
complainant union the difference in money value between the P100.00 special
allowance and the overtime pay, rest day pay and holiday pay that they ought to
have received
Along span of time during which the benefits were being paid to the supervisors
has accused the payment thereof to ripen into contractual obligation; at the
complainants cannot be estopped from questioning the validity of the new
compensation package despite the fact that they have been receiving the benefits
therefrom, considering that respondent union was formed only a year after the
implementation of the Job Evaluation Program, hence there was no way for the
individual supervisors to express their collective response thereto prior to the
formation of the union; and the comparative computations presented by the private
respondent union showed that the P100.00 special allowance given NASUREFCO fell
short of what the supervisors ought to receive had the overtime pay rest day pay
and holiday pay not been discontinued, which arrangement, therefore, amounted to
a diminution of benefits.
NLRC: Unions favor, affirmed Labor Arbiters decision. Members of respondent
union are not managerial employees, as defined under Article 212 (m) of the Labor
Code and, therefore, they are entitled to overtime, rest day and holiday pay.
NASURECOs motion for reconsideration was denied; hence, this instant petition.
ISSUE/S:
Whether supervisory employees, as defined in Article 212 (m), Book V of the Labor
Code, should be considered as officers or members of the managerial staff under
Article 82, Book III of the same Code, and hence are not entitled to overtime rest
day and holiday pay.
DECISION:
The court granted NASURECOs petition by annulling Labor Arbiter and NLRCs
decisions and dismissing the unions complaint.
A cursory perusal of the Job Value Contribution Statements 7 of the union
members will readily show that these supervisory employees are under
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the direct supervision of their respective department superintendents and

that generally they assist the latter in planning, organizing, staffing,
directing, controlling communicating and in making decisions in attaining
the company's set goals and objectives.
Supervisory employees discharging functions that qualify them as officers
or members of the managerial staff considered exempt from the coverage
of Article 82 of the Labor Code and therefore, not entitled to overtime,
rest day and holiday pay.
It is apparent that the members of respondent union discharge duties and
responsibilities which ineluctably qualify them as officers or members of the
managerial staff, as defined in Section 2, Rule I Book III of the aforestated Rules to
Implement the Labor Code. The court is constrained to agree with petitioner that
the union members should be considered as officers and members of the
managerial staff and are, therefore, exempt from the coverage of Article 82.
Perforce, they are not entitled to overtime, rest day and holiday.
Payment of the questioned benefits has not ripened into a contractual
obligation as payment thereof was made at a time when they were
rightfully entitled thereto.
The members of respondent union were paid the questioned benefits for the reason
that, at that time, they were rightfully entitled thereto. Prior to the JE Program, they
could not be categorically classified as members or officers of the managerial staff
considering that they were then treated merely on the same level as rank-and-file.
Consequently, the payment thereof could not be construed as constitutive of
voluntary employer practice, which cannot be now be unilaterally withdrawn by
petitioner.
Entitlement to benefits provided by law requires prior compliance with the
conditions set forth therein.
With the promotion of the union members, they are no longer entitled to the
benefits which attach and pertain exclusively to their positions. Entitlement to the
benefits provided for by law requires prior compliance with the conditions set forth
therein. With the promotion of the members of respondent union, they occupied
positions which no longer met the requirements imposed by law. Their assumption
of these positions removed them from the coverage of the law, that is, their
exemption therefrom.

LABOR STANDARDS
TOPIC: Article 82 Field Personnel

GR No. 156367
Auto Bus Transport Systems, Inc. (ABTS) vs. Bautista
May 16, 2005
Other employees whose performance is unsupervised by the employer
must not be understood as a separate classification of employees to which
service incentive leave shall not be granted.
Employees engaged on task or contract basis or paid on purely
commission basis are not automatically exempted from the grant of
service incentive leave, unless, they fall under the classification of field
personnel.
What must be ascertained in order to resolve the issue of propriety of the
grant of service incentive leave to respondent is whether or not he is field
personnel. According to the Labor Code, field personnel shall refer to
non-agricultural employees who regularly perform their duties away from
the principal place of business or branch office of the employer and whose
actual hours of work in the field cannot be determined with reasonable
certainty.
Field personnel are those whose performance of their job/service is not
supervised by the employer or his representative, the workplace being
away from the principal office and whose hours and days of work cannot
be determined with reasonable certainty
The definition of a field personnel is not merely concerned with the
location where the employee regularly performs his duties but also with
the fact that the employees performance is unsupervised by the employer
in order to conclude whether an employee is a filed employee, it is also
necessary to ascertain if actual hours of work in field can be determined
with reasonable certainty by the employer.
4

A bus driver-conductor, not being a field personnel but a regular employee

who performs tasks usually necessary and desirable to the usual trade of
the companys business, is entitled to the grant of service leave.
The above construal of Art. 291, the rules on service incentive leave, is in
keeping with the rudimentary principle that in the implementation and
interpretation of the provisions of the Labor Code and its implementing
regulations, the workingmans welfare should be the primordial and
paramount consideration. The policy is to extend the applicability of the
decree to a greater number of employees who can avail of the benefits
under the law, which is in consonance with the avowed policy of the State
to give maximum aid and protection to labor

Ponente: Justice Chico-Nazario

FACTS:
Since May 1995, Respondent Bautista has been employed to petitioner ABTS as a
bus driver-conductor.
On January 2000, while Bautista accidentally bumped another Autobus as the latter
suddenly stopped at a sharp curve without any warning. Bautista averred that the
accident happened because he was compelled by the management to go back to
Roxas, Isabela, although he had not slept for almost twenty-four (24) hours, as he
had just arrived in Manila from Roxas, Isabela. Respondent further alleged that he
was not allowed to work until he fully paid the amount of P75,551.50, representing
thirty percent (30%) of the cost of repair of the damaged buses and that despite
respondents pleas for reconsideration, the same was ignored by management.
After a month, management sent him a letter of termination.
Bautista filed a complaint for illegal dismissal with money claims for non-payment of
13th month pay and service incentive leave by ABTS.
Labor Arbiter: Bautistas favor, although his claim for illegal dismissal was
dismissed, by ordering ABTS to pay Bautista his 13 th month pay and service
incentive leave.
NLRC: Bautistas favor by affirming Labor Arbiters decision with modification by
deleting the award of the 13th month pay.
CA: Bautistas favor by affirming NLRCs decision.
ISSUE/S:
W/N Bus Driver-Conductor Bautista is entitled to Service Incentive Leave (SIL)
DECISION:
The court denied ABTSs petition by affirming CAs decision.
Book III, Rule V: SERVICE INCENTIVE LEAVE
SECTION 1. Coverage. This rule shall apply to all employees except:
5


(d) Field personnel and other employees whose performance is unsupervised by the
employer including those who are engaged on task or contract basis, purely
commission basis, or those who are paid in a fixed amount for performing work
irrespective of the time consumed in the performance thereof;
Other employees whose performance is unsupervised by the employer
must not be understood as a separate classification of employees to which
service incentive leave shall not be granted.
Rather, it serves as an amplification of the interpretation of the definition of field
personnel under the Labor Code as those whose actual hours of work in the field
cannot be determined with reasonable certainty.
Employees engaged on task or contract basis or paid on purely
commission basis are not automatically exempted from the grant of
service incentive leave, unless, they fall under the classification of field
personnel.
Those who are engaged on task or contract basis, purely commission basis. Said
phrase should be related with field personnel, applying the rule on ejusdem
generis that general and unlimited terms are restrained and limited by the
particular terms that they follow.
What must be ascertained in order to resolve the issue of propriety of the
grant of service incentive leave to respondent is whether or not he is field
personnel.
According to the Labor Code, field personnel shall refer to non-agricultural
employees who regularly perform their duties away from the principal place of
business or branch office of the employer and whose actual hours of work in the
field cannot be determined with reasonable certainty.
Field personnel are those whose performance of their job/service is not
supervised by the employer or his representative, the workplace being
away from the principal office and whose hours and days of work cannot
be determined with reasonable certainty
Hence, they are paid specific amount for rendering specific service or performing
specific work. If required to be at specific places at specific times, employees
including drivers cannot be said to be field personnel despite the fact that they are
performing work away from the principal office of the employee. - Bureau of
Working Conditions (BWC), Advisory Opinion to Philippine Technical-Clerical
Commercial Employees Association
The definition of a field personnel is not merely concerned with the
location where the employee regularly performs his duties but also with
the fact that the employees performance is unsupervised by the employer
in order to conclude whether an employee is a filed employee, it is also
necessary to ascertain if actual hours of work in field can be determined
with reasonable certainty by the employer.

A bus driver-conductor, not being a field personnel but a regular employee

who performs tasks usually necessary and desirable to the usual trade of
the companys business, is entitled to the grant of service leave.
Labor Arbiter and concurred in by the Court of Appeals:
It is of judicial notice that along the routes that are plied by these bus companies,
there are its inspectors assigned at strategic places who board the bus and inspect
the passengers, the punched tickets, and the conductors reports. There is also the
mandatory once-a-week car barn or shop day, where the bus is regularly checked as
to its mechanical, electrical, and hydraulic aspects, whether or not there are
problems thereon as reported by the driver and/or conductor. They too, must be at
specific place as [sic] specified time, as they generally observe prompt departure
and arrival from their point of origin to their point of destination. In each and every
depot, there is always the Dispatcher whose function is precisely to see to it that
the bus and its crew leave the premises at specific times and arrive at the
estimated proper time. These, are present in the case at bar. The driver, the
complainant herein, was therefore under constant supervision while in the
performance of this work. He cannot be considered a field personnel.
The above construal of Art. 291, the rules on service incentive leave, is in
keeping with the rudimentary principle that in the implementation and
interpretation of the provisions of the Labor Code and its implementing
regulations, the workingmans welfare should be the primordial and
paramount consideration.
The policy is to extend the applicability of the decree to a greater number of
employees who can avail of the benefits under the law, which is in consonance with
the avowed policy of the State to give maximum aid and protection to labor.

GR No. 187698
Serrano vs. NLRC and Severino Santos Transit and/or
Severino Santos
August 09, 2010
RA 7641 which amended Article 287 of the Labor Code by providing for
retirement pay to qualified private sector employees in the absence of any
retirement plan in the establishment; Bus Conductors paid on commission
basis fall within the coverage of RA 7641 and its implementing rules.
Court notes that there is a difference between drivers paid under the
boundary system and conductors who are paid on commission basis. In
practice, taxi drivers do not receive fixed wages. They retain only those
sums in excess of the boundary or fee they pay to the owners or
operators of the vehicles. Conductors, on the other hand, are paid a
certain percentage of the bus earnings for the day.
The exclusion from its coverage of workers who are paid on a purely
commission basis is only with respect to field personnel. An employee who
is paid on purely commission basis is entitled to Service Incentive Law
(SIL).
Ponente: Justice Carpio Morales
7

FACTS:
Petitioner Serrano was hired as a bus conductor by respondent company, owned
and operated by the co-respondent Santos, on September 1992. After 14 years of
service, Serrano applied for optional retirement from the company whose
representative advised him that he must first sign the already prepared Quitclaim
before his retirement pay could be released. As petitioners request to first go over
the computation of his retirement pay was denied, he signed the Quitclaim on which
he wrote U.P. (under protest) after his signature, indicating his protest to the
amount of P75,277.45 which he received, computed by the company at 15 days per
year of service.
Serrano filed a complaint before the Labor Arbiter alleging that the company erred
in its computation in not including the Service Incentive Leave and 1/12 of the 13 th
Month pay, as provided under RA 7641, which he was entitled to.
Labor Arbiter: Serranos favor, included the Service Incentive Leave and 1/12 of
the 13th Month pay.
NLRC: Respondent Companys favor, reversed Labor Arbiters ruling and
dismissed petitioners complaint. It, however, ordered the respondent company to
pay retirement differential in the amount of P2,365.35.
Citing R & E Transport, Inc. v. Latag, the NLRC held that since petitioner was paid
on purely commission basis, he was excluded from the coverage of the laws on
13thmonth pay and SIL pay, hence, the 1/12 of the 13th month pay and the 5-day SIL
should not be factored in the computation of his retirement pay.
CA: Respondent Companys favor, affirmed NLRCs decision.
Serranos motion for reconsideration was denied; hence, this instant petition.
ISSUE/S:
W/N Serrano is entitled to receive the benefits of Service Incentive Leave as
provided by RA 7641.
DECISION:
The court granted Serranos petition by reversing CAs decision and reinstating the
Labor Arbiters Decision.
RA 7641 which amended Article 287 of the Labor Code by providing for
retirement pay to qualified private sector employees in the absence of any
retirement plan in the establishment; Bus Conductors paid on commission
basis fall within the coverage of RA 7641 and its implementing rules.
Petitioner worked for 14 years for the bus company which did not adopt any
retirement scheme. Even if petitioner as bus conductor was paid on commission
basis then, he falls within the coverage of R.A. 7641 and its implementing rules. As
thus correctly ruled by the Labor Arbiter, petitioners retirement pay should include
the cash equivalent of the 5-day SIL and 1/12 of the 13th month pay.

Court notes that there is a difference between drivers paid under the
boundary system and conductors who are paid on commission basis. In
practice, taxi drivers do not receive fixed wages. They retain only those
sums in excess of the boundary or fee they pay to the owners or
operators of the vehicles. Conductors, on the other hand, are paid a
certain percentage of the bus earnings for the day.
CAs reliance on R & E Transport, Inc. Case is erroneous. In said case, Court held
that
a
taxi
driver
th
paid according to the boundary system is not entitled to the
13 month
and the SIL pay, hence, his retirement pay should be computed on the sole basis of
his salary.
For purposes, however, of applying the law on SIL, as well as on retirement, the
Court notes that there is a difference between drivers paid under the boundary
system and conductors who are paid on commission basis.
In practice, taxi drivers do not receive fixed wages. They retain only those sums in
excess of the boundary or fee they pay to the owners or operators of the vehicles.
Conductors, on the other hand, are paid a certain percentage of the bus earnings
for the day.
The exclusion from its coverage of workers who are paid on a purely
commission basis is only with respect to field personnel. An employee who
is paid on purely commission basis is entitled to Service Incentive Law
(SIL).
The more recent case of Auto Bus Transport Systems, Inc., v. Bautista clarifies that
an employee who is paid on purely commission basis is entitled to SIL:
According to the Implementing Rules, Service Incentive Leave shall not apply to
employees classified as field personnel. The phrase other employees whose
performance is unsupervised by the employer must not be understood as a
separate classification of employees to which service incentive leave shall not be
granted. Rather, it serves as an amplification of the interpretation of the definition
of field personnel under the Labor Code as those whose actual hours of work in the
field cannot be determined with reasonable certainty.
The same is true with respect to the phrase those who are engaged on task or
contract basis, purely commission basis. Said phrase should be related with field
personnel, applying the rule on ejusdem generis that general and unlimited terms
are restrained and limited by the particular terms that they follow. Hence,
employees engaged on task or contract basis or paid on purely commission basis
are not automatically exempted from the grant of service incentive leave, unless,
they fall under the classification of field personnel.
According to Article 82 of the Labor Code, field personnel shall refer to nonagricultural employees who regularly perform their duties away from the principal
place of business or branch office of the employer and whose actual hours of work
in the field cannot be determined with reasonable certainty.

GR No. 79255
9

Union of Filipro Employees (UFE) vs. Vivar, Jr. NLRC and

Nestl Philippines, Inc. (formerly Filipro, Inc.)
January 20, 1992
Respondents sales personnel are not covered by the holiday pay. The law
requires that the actual hours in the field be reasonably ascertained.
Respondents sales personnel are evaluated by the result of their work
and not by the actual hours of field work which are hardly susceptible to
determination.
There is no merit in respondent Nestl claim of overpayment of overtime
and night differential pay and sick and vacation leave benefits the
computation of which are all based on the daily rate, since the daily rate is
still the same before and after the grant of holiday pay. The respondent
arbitrator's order to change the divisor from 251 to 261 days would result
in a lower daily rate which is violative of the prohibition on non-diminution
of benefits found in Article 100 of the Labor Code.

Respondent Nestle's invocation of solutio indebiti, or payment by mistake,

due to its use of 251 days as divisor must fail in light of the Labor Code
mandate that "all doubts in the implementation and interpretation of this
Code, including its implementing rules and regulations, shall be resolved
in favor of labor."

Ponente: Justice Gutierrez, Jr.

FACTS:
This labor dispute stems from the exclusion of sales personnel from the holiday pay
award and the change of the divisor in the computation of benefits from 251 to 261
days.

Respondent Filipro Inc. (now Nestl Philippines Inc.) filed a petition for declaratory
relief seeking a ruling on its rights and obligations respecting claims of its monthly
paid employees for holiday pay in the light of the Courts decision in Chartered
Bank Employees Association v. Ople (138 SCRA 273 [1985]).
Both Filipro and the Union of Filipino Employees (UFE) agreed to submit the case for
voluntary arbitration and appointed respondent Vivar, Jr.

10

Voluntary Arbiter (1): directed Filipro to pay its monthly paid employees holiday
pay pursuant to Article 94 of the Code, subject only to the exclusions and limitations
specified in Article 82 and such other legal restrictions as are provided for in the
Code.
Filipro filed a motion for clarification seeking:
1. The limitation of the award to three years
2. The exclusion of salesmen, sales representatives, truck drivers, merchandisers
and medical representatives (hereinafter referred to as sales personnel) from
the award of the holiday pay; and
3. Deduction from the holiday pay award of overpayment for overtime, night
differential, vacation and sick leave benefits due to the use of 251 divisor.
UFE answered that the award should be made effective from the date of effectivity
of the Labor Code, that their sales personnel are not field personnel and are
therefore entitled to holiday pay, and that the use of 251 as divisor is an established
employee benefit which cannot be diminished.
Voluntary Arbiter (2): The effectivity of the holiday pay award shall retroact to
November 1, 1974, the date of effectivity of the Labor Code. The company's sales
personnel are field personnel and, as such, are not entitled to holiday pay. In the
grant of 10 days' holiday pay, the divisor should be changed from 251 to 261 and
ordered the reimbursement of overpayment for overtime, night differential, vacation
and sick leave pay due to the use of 251 days as divisor.
Nestle and UFE filed their respective motions for partial reconsideration. Respondent
Arbitrator treated the two motions as appeals and forwarded the case to the NLRC
which issued a resolution dated May 25, 1987 remanding the case to the
respondent arbitrator on the ground that it has no jurisdiction to review decisions in
voluntary arbitration cases
Respondent arbitrator refused to take cognizance of the case reasoning that he had
no more jurisdiction to continue as arbitrator because he had resigned from service
effective May 1, 1986;hence, this petition.
ISSUE/S:
W/N Sales Personnel are entitled to holiday pay.
W/N concomitant with the award of holiday pay, the divisor should be changed from
251 to 261 days and whether or not the previous use of 251 as divisor resulted in
overpayment for overtime, night differential, vacation and sick leave pay.
DECISION:
The court affirmed the voluntary arbiters decision with modifications. The divisor to
be used in computing holiday pay shall be 251 days. The holiday pay as above
directed shall be computed from October 23, 1984.

11

Respondents sales personnel are not covered by the holiday pay. The law
requires that the actual hours in the field be reasonably ascertained.
The law requires that the actual hours of work in the field be reasonably
ascertained. The company is unable to determine whether the sales personnel,
even if they report to the office before 8:00 a.m. prior to field work and come back
at 4:30 p.m, really spend the hours in between in actual field work.
The court concurs with the respondent arbitrator that:
The period between 8:00 a.m. and 4:00 or 4:30 p.m. of the sales personnel
comprises their hours of work in the field, the extent or scope and result of which
are subject to their individual capacity and industry and which "cannot be
determined with reasonable certainty." This is the reason why effective supervision
over field work of salesmen and medical representatives, truck drivers and
merchandisers is practically a physical impossibility. Consequently, they are
excluded from the ten holidays with pay award.
Respondents sales personnel are evaluated by the result of their work
and not by the actual hours of field work which are hardly susceptible to
determination.
UFE claims that since the sales personnel are given incentive bonus every quarter
based on their performance proves that their actual hours of work in the field can be
determined with reasonable certainty.

The court thinks otherwise since the criteria for granting incentive bonus are: (1)
attaining or exceeding sales volume based on sales target; (2) good collection
performance; (3) proper compliance with good market hygiene; (4) good
merchandising work; (5) minimal market returns; and (6) proper truck maintenance.
These criteria indicate that these sales personnel are given incentive bonuses
precisely because of the difficulty in measuring their actual hours of field work.
These employees are evaluated by the result of their work and not by the actual
hours of field work which are hardly susceptible to determination.
In Miguel Brewery, Inc. v. Democratic Labor Organization (8 SCRA 613 [1963], the
court held that: the reasons for excluding an outside salesman are fairly apparent.
Such a salesman, to a greater extent, works individually. There are no restrictions
respecting the time he shall work and he can earn as much or as little, within the
range of his ability, as his ambition dictates. In lieu of overtime he ordinarily
receives commissions as extra compensation. He works away from his employer's
place of business, is not subject to the personal supervision of his employer, and his
employer has no way of knowing the number of hours he works per day.
There is no merit in respondent Nestl claim of overpayment of overtime
and night differential pay and sick and vacation leave benefits the
12

computation of which are all based on the daily rate, since the daily rate is
still the same before and after the grant of holiday pay. The respondent
arbitrator's order to change the divisor from 251 to 261 days would result
in a lower daily rate which is violative of the prohibition on non-diminution
of benefits found in Article 100 of the Labor Code.
The criterion laid down in the Chartered Bank case, the use of 251 days' divisor by
respondent Filipro indicates that holiday pay is not yet included in the employee's
salary, otherwise the divisor should have been 261.

It must be stressed that the daily rate, assuming there are no intervening salary
increases, is a constant figure for the purpose of computing overtime and night
differential pay and commutation of sick and vacation leave credits. Necessarily, the
daily rate should also be the same basis for computing the 10 unpaid holidays.

The respondent arbitrator's order to change the divisor from 251 to 261 days would
result in a lower daily rate which is violative of the prohibition on non-diminution of
benefits found in Article 100 of the Labor Code. To maintain the same daily rate if
the divisor is adjusted to 261 days, then the dividend, which represents the
employee's annual salary, should correspondingly be increased to incorporate the
holiday pay. To illustrate, if prior to the grant of holiday pay, the employee's annual
salary is P25,100, then dividing such figure by 251 days, his daily rate is P100.00
After the payment of 10 days' holiday pay, his annual salary already includes
holiday pay and totals P26,100 (P25,100 + 1,000). Dividing this by 261 days,
the daily rate is still P100.00. There is thus no merit in respondent Nestle's claim of
overpayment of overtime and night differential pay and sick and vacation leave
benefits, the computation of which are all based on the daily rate, since the daily
rate is still the same before and after the grant of holiday pay.

Respondent Nestle's invocation of solutio indebiti, or payment by mistake,

due to its use of 251 days as divisor must fail in light of the Labor Code
mandate that "all doubts in the implementation and interpretation of this
Code, including its implementing rules and regulations, shall be resolved
in favor of labor."
Moreover, prior to September 1, 1980, when the company was on a 6-day working
schedule, the divisor used by the company was 303, indicating that the 10 holidays
were likewise not paid. When Filipro shifted to a 5-day working schebule on
13

September 1, 1980, it had the chance to rectify its error, if ever there was one but
did not do so. It is now too late to allege payment by mistake.

LABOR STANDARDS
TOPIC: Kinds of Employees: Regular vs. Seasonal

GR No. 151827
Benares vs. Pancho, et. al
14

April 29, 2005

The law provides for three kinds of employees:
1. Regular employees - engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer;
2. Project employees - employment has been fixed for a specific project or
undertaking, the completion or termination of which has been determined at the
time of the engagement of the employee or where the work or service to be
performed is seasonal in nature and the employment is for the duration of the
season; and
3. Casual employees - neither regular nor project employees
In Hacienda Fatima Case, the court held that the fact that they do not
work continuously for one whole year but only for the duration of the
season does not detract from considering them in regular employment
since in a litany of cases this Court has already settled that seasonal
workers who are called to work from time to time and are temporarily laid
off during off-season are not separated from service in that period, but
merely considered on leave until re-employed.
The primary standard for determining regular employment is the
reasonable connection between the particular activity performed by the
employee vis--vis the usual trade or business of the employer.
In quasi-judicial proceedings, the quantum of evidence required to support
the findings of the NLRC is only substantial evidence or that amount of
relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion.
When there is no showing of 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 just or authorized cause.
Ponente: Justice Tinga
FACTS:
Hacienda Maasin II is a sugar cane plantation located in Negros Occidental with an
area of 12-24 hectares owned and managed by petitioner Benares.
Respondent Pancho alleged that they have started working as sugar farm workers
on various dates ranging from 1964 to 1985.
On July 1991, complainant Pancho thru counsel wrote to the Regional Director of
DOLE for intercession particularly in the matter of wages and other benefits
mandated by law.
15

On September 1991, a routine inspection was done by DOLE. Accordingly, the

Regional Director made an endorsement of the instant case to the Regional
Arbitration Branch for proper hearing and disposition.
On October 1991, complainants alleged to have been terminated without being paid
termination benefits by respondent in retaliation to their reporting to DOLE about
their working conditions and other mandatory benefits.
Respondent Pancho filed a formal complaint for illegal dismissal with money claims.
Labor Arbiter: Benares favor by dismissing Panchos complaint for lack of merit.
NLRC: Panchos favor by reversing Labor Arbiters decision holding that
respondents attained the status of regular seasonal workers of Hacienda Maasin
having worked therein from 1964-1985.
CA: Panchos favor by affirming NLRCs decision and denying Benares motion for
reconsideration.
Hence, this instant petition
ISSUE/S:
Whether respondents are regular employees of Hacienda Maasin and thus entitled
to their monetary benefits.
Whether respondents were illegally terminated
DECISION:
The court denied Benares petition and affirmed CAs decision.
The law provides (Art. 280) that: an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are usually
necessary or desirable in the usual business or trade of the employer, except where
the employment has been fixed for a specific project or undertaking the completion
or termination of which has been determined at the time of the engagement of the
employee or where the work or service to be performed is seasonal in nature and
the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered a regular
employee with respect to the activity in which he is employed and his employment
shall continue while such activity exists.
The law provides for three kinds of employees:

16

1. Regular employees - engaged to perform activities which are usually

necessary or desirable in the usual business or trade of the employer;
2. Project employees - employment has been fixed for a specific project or
undertaking, the completion or termination of which has been determined at the
time of the engagement of the employee or where the work or service to be
performed is seasonal in nature and the employment is for the duration of the
season; and
3. Casual employees - neither regular nor project employees
In Hacienda Fatima Case, the court held that the fact that they do not
work continuously for one whole year but only for the duration of the
season does not detract from considering them in regular employment
since in a litany of cases this Court has already settled that seasonal
workers who are called to work from time to time and are temporarily laid
off during off-season are not separated from service in that period, but
merely considered on leave until re-employed
The primary standard for determining regular employment is the
reasonable connection between the particular activity performed by the
employee vis--vis the usual trade or business of the employer. This
connection can be determined by considering the nature of the work performed and
its relation to the scheme of the particular business or trade in its entirety. If the
employee has been performing the job for at least a year, even if the performance
is not continuous and merely intermittent, the law deems repeated and continuing
need for its performance as sufficient evidence of the necessity if not
indispensability of that activity to the business. Hence, the employment is
considered regular, but only with respect to such activity and while such activity
exists.
In quasi-judicial proceedings, the quantum of evidence required to support
the findings of the NLRC is only substantial evidence or that amount of
relevant evidence which a reasonable mind might accept as adequate to
justify a conclusion.
It is a settled rule that the factual findings of quasi-judicial agencies which have
acquired expertise in the matters entrusted to their jurisdiction are accorded by this
Court not only respect but even finality
When there is no showing of 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 just or authorized cause.
In this case, as found both by the NLRC and the Court of Appeals, petitioner failed to
prove any such cause for the dismissal of respondents.

17

LABOR STANDARDS
TOPIC: Article 82 Employer-Employee Relationship: Four-Fold Test; Control
Test

GR Nos. 88380-81
Makati Haberdashery, Inc. (MH), Ledesma and Inocencio
vs. NLRC, Diosana, Sandigan ng Manggagawang Pilipino
(Sandigan) TUCP and its members.
November 15, 1989
We have repeatedly held in countless decisions that the test of employeremployee 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. This 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.
Since private respondents are regular employees, necessarily
argument that they are independent contractors must fail.

the

Private respondents are not entitled to service incentive leave pay and
holiday pay because as piece-rate workers they fall under the exceptions
set forth in the implementing rule.

An employer has the right to dismiss an employee whose continuance in

the service is inimical to the employers interest.

18

Right to dismiss for just and valid cause pertains in the first place to the
employer.

Ponente: Chief Justice Fernan

FACTS:
Private respondents 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 Angeles and 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. every day.
The company required them 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 1984, Sandigan ng Manggagawang Pilipino, a labor organization of the
respondent workers, filed a complaint 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.

Pending the case, 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. Both respondents allegedly did
not submit their explanation and did not report for work. Hence, they were
dismissed by petitioners on February 4, 1985. They countered by filing a complaint
for illegal dismissal.
Labor Arbiter: Pelobello and Zapatas favor, finding the company guilty of
illegal dismissal and ordering them to reinstate Pelobello and Zapata

19

Labor Arbiter (on case filed by Sandigan): Companys favor by dismissing

the same for lack of merit.
NLRC: Sandigans favor by affirming Labor Arbiters decision but limited the
backwages to Pelobello and Zapata to one year.
ISSUE/S:
Whether an employer-employee relationship exists between MH and private
respondents
In the affirmative, whether private respondents were illegally dismissed.
DECISION:
The court modified Labor Arbiter and NLRCs decision by dismissing Pelobello and
Zapatas complaint for illegal dismissal and deleted the award of service incentive
leave pay.
We have repeatedly held in countless decisions that the test of employeremployee 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. This 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.
The case reveals 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.

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.

Since private respondents are regular employees, necessarily

argument that they are independent contractors must fail.

the

20

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.

Private respondents are not entitled to service incentive leave pay and
holiday pay because as piece-rate workers they fall under the exceptions
set forth in the implementing rule.
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 as field
personnel. For the same reason private respondents cannot also claim holiday pay.

An employer has the right to dismiss an employee whose continuance in

the service is inimical to the employers interest.
Assuming that private respondents acts do not constitute abandonment, 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.

Right to dismiss for just and valid cause pertains in the first place to the
employer.
It has been established that the right to dismiss or otherwise impose disciplinary
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.

21

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.

GR No. 129315
Corporal, Sr., Tolentino, Caparas, Lacap, Pedelos, Nas and
Flores vs. NLRC, Lao Enteng Company and/or Lao Ong
October 02, 2000
Even the sharing of proceeds for every job of petitioners in the barber
shop does not mean they were not employees of the respondent company.
An independent contractor is one who undertakes "job contracting", i.e., a
person who (a) carries on an independent business and undertakes the
contract work on his own account under his own responsibility according
to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the
work except as to the results thereof, and (b) has substantial capital or
investment in the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of the business.
The following elements must be present for an employer-employee
relationship to exist: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever means; and (4)
the power to control the worker's conduct, with the latter assuming
primacy in the overall consideration.
It is no longer true that membership to SSS is predicated on the existence
of an employee-employer relationship since the policy is now to encourage
even the self-employed dressmakers, manicurists and jeepney drivers to
become SSS members, we could not agree with private respondents that
petitioners were registered with the Social Security System as their
employees only as an accommodation.
An employer may adopt policies or changes or adjustments in its
operations to insure profit to itself or protect investment of its
stockholders. In the exercise of such management prerogative, the
employer may merge or consolidate its business with another, or sell or
dispose all or substantially all of its assets and properties which may bring
about the dismissal or termination of its employees in the process.
Ponente: Justice Quisumbing
22

FACTS:
The male petitioners worked as barbers while the two female petitioners worked as
manicurists in New Look Barber Shop owned by respondent company Lao Enteng
Co., Inc.
Petitioners claim that when they began working for the said barber shop, it was a
single proprietorship owned and managed by Mr. Lao. In 1982, his children
organized a corporation which they registered in the SEC as Lao Enteng Co. Inc. with
Ong as president. They took over New Look Barber Shop and continued the
business.
In 1995, Ong informed them that the building wherein the New Look Barber Shop
was located had been sold and that their services were no longer needed.
In lieu of the event, petitioners filed with the NLRC Arbitration Branch a complaint
for illegal dismissal, illegal deduction, separation pay, non-payment of 13th month
pay, and salary differentials.
In response, private respondent claim that:
1. Lao Enteng Company, Inc. did not take over the management of the New
Look Barber Shop.
2. After the death Lao Enteng petitioner were verbally informed time and again
that the partnership may fold up anytime because nobody in the family had
the time to be at the barber shop to look after their interest
3. New Look Barber Shop had always been a joint venture partnership and the
operation and management of the barber shop was left entirely to petitioners
4. Her father's contribution to the joint venture included the place of business,
payment for utilities including electricity, water, etc. while petitioners as
industrial partners, supplied the labor; and
5. The barber shop was allowed to remain open up to April 1995 by the children
because they wanted to give the partners a chance at making it
work. Eventually, they were forced to close the barber shop because they
continued to lose money while petitioners earned from it. Trinidad also added
6. The private respondents had no control over petitioners who were free to
come and go as they wished. Admittedly too by petitioners they received fifty
percent to sixty percent of the gross paid by customers.
7. Some of the petitioners were allowed to register with the Social Security
System as employees of Lao Enteng Company, Inc. only as an act of
accommodation. All the SSS contributions were made by petitioners.
Moreover, Osias Corporal, Elpidio Lacap and Teresita Flores were not among
those registered with the Social Security System.
8. Without any employee-employer relationship petitioners claim for 13 th month
pay and separation pay have no basis in fact and in law.
Labor Arbiter: Respondent Companys favor by dismissing the complaint on
finding that:
1. The complainants and the respondents were engaged in a joint venture and
that there existed no employer-employee relation between them; and
23

2. The barber shop was closed due to serious business losses or financial
reverses and consequently declared that the law does not compel the
establishment to pay separation pay to whoever were its employees.
NLRC: Respondent Companys favor by affirming Labor Arbiters decision
Complainants failed to show the existence of employer-employee relationship
under the fourway test established by the Supreme Court. It is a common practice
in the Barber Shop industry that barbers supply their own scissors and razors and
they split their earnings with the owner of the barber shop. The only capital of the
owner is the place of work whereas the barbers provide the skill and expertise in
servicing customers. The only control exercised by the owner of the barber shop is
to ascertain the number of customers serviced by the barber in order to determine
the sharing of profits. The barbers maybe characterized as independent
contractors because they are under the control of the barber shop owner
only with respect to the result of the work, but not with respect to the
details or manner of performance. The barbers are engaged in an independent
calling requiring special skills available to the public at large.
NLRC denied petitioners motion for reconsideration; hence, this instant petition
ISSUE/S:
W/N an employer-employee relationship existed between petitioners and private
respondent Lao Enteng Company, Inc.
DECISION:
The court granted the petition, set aside NLRCs decision and ordered respondent
company to pay the petitioners:
1. 13th Month Pay
2. Separation Pay
Even the sharing of proceeds for every job of petitioners in the barber
shop does not mean they were not employees of the respondent company.
The Labor Arbiter's findings that the parties were engaged in a joint venture are
unsupported by any documentary evidence. It should be noted that aside from the
self-serving affidavit of Lao Ong, there were no other evidentiary documents, nor
written partnership agreements presented. The sharing of proceeds for every job of
petitioners in the barber shop does not mean they were not employees of the
respondent company.
An independent contractor is one who undertakes "job contracting", i.e., a
person who (a) carries on an independent business and undertakes the
contract work on his own account under his own responsibility according
to his own manner and method, free from the control and direction of his
employer or principal in all matters connected with the performance of the
work except as to the results thereof, and (b) has substantial capital or
investment in the form of tools, equipment, machineries, work premises,
and other materials which are necessary in the conduct of the business.
They did not carry on an independent business. Neither did they undertake cutting
hair and manicuring nails, on their own as their responsibility, and in their own
manner and method. The services of the petitioners were engaged by the
24

respondent company to attend to the needs of its customers in its barber

shop. More importantly, the petitioners, individually or collectively, did not have a
substantial capital or investment in the form of tools, equipment, work premises and
other materials which are necessary in the conduct of the business of the
respondent company. What the petitioners owned were only combs, scissors, razors,
nail cutters, nail polishes, the nippers - nothing else. By no standard can these be
considered substantial capital necessary to operate a barber shop.
The following elements must be present for an employer-employee
relationship to exist: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever means; and (4)
the power to control the worker's conduct, with the latter assuming
primacy in the overall consideration.
As to the "control test", the following facts indubitably reveal that respondent
company wielded control over the work performance of petitioners, in that:
1. They worked in the barber shop owned and operated by the respondents;
2. They were required to report daily and observe definite hours of work;
3. They were not free to accept other employment elsewhere but devoted their
full time working in the New Look Barber Shop for all the fifteen (15) years they
have worked until April 15, 1995;
4. That some have worked with respondents as early as in the 1960's;
5. That petitioner Patricia Nas was instructed by the respondents to watch the
other six
6. Petitioners in their daily task.
Certainly, respondent company was clothed with the power to dismiss any or all of
them for just and valid cause. Petitioners were unarguably performing work
necessary and desirable in the business of the respondent company.
It is no longer true that membership to SSS is predicated on the existence
of an employee-employer relationship since the policy is now to encourage
even the self-employed dressmakers, manicurists and jeepney drivers to
become SSS members, we could not agree with private respondents that
petitioners were registered with the Social Security System as their
employees only as an accommodation.
As we have earlier mentioned private respondent showed no proof to their claim
that petitioners were the ones who solely paid all SSS contributions. It is unlikely
that respondents would report certain persons as their workers, pay their SSS
premium as well as their wages if it were not true that they were indeed their
employees.
We agree with the labor arbiter that there was sufficient evidence that the barber
shop was closed due to serious business losses and respondent company closed its
barber shop because the building where the barber shop was located was sold. An
employer may adopt policies or changes or adjustments in its operations
to insure profit to itself or protect investment of its stockholders. In the
exercise of such management prerogative, the employer may merge or
consolidate its business with another, or sell or dispose all or substantially
all of its assets and properties which may bring about the dismissal or
termination of its employees in the process.

25

LABOR STANDARDS
TOPIC: Article 82 Employer-Employee Relationship

GR No. 167622
26

Tongko vs. Manufacturers Life Insurance Co. (Phils.), Inc.

and De Dios
November 07, 2008
Four-fold test to determine the existence of the elements of an employeremployee relationship. In control test, an employer-employee
relationship exists where the person for whom the services are performed
reserves the right to control not only the end to be achieved but also the
means to be used in reaching such end
Control not only applies to the work or goal to be done but also to the
means and methods to accomplish it. Not all forms of control would
establish an employer-employee relationship.
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.
Ponente: Justice Velasco, Jr.
FACTS:
Petitioner Tongko started his professional relationship with Manulife on July 1977 by
virtue of a Career Agents Agreement. During this time, De Dios was its President
and Chief Executive Officer (CEO). The agreement provided that the company may
terminate his agreement for any breach or violation of any the provisions by the
Agent by giving written notice to the Agent within fifteen (15) days from the time of
the discovery of the breach.
In 1983, Tongko became Unit Manager and in 1990, he became branch manager.
Problem started in 2001, when Manulife instituted Manpower Development
Programs. In November 2001, De Dios addressed a letter to Tongko stating that his
region was the lowest performer in terms of recruiting in 2000 and continues to
remain one of the laggards in this area and ordering him to hire a competent
assistant who would help him in his work.
In December 2001, De Dios wrote another letter terminating Tongkos services since
the latter was allegedly did not comply to the earlier letter.
Tongko filed a complaint for illegal dismissal. 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 and further claimed that Manulife exercised control over him.
Labor Arbiter: Manulifes favor by dismissing Tongkos complaint for lack of
jurisdiction, there being no employer-employee relationship.

27

NLRC: Tongkos favor by reversing Labor Arbiters decision, holding that Tongko
was regular employee of Manulife and was illegally dismissed from employment by
respondents.
CA: Manulifes favor by reversing NLRCs decision, finding absence of employeremployee relationship.
ISSUE/S:
W/N employer-employee relationship exists between Manulife and Tongko.
Holding in the affirmative, W/N Manulife was guilty of illegal dismissal.
DECISION:
The court granted Tongkos petition by reversing CAs decision and reinstating
NLRCs with modifications in the payment of backwages, separation pay, nominal
damages and attorneys fees.
Four-fold test to determine the existence of the elements of an employeremployee relationship. In control test, an employer-employee
relationship exists where the person for whom the services are performed
reserves the right to control not only the end to be achieved but also the
means to be used in reaching such end
In Pacific 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 - 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
Control not only applies to the work or goal to be done but also to the
means and methods to accomplish it. Not all forms of control would
establish an employer-employee relationship.
In Sonza v. ABS-CBN Broadcasting Corporation and Insular Life Assurance Co., Ltd.
vs. NLRC, we held that the line should be drawn between rules that merely serve as
28

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.
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. 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.

GR No. 167622
Tongko vs. Manufacturers Life Insurance Co. (Phils.), Inc.
and De Dios
June 29, 2010
Labor Code concept of "control" has to be compared and distinguished
with the "control" that must necessarily exist in a principal-agent
relationship.
Three sets of laws the Insurance Code, the Labor Code and the Civil Code have to be considered in looking at the present case and also the
Agreement that the parties adopted to govern their relationship for
purposes of selling the insurance the company offers.
Rules regarding the desired results ( e.g., the required volume to continue
to qualify as a company agent, rules to check on the parameters on the
authority given to the agent, and rules to ensure that industry, legal and
ethical rules are followed) are built-in elements of control specific to an
insurance agency and should not and cannot be read as elements of
control that attend an employment relationship governed by the Labor
Code.
Distinctions between agencies and
established by law and jurisprudence.

employment

are

sufficiently

The determinative element is the control exercised over the one rendering
service. The employer controls the employee both in the results and in the
means and manner of achieving this result. The principal in an agency
relationship, on the other hand, also has the prerogative to exercise
control over the agent in undertaking the assigned task based on the
parameters outlined in the pertinent laws.
29

By the Agreement's express terms, Tongko served as an "insurance agent"

for Manulife, not as an employee. The characterization the parties gave to
their relationship in the Agreement cannot simply be brushed aside
because it embodies their intent at the time they entered the Agreement,
and they were governed by this understanding throughout their
relationship.
An important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance
company does not ipso facto make the insurance agent an employee.
Guidelines indicative of labor law "control," as the first Insular Life case
tells us, should not merely relate to the mutually desirable result intended
by the contractual relationship; they must have the nature of dictating the
means or methods to be employed in attaining the result, or of fixing the
methodology and of binding or restricting the party hired to the use of
these means.
The absence of evidence showing Manulifes control over Tongkos
contractual duties points to the absence of any employer-employee
relationship between Tongko and Manulife. In the context of the
established evidence, Tongko remained an agent all along; although his
subsequent duties made him a lead agent with leadership role, he was
nevertheless only an agent whose basic contract yields no evidence of
means-and-manner control.
Ponente: Justice Brion
FACTS:
Respondent Manulife filed this motion for reconsideration in response to the courts
November 07, 2008 decision finding an employer-employee relationship between
Manulife and petitioner Tongko.
ISSUE/S:
Whether an agency or an employment relationship exists between Tongko and
Manulife
DECISION:
The court granted Manulifes motion for reconsideration by reversing its November
7, 2008 decision and dismissing Tongkos petition.
Labor Code concept of "control" has to be compared and distinguished
with the "control" that must necessarily exist in a principal-agent
relationship.
The principal cannot but also have his or her say in directing the course of the
principal-agent relationship, especially in cases where the company-representative
relationship in the insurance industry is an agency.
Three sets of laws the Insurance Code, the Labor Code and the Civil Code have to be considered in looking at the present case and also the

30

Agreement that the parties adopted to govern their relationship for

purposes of selling the insurance the company offers.
To forget these other laws is to take a myopic view of the present case and to add to
the uncertainties that now exist in considering the legal relationship between the
insurance company and its "agents."
Rules regarding the desired results ( e.g., the required volume to continue
to qualify as a company agent, rules to check on the parameters on the
authority given to the agent, and rules to ensure that industry, legal and
ethical rules are followed) are built-in elements of control specific to an
insurance agency and should not and cannot be read as elements of
control that attend an employment relationship governed by the Labor
Code.
Distinctions between agencies and employment are sufficiently
established by law and jurisprudence.
Code defines an agent as a "person [who] binds himself to render some service or
to do something in representation or on behalf of another, with the consent or
authority of the latter. While this is a very broad definition that on its face may even
encompass an employment relationship, the distinctions between agency and
employment are sufficiently established by law and jurisprudence.
The determinative element is the control exercised over the one rendering
service.
The employer controls the employee both in the results and in the means and
manner of achieving this result. The principal in an agency relationship, on the
other hand, also has the prerogative to exercise control over the agent in
undertaking the assigned task based on the parameters outlined in the pertinent
laws.
By the Agreement's express terms, Tongko served as an "insurance agent"
for Manulife, not as an employee.
The Agreement's legal characterization of the nature of the relationship cannot be
conclusive and binding on the courts; as the dissent clearly stated, the
characterization of the juridical relationship the Agreement embodied is a matter of
law that is for the courts to determine.
At the same time, though, the characterization the parties gave to their
relationship in the Agreement cannot simply be brushed aside because it
embodies their intent at the time they entered the Agreement, and they
were governed by this understanding throughout their relationship.
An important lesson that the first Insular Life case teaches us is that a
commitment to abide by the rules and regulations of an insurance
company does not ipso facto make the insurance agent an employee.
Neither do guidelines somehow restrictive of the insurance agent's conduct
necessarily indicate "control" as this term is defined in jurisprudence. Guidelines
indicative of labor law "control," as the first Insular Life case tells us,
should not merely relate to the mutually desirable result intended by the
contractual relationship; they must have the nature of dictating the means
31

or methods to be employed in attaining the result, or of fixing the

methodology and of binding or restricting the party hired to the use of
these means.
The absence of evidence showing Manulifes control over Tongkos
contractual duties points to the absence of any employer-employee
relationship between Tongko and Manulife.
In the context of the established evidence, Tongko remained an agent all along;
although his subsequent duties made him a lead agent with leadership role, he was
nevertheless only an agent whose basic contract yields no evidence of means-andmanner control.

LABOR STANDARDS
TOPIC: Article 82 Taxi Driver Employer-Employee Relationship

GR No. 117495
Martinez vs. NLRC, Corro, Cruz, Delvo, Colibao, Ogana and
Albao
May 29, 1997
As early as 3 March 1956, in National Labor Union v. Dinglasan, this Court
ruled that the relationship between jeepney owners/operators on one
32

hand and jeepney drivers on the other under the boundary system is that
of employer-employee and not of lessor-lessee.
The fact that
excess of the
sufficient to
employer and

the drivers do not receive fixed wages but get only that in
so-called "boundary" they pay to the owner/operator is not
withdraw the relationship between them from that of
employee.

In the present case, private respondents simply assumed the continuance

of an employer-employee relationship between them and petitioner, when
she took over the operation of the business after the death of her son
Raul Martinez, without any supporting evidence. Consequently, we cannot
sustain for lack of basis the factual finding of respondent NLRC on the
existence of employer-employee relationship between petitioner and
private respondents. Clearly, such finding emanates from grave abuse of
discretion. With this conclusion, consideration of the issue on illegal
dismissal becomes futile and irrelevant.
Ponente: Justice
FACTS:
Raul Martinez owned four taxicab units and private respondents worked for him as
drivers. On March 1992, Raul Martinez died leaving his mother, Nelly Martinez, as
his sole heir.
On July 1992, private respondents lodged a complaint against Raul Martinez and
petitioner Nelly Acta Martinez before the Labor Arbiter for violation of P. D. 851 and
illegal dismissal. After the death of Raul Martinez, petitioner took over the
management and operation of the business and that on or about 22 June 1992 she
informed them that because of difficulty in maintaining the business, she was
selling the units together with the corresponding franchises. However, petitioner
did not proceed with her plan; instead, she assigned the units to other drivers.
Labor Arbiter: Martinez favor by dismissing the complaint on the following
grounds:
a) Private respondents' claims being personal were extinguished upon the death
of Raul Martinez;
b) Petitioner was a mere housewife who did not possess the required
competence to manage the business; and,
c) Private respondents were not entitled to 13th month pay because the
existence of employer-employee relationship was doubtful on account of the
boundary system adopted by the parties.
NLRC: Private Respondents favor by setting aside Labor Arbiters decision and
ordering Martinez to grant separation pay on the following grounds:
(a) Private respondents were regular drivers because payment of wages, which is
one of the essential requisites for the existence of employment relation, may
either be fixed, on commission, boundary, piece-rate or task basis;

33

(b) The management of the business passed on to petitioner who even replaced
private respondents with a new set of drivers; and,
(c) The claims of private respondents survived the death of Raul Martinez
considering that the business did not cease operation outright but continued
presumably, in the absence of proof of sale, up to the moment.
Martinez motion for reconsideration was denied; hence, this instant petition.
ISSUE/S:
Whether an employer-employee relationship exists between Martinez and private
respondents
DECISION:
The court granted Martinez petition, set aside NLRCs decision and reinstated Labor
Arbiters decision.
As early as 3 March 1956, in National Labor Union v. Dinglasan, this Court
ruled that the relationship between jeepney owners/operators on one
hand and jeepney drivers on the other under the boundary system is that
of employer-employee and not of lessor-lessee.
Therein we explained that in the lease of chattels the lessor loses complete control
over the chattel leased although the lessee cannot be reckless in the use thereof,
otherwise he would be responsible for the damages to the lessor. In the case of
jeepney owners/operators and jeepney drivers, the former exercise supervision and
control over the latter.
The fact that the drivers do not receive fixed wages but get only that in
excess of the so-called "boundary" they pay to the owner/operator is not
sufficient to withdraw the relationship between them from that of
employer and employee.
The doctrine is applicable by analogy to the present case. Thus, private
respondents were employees of Raul Martinez because they had been engaged to
perform activities which were usually necessary or desirable in the usual business or
trade of the employer. The records show that private respondents had been
employed since 20 October 1989 except for Ogana, the Delvos, Albao and Colibao
who were employed on later dates.
Mere allegation is not evidence.
The above findings, however, were culled from mere allegations in private
respondents' position paper. But mere allegation is not evidence. It is a basic rule in
evidence that each party must prove his affirmative allegation. In Opulencia Ice
Plant and Storage v. NLRC we ruled that no particular form of evidence is required to
prove the existence of an employer-employee relationship. Any competent and
relevant evidence to prove the relationship may be admitted. In that case, the
relationship was sufficiently proved by testimonial evidence.
In the present case, private respondents simply assumed the continuance
of an employer-employee relationship between them and petitioner, when
she took over the operation of the business after the death of her son
Raul Martinez, without any supporting evidence. Consequently, we cannot
34

sustain for lack of basis the factual finding of respondent NLRC on the
existence of employer-employee relationship between petitioner and
private respondents. Clearly, such finding emanates from grave abuse of
discretion. With this conclusion, consideration of the issue on illegal
dismissal becomes futile and irrelevant.

GR No. 119268
Jardin, et al. vs. NLRC and Goodman Taxi (Philjama
International, Inc.)
May 29, 1997
The relationship between jeepney owners/operators on one hand and
jeepney drivers on the other under the boundary system is that of
employer-employee and not of lessor-lessee.
The fact that
excess of the
sufficient to
employer and

the drivers do not receive fixed wages but get only that in
so-called "boundary" they pay to the owner/operator is not
withdraw the relationship between them from that of
employee.

Petitioners, being employees of private respondent, can be dismissed only

for just and authorized cause, and after affording them notice and hearing
prior to termination.
Ponente: Justice Quisumbing
FACTS:
Petitioners Jardin used to drive for Philjama International, Inc., a domestic
corporation engaged in the operation of Goodman Taxi under the boundary
system. Petitioners earned an average of P400.00 a day but private respondent
company admittedly regularly deducts P30.00 from the drivers supposedly for
washing of the taxi units. Believing that the deduction is illegal, petitioners decided
to form a labor union to protect their rights and interests.
Upon learning about the plan of petitioners, private respondent refused to let
petitioners drive their taxicabs when they reported for work on August 1991, and on
succeeding days. Petitioners suspected that they were singled out because they
were the leaders and active members of the proposed union.
Petitioners filed with the labor arbiter a complaint for unfair labor practice, illegal
dismissal and illegal deduction of washing fees.
Labor Arbiter: Philjamas favor by dismissing petitioners complaint for lack of
merit.
NLRC: Jardins favor by reversing the Labor Arbiters decision, declaring that
petitioners are employees of respondent, as such, their dismissal must be for a just
cause and ordering respondent to reinstate petitioners to their former positions, pay
their backwages and reimburse the drivers the amount paid as washing charges.
35

NLRC (2): Jardins

reconsideration.

favor

by denying

respondent companys motion

for

NLRC (3): Philjamas favor by granting its petition and declaring that NLRC has
no jurisdiction in the case there being no employer-employee relationship between
petitioner and private respondent since their relationship is that of leasehold under
the Civil Code rather than the Labor Code.
NLRC denied Jardins motion for reconsideration; hence, this instant petition.
ISSUE/S:
Whether an employer-employee relationship exists
(Philjama International, Inc.) and private respondents

between

Goodman

Taxi

DECISION:
The court granted Jardins petition by setting aside NLRCs decision and reinstating
the Labor Arbiters decision with modifications by deleting the reimbursement of the
washing charges to the drivers.
The relationship between jeepney owners/operators on one hand and
jeepney drivers on the other under the boundary system is that of
employer-employee and not of lessor-lessee.
We explained that in the lease of chattels, the lessor loses complete control over the
chattel leased although the lessee cannot be reckless in the use thereof, otherwise
he would be responsible for the damages to the lessor. In the case of jeepney
owners/operators and jeepney drivers, the former exercise supervision and control
over the latter. The management of the business is in the owners hands. The owner
as holder of the certificate of public convenience must see to it that the driver
follows the route prescribed by the franchising authority and the rules promulgated
as regards its operation.
We have applied by analogy the above stated doctrine to the relationships between
bus owner/operator and bus conductor, auto-calesa owner/operator and driver, and
recently between taxi owners/operators and taxi drivers.
Hence, petitioners are undoubtedly employees of private respondent because as
taxi drivers they perform activities which are usually necessary or desirable in the
usual business or trade of their employer.
The fact that
excess of the
sufficient to
employer and

the drivers do not receive fixed wages but get only that in
so-called "boundary" they pay to the owner/operator is not
withdraw the relationship between them from that of
employee.

Petitioners, being employees of private respondent, can be dismissed only

for just and authorized cause, and after affording them notice and hearing
prior to termination.
Termination of employment must be effected in accordance with law. The just and
authorized causes for termination of employment are enumerated under Articles

36

282, 283 and 284 of the Labor Code. The requirement of notice and hearing is setout in Article 277 (b) of the said Code.
In the instant case, private respondent had no valid cause to terminate the
employment of petitioners. Neither were there two (2) written notices sent by
private respondent informing each of the petitioners that they had been dismissed
from work. This lack of valid cause and failure on the part of private respondent to
comply with the twin-notice requirement underscored the illegality surrounding
petitioners dismissal.

LABOR STANDARDS
TOPIC: Article 82 Jeepney Driver Employer-Employee Relationship

GR No. 165881
Villamaria, Jr. vs. Court of Appeals and Bustamante
June 29, 2010
Not every dispute between an employer and employee involves matters
that only the Labor Arbiter and the NLRC can resolve in the exercise of
their adjudicatory or quasi-judicial powers. Actions between employers
and employees where the employer-employee relationship is merely
incidental is within the exclusive original jurisdiction of the regular
courts.
In National Labor Union vs. Dinglasan, Jeepney owner/operator-driver
relationship under the boundary system is that of employer-employee and
not lessor-lessee. This doctrine was affirmed, under similar factual
settings, in Magboo v. Bernardo and Lantaco, Sr. v. Llamas, and was
analogously applied to govern the relationships between autocalesa owner/operator and driver, bus owner/operator and conductor and
taxi owner/operator and driver.
The fact that the driver does not receive fixed wages but only the excess
of the boundary given to the owner/operator is not sufficient to change
the employer-employee relationship between them.
Indubitably, the driver performs activities which are usually necessary or desirable
in the usual business or trade of the owner/operator.

37

The well-settled rule is that an obligation is not novated by an instrument

that expressly recognizes the old one, changes only the terms of payment,
and adds other obligations not incompatible with the old provisions or
where the new contract merely supplements the previous one. The two
obligations of the respondent to remit to petitioner the boundaryhulog can stand together.
The juridical relationship of employer-employee between petitioner and
respondent was not negated by the foregoing stipulation in
the Kasunduan,
considering
that
petitioner
retained
control
of
respondents conduct as driver of the vehicle.
Ponente: Justice Callejo, Sr.
FACTS:
Petitioner Villamaria, Jr. was the owner of Villamaria Motors, a sole proprietorship
engaged in assembling passenger jeepneys with a public utility franchise to operate
along the Baclaran-Sucat route.
In 1995, Villamaria, Jr. employed Bustamante as a driver on a boundary basis. The
latter remitted P450.00 a day to the former and kept the residue of his daily
earnings as compensation for driving the vehicle.
In August 1997, Villamaria verbally agreed to sell the jeepney to Bustamante under
the boundary-hulogscheme, where Bustamante would remit to Villarama P550.00
a day for a period of four years; Bustamante would then become the owner of the
vehicle and continue to drive the same under Villamarias franchise. It was also
agreed that Bustamante would make a downpayment of P10 000.00.
In August 07, 1997, Villamaria executed a contract entitled Kasunduan ng Bilihan
ng Sasakyan sa Pamamagitan ng Boundary-Hulog over the passenger jeepney. In
case Bustamante failed to remit the daily boundary-hulogfor a period of one week,
the Kasunduan would cease to have legal effect and Bustamante would have to
return the vehicle to Villamaria Motors. Villamaria laid rules upon Bustamante under
the Kasunduan such as he is not allowed to wear slippers while driving; he should
be polite to passengers, etc.
In 1999, Bustamante and other drivers who also had the same arrangement with
Villamaria Motors failed to pay their respective boundary-hulog. This prompted
Villamaria to serve a Paalala, reminding them that under the Kasunduan, failure to
pay the daily boundary-hulog for one week, would mean their respective jeepneys
would be returned to him without any complaints.
On July 2000, Villamaria took back the jeepney driven by Bustamante and barred
the latter from driving the vehicle.
Bustamante filed a complaint for Illegal Dismissal against Villamaria.

38

Labor Arbiter: Villamarias favor by dismissing the complaint on the ground that
Villamaria, Jr. presented the contract of Boundary-Hulog, as well as the PAALALA, to
prove their claim that complainant violated the terms of their contract and
afterwards abandoned the vehicle assigned to him.
NLRC: Villamarias favor by affirming Labor Arbiters decision on the ground that
the Labor Arbiter had no jurisdiction since the juridical relationship between
Bustamante and Villamaria was that of a vendor and vendee.
CA: Bustamantes favor by reversing NLRCs decision, ordering Villamaria, Jr. to
pay Bustamante backwages and separation pay.
The appellate court ruled that the Labor Arbiter had jurisdiction over Bustamantes
complaint. Under the Kasunduan, the relationship between him and Villamaria was
dual: that of vendor-vendee and employer-employee. The CA ratiocinated that
Villamarias exercise of control over Bustamantes conduct in operating the jeepney
is inconsistent with the formers claim that he was not engaged in the
transportation business.
ISSUE/S:
Whether an employer-employee relationship exists between Villamaria, Jr. and
Bustamante
DECISION:
The court denied Villamarias petition and affirmed CAs decision
Not every dispute between an employer and employee involves matters
that only the Labor Arbiter and the NLRC can resolve in the exercise of
their adjudicatory or quasi-judicial powers. Actions between employers
and employees where the employer-employee relationship is merely
incidental is within the exclusive original jurisdiction of the regular
courts.
An employer-employee relationship is an indispensable jurisdictional requisite. The
jurisdiction of Labor Arbiters and the NLRC under Article 217 of the Labor Code is
limited to disputes arising from an employer-employee relationship which can only
be resolved by reference to the Labor Code, other labor statutes or their collective
bargaining agreement. But when the principal relief is to be granted under labor
legislation or a collective bargaining agreement, the case falls within the exclusive
jurisdiction of the Labor Arbiter and the NLRC even though a claim for damages
might be asserted as an incident to such claim.
In National Labor Union vs. Dinglasan, Jeepney owner/operator-driver
relationship under the boundary system is that of employer-employee and
not lessor-lessee. This doctrine was affirmed, under similar factual
settings, in Magboo v. Bernardo and Lantaco, Sr. v. Llamas, and was
analogously applied to govern the relationships between autocalesa owner/operator and driver, bus owner/operator and conductor and
taxi owner/operator and driver.

39

The fact that the driver does not receive fixed wages but only the excess
of the boundary given to the owner/operator is not sufficient to change
the employer-employee relationship between them.
Indubitably, the driver performs activities which are usually necessary or desirable
in the usual business or trade of the owner/operator.
The well-settled rule is that an obligation is not novated by an instrument
that expressly recognizes the old one, changes only the terms of payment,
and adds other obligations not incompatible with the old provisions or
where the new contract merely supplements the previous one. The two
obligations of the respondent to remit to petitioner the boundaryhulog can stand together.
The juridical relationship of employer-employee between petitioner and
respondent was not negated by the foregoing stipulation in
the Kasunduan,
considering
that
petitioner
retained
control
of
respondents conduct as driver of the vehicle.
As correctly ruled by the CA:
The exercise of control by private respondent over petitioners conduct in operating
the jeepney he was driving is inconsistent with private respondents claim that he
is, or was, not engaged in the transportation business; that, even if petitioner was
allowed to let some other person drive the unit, it was not shown that he did so;
that the existence of an employment relation is not dependent on how the worker is
paid but on the presence or absence of control over the means and method of the
work; that the amount earned in excess of the boundary hulog is equivalent to
wages; and that the fact that the power of dismissal was not mentioned in
the Kasunduan did not mean that private respondent never exercised such power,
or could not exercise such power.

LABOR STANDARDS
TOPIC: Article 82 Employer-Employee Relationship: Masiador and
Sentenciador

GR No. 196426
40

Semblante and Pilar vs. CA, Gallera De Mandaue and Loot

Spouses
August 15, 2011
Ponente: Justice Velasco, Jr.
FACTS:
Petitioner Semblante and Pilar assert that spouses Loot hired them in the cockpit as
the official Masiador and Sentenciador. A Masiador takes bets and orders the start of
the fight while a Sentenciador oversees the proper gaffing of fighting cocks,
determines the fighting cocks physical condition and capabilities to continue the
fight and eventually declares the result of the cockfight.
Semblante receives P2 000.00 a week while Pilar receives P3 500.00. They work
from 1pm to 12 midnight every Tuesday, Wednesday, Saturday and Sunday every
week, excluding cockfights held on Special Holidays. They further assert that
spouses Loot issued them employees identification cards that they wear every time
they report for duty.
On 2003, their services were terminated; hence, they filed a complaint for illegal
dismissal against respondents.
Loot spouses deny that petitioners were their employees and allege that they were
associates of their independent contractor. Loot spouses further alleged that
petitioners have no regular working time or day and free to decide for themselves
whether to report for work or not on any cockfighting day. In times when there are
few cockfights in Gallera de Mandaue, petitioners go to other cockpits in the vicinity.
Labor Arbiter: Semblantes favor by finding them as regular employees of
spouses Loot since they performed work necessary and indispensible to the
business of the spouses. The Labor Arbiter also ruled that Semblante and Pilar were
illegally dismissed; hence, ordered spouse Loot to pay them their full backwages
and separation pay.
NLRC 1: Semblantes favor by denying spouses Loot appeal due to its nonperfection for its appeal-bond.
NLRC 2: Loots favor by granting the spouses motion for reconsideration on
finding that there was no employer-employee relationship between Semblante and
Pilar to the spouses Loot, the latter having no part in selection and engagement of
the former.
CA: Loots favor by affirming the decision of NLRC on taking notice that referees
and bet-takers in a cockfight need to have the kind of expertise that is characteristic
of the game to interpret messages conveyed by mere gestures. Hence, petitioners
are akin to independent contractors who possess unique skills, expertise, and talent
to distinguish them from ordinary employees. Further, respondents did not supply
41

petitioners with the tools and instrumentalities they needed to perform work.
Petitioners only needed their unique skills and talents to perform their job
as Masiador and Sentenciador.
ISSUE/S:
W/N an employer-employee relationship exists between Semblante (Masiador) and
Pilar (Sentenciador) and Loot Spouses (Cockpit owner)
DECISION:
The court affirmed NLRC and CAs decision.
The rule on the posting of an appeal bond cannot defeat the substantive
rights of respondents to be free from an unwarranted burden of answering
for an illegal dismissal for which they were never responsible.
Since the complainants performed their functions as masiador and
sentenciador free from the direction and control of respondents, and that
in the conduct of their work, they relied mainly on their expertise that is
characteristic of the cockfight gambling, and were never given by
respondents any tool needed for the performance of their work, they are
not considered as employees of the cockpit operator.
While respondents had failed to post their bond within the 10-day period provided
above, it is evident, on the other hand, that petitioners are NOT employees of
respondents, since their relationship fails to pass muster the four-fold test of
employment We have repeatedly mentioned in countless decisions: (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 employees conduct, which is the most
important element. As found by both the NLRC and the CA, respondents had no part
in petitioners selection and management; petitioners compensation was paid out
of the arriba (which is a percentage deducted from the total bets), not by
petitioners; and petitioners performed their functions as masiador and sentenciador
free from the direction and control of respondents. In the conduct of their work,
petitioners relied mainly on their expertise that is characteristic of the cockfight
gambling, and were never given by respondents any tool needed for the
performance of their work. Respondents, not being petitioners employers, could
never have dismissed, legally or illegally, petitioners, since respondents were
without power or prerogative to do so in the first place. The rule on the posting of
an appeal bond cannot defeat the substantive rights of respondents to be free from
an unwarranted burden of answering for an illegal dismissal for which they were
never responsible.

42

LABOR STANDARDS
TOPIC: Article 82 Employer-Employee Relationship: Waiters and Waitresses

GR No. 192473
S.I.P Food House and Pablo vs. Batolina, Calumpisan,
Malgapo, Matias, Miranda and Sta. Ines
October 11, 2010
SIP and its proprietors could not be considered as mere agents of GMPC
because they exercised the essential elements of an employment
relationship with the respondents such as hiring, payment of wages and
the power of control
Requirement before an employer can deduct from the employees wages
the value of the board and lodging. The free board and lodging SIP
furnished the employees cannot operate as a set-off for the underpayment
of their wages.
Ponente: Justice Brion
FACTS:
GSIS Multi-Purpose Cooperative (GMPC) is an entity organized by the employees of
the Government Service Insurance System (GSIS). GMPC wanted to operate a
canteen in the new GSIS Building, but had no capability and expertise in this area.
Thus, it engaged the services of the petitioner S.I.P. Food House (SIP), owned by the
spouses Pablo, as concessionaire. The respondents Batolina and nine (9) others
(the respondents) worked as waiters and waitresses in the canteen.
In February 2004, GMPC terminated SIPs contract as concessionaire because it
wanted to take direct investment and management of the GMPC Canteen. The
termination of the concession caused the termination of respondents employment.
In view of the event, Batolina and the other employees filed a complaint for illegal
dismissal, with money claims, against SIP and spouses Pablo.
SIP argued that it operated the canteen in behalf of GMPC since it had no authority
by itself to do so. The respondents were not its employees, but GMPC's, as shown
by their identification cards. It claimed that GMPC terminated its concession and
prevented it from having access to the canteen premises as GSIS personnel locked
the place; GMPC then operated the canteen on its own, absorbing the respondents
for the purpose and assigning them to the same positions they held with SIP. It
43

maintained that the respondents were not dismissed, but were merely prevented by
GMPC from performing their functions. For this reason, SIP posited that the legal
obligations that would arise under the circumstances have to be shouldered by
GMPC.
Labor Arbiter: SIPs favor by dismissing respondents complaint for lack of merit
and finding that the respondents were GMPC's employees, and not SIP's, as there
existed a labor-only contracting relationship between the two entities. Even if
respondents were considered as SIP's employees, their dismissal would still not be
illegal because the termination of its contract to operate the canteen came as a
surprise and was against its will, rendering the canteen's closure involuntary;
although they were paid only P160.00 to PP220.00 daily, the employees were
provided with free board and lodging seven (7) days a week.
NLRC: Batolinas favor by finding that they were SIPs employees but sustained
the Labor Arbiters decision that the respondents were not illegally dismissed as
the termination SIP's concession to operate the canteen constituted an authorized
cause for the severance of employer-employee relations.
CA: Batolinas favor by affirming NLRCs finding that respondents were SIPs
employees. But, it partially granted SIPs objection to the NLRC computation and
assumption that a month had twenty-six (26) working days, instead of twenty (20)
working days.
CA denied SIPs motion for reconsideration; hence, this instant petition.
ISSUE/S:
Whether an employer-employee relationship exists between SIP and respondents
DECISION:
The court dismissed SIPs petition for lack of merit and affirmed CAs decision.
SIP and its proprietors could not be considered as mere agents of GMPC
because they exercised the essential elements of an employment
relationship with the respondents such as hiring, payment of wages and
the power of control
Not to mention that SIP operated the canteen on its own account as it paid a fee for
the use of the building and for the privilege of running the canteen. The fact that
the respondents applied with GMPC in February 2004 when it terminated its
contract with SIP, is another clear indication that the two entities were separate and
distinct from each other. We thus see no reason to disturb the CA's findings.
Requirement before an employer can deduct from the employees wages
the value of the board and lodging. The free board and lodging SIP
furnished the employees cannot operate as a set-off for the underpayment
of their wages.
44

We held in Mabeza v. National Labor Relations Commission that the employer

cannot simply deduct from the employee's wages the value of the board and
lodging without satisfying the following requirements: (1) proof that such facilities
are customarily furnished by the trade; (2) voluntary acceptance in writing by the
employees of the deductible facilities; and
(3) proof of the fair and reasonable
value of the facilities charged. As the CA aptly noted, it is clear from the records
that SIP failed to comply with these requirements.

LABOR STANDARDS
TOPIC: Article 82 Employer-Employee Relationship: Control Test

GR No. 147816
Paguio vs. NLRC, Metromedia Times Corporation,
Gokongwei, Gomez, Jr., Aragon, Go and Iglesia
November 25, 2008
A "regular employment," whether it is one or not, is aptly gauged from the
concurrence, or the non-concurrence, of the following factors:
a) The manner of selection and engagement of the putative employee,
b) The mode of payment of wages,
c) The presence or absence of the power of dismissal; and
d) The presence or absence of the power to control the conduct of the putative
employee or the power to control the employee with respect to the means or
methods by which his work is to be accomplished.
The "control test" assumes primacy in the overall consideration, whether
regular or otherwise. Under this test, an employment relation obtains
where work is performed or services are rendered under the control and
supervision of the party contracting for the service, not only as to the
result of the work but also as to the manner and details of the
performance desired.
The law, in defining their contractual relationship, does so, not necessarily
or exclusively upon the terms of their written or oral contract, but also on
the basis of the nature of the work petitioner has been called upon to
perform. The law affords protection to an employee, and it will not
countenance any attempt to subvert its spirit and intent. A stipulation in
45

an agreement can be ignored as and when it is utilized to deprive the

employee of his security of tenure. The sheer inequality that characterizes
employer-employee relations, where the scales generally tip against the
employee, often scarcely provides him real and better options.
A lawful dismissal must meet both substantive and procedural
requirements; in fine, the dismissal must be for a just or authorized cause
and must comply with the rudimentary due process of notice and hearing.
It is not shown that respondent company has fully bothered itself with
either of these requirements in terminating the services of petitioner. The
notice of termination recites no valid or just cause for the dismissal of
petitioner nor does it appear that he has been given an opportunity to be
heard in his defense.
Ponente: Justice Vitug
FACTS:
In June 1992, Respondent Metromedia Times Corporation, for the fifth time, came
into an agreement with petitioner Paguio, appointing him as an account executive of
the firm. Paguios job was to solicit advertisements for "The Manila Times,"
published by respondent company.
Paguio was to receive commissions and monthly allowances as long as he met his
P30 000.00 quota.
The following stipulations in their contract are the object of contention between
Respondent company and Paguio:
12. You are not an employee of the Metromedia Times Corporation nor does the
company have any obligations towards anyone you may employ, nor any
responsibility for your operating expenses or for any liability you may incur. The
only rights and obligations between us are those set forth in this agreement. This
agreement cannot be amended or modified in any way except with the duly
authorized consent in writing of both parties.
13. Either party may terminate this agreement at any time by giving written
notice to the other, thirty (30) days prior to effectivity of termination.
In August 1992, respondent company terminated Paguio on the allegations of
misconduct on which he was not given the opportunity to defend himself, i.e.,
pirating clients from his co-executives and failing to produce results, no definite
cause for petitioner's termination was given
Aggrieved, Paguio filed a complaint for illegal dismissal asking for resintatement,
backwages and other monetary claims.
In their defense, respondent Metromedia Times Corporation asserted that it did not
enter into any agreement with petitioner outside of the contract of services under
Articles 1642 and 1644 of the Civil Code of the Philippines. Asserting their right to
terminate the contract with petitioner, respondents pointed to the last provision
thereof stating that both parties could opt to end the contract provided that either
46

party would serve, thirty days prior to the intended date of termination, the
corresponding notice to the other.
Labor Arbiter: Paguios favor by declaring that he was illegally dismissed,
ordering respondent company to reinstate him to his former position and granting
him monetary awards.
NLRC: Companys favor by reversing the Labor Arbiters decision and declaring
that the contractual relationship between the parties as being fixed for fixed-term
employment. The finding of the NLRC was primarily hinged on the assumption that
petitioner, on account of his educated stature, having indeed personally prepared
his pleadings without the aid of counsel, was an unlikely victim of a lopsided
contract.
CA: Companys favor by affirming NLRCs decision; hence, this instance petition.
ISSUE/S:
W/N Paguio is a regular employee based on the determination of the contractual
relationship between petitioner and respondent company.
DECISION:
The court granted Paguios petition, reversed CAs decision and reinstated Labor
Arbiters decision.
A "regular employment," whether it is one or not, is aptly gauged from the
concurrence, or the non-concurrence, of the following factors:
a) The manner of selection and engagement of the putative employee,
b) The mode of payment of wages,
c) The presence or absence of the power of dismissal; and
d) The presence or absence of the power to control the conduct of the putative
employee or the power to control the employee with respect to the means or
methods by which his work is to be accomplished.
The "control test" assumes primacy in the overall consideration, whether
regular or otherwise.
Under this test, an employment relation obtains where work is performed or
services are rendered under the control and supervision of the party contracting for
the service, not only as to the result of the work but also as to the manner and
details of the performance desired.
The Labor Arbiter considered the reservation by respondent Metromedia Times
Corporation not only of the right to control the results to be achieved but likewise
the manner and the means used in reaching that end. Metromedia Times
Corporation exercised such control by requiring petitioner to submit a daily sales
activity report and also a monthly sales report as well. Various solicitation letters
would indeed show that the company directed and monitored the sales activities of
Paguio.
The law provides (Art. 280) that: an employment shall be deemed to be regular
where the employee has been engaged to perform activities which are usually
47

necessary or desirable in the usual business or trade of the employer, except where
the employment has been fixed for a specific project or undertaking the completion
or termination of which has been determined at the time of the engagement of the
employee or where the work or service to be performed is seasonal in nature and
the employment is for the duration of the season.
An employment shall be deemed to be casual if it is not covered by the preceding
paragraph: Provided, That, any employee who has rendered at least one year of
service, whether such service is continuous or broken, shall be considered a regular
employee with respect to the activity in which he is employed and his employment
shall continue while such activity exists.
An account executive responsible for soliciting advertisements is clearly
necessary and desirable for the survival and continued operation of an
employer in the newspaper business.
That petitioner performed activities which were necessary and desirable to the
business of the employer, and that the same went on for more than a year, could
hardly be denied. Petitioner was an account executive in soliciting advertisements,
clearly necessary and desirable, for the survival and continued operation of the
business of respondent corporation. Gokongwei, its President, herself admitted that
the income generated from paid advertisements was the lifeblood of the
newspaper's existence. Implicitly, respondent corporation recognized petitioner's
invaluable contribution to the business when it renewed, not just once but five
times, its contract with petitioner.
Respondent company cannot seek refuge under the terms of the agreement it has
entered into with petitioner.
The law, in defining their contractual relationship, does so, not necessarily
or exclusively upon the terms of their written or oral contract, but also on
the basis of the nature of the work petitioner has been called upon to
perform. The law affords protection to an employee, and it will not
countenance any attempt to subvert its spirit and intent. A stipulation in
an agreement can be ignored as and when it is utilized to deprive the
employee of his security of tenure. The sheer inequality that characterizes
employer-employee relations, where the scales generally tip against the
employee, often scarcely provides him real and better options.
A lawful dismissal must meet both substantive and procedural
requirements; in fine, the dismissal must be for a just or authorized cause
and must comply with the rudimentary due process of notice and hearing.
It is not shown that respondent company has fully bothered itself with either of
these requirements in terminating the services of petitioner. The notice of
termination recites no valid or just cause for the dismissal of petitioner nor does it
appear that he has been given an opportunity to be heard in his defense.

GR No. 176484
Calamba Medical Center, Inc. (CMC) vs. NLRC, Lanzanas
and Lanzanas
November 25, 2008
48

Under the "control test," an employment relationship exists between a

physician and a hospital if the hospital controls both the means and the
details of the process by which the physician is to accomplish his task.
For control test to apply, it is not essential for the employer to actually
supervise the performance of duties of the employee, it being enough that
it has the right to wield the power.
Mandatory coverage under the SSS Law is premised on the existence of an
employer-employee relationship, except in cases of compulsory coverage
of the self-employed.
Section 15, Rule X of Book III of the Implementing Rules of the Labor Code,
an employer-employee relationship exists between the resident physicians
and the training hospitals, unless there is a training agreement between
them, and the training program is duly accredited or approved by the
appropriate government agency.
Mere membership in a labor union does not ipso facto mean participation
in a strike.
Ponente: Justice Carpio-Morales
FACTS:
CMC engaged the services of spouses Drs. Lanzanas on March 1992 for Rodolfo and
August 1995 for Merceditha as part of its team of resident physicians. Reporting at
the hospital twice-a-week on twenty-four-hour shifts, respondents were paid a
monthly "retainer" of P4,800.00 each.
The work schedules of the members of the team of resident physicians were fixed
by petitioner's medical director Dr. Desipeda. And they were issued identification
cards by petitioner and were enrolled in the Social Security System (SSS). Income
taxes were withheld from them.
Dr. Trinidad, also a resident physician at the hospital, inadvertently overheard a
telephone conversation of respondent Dr. Rodolfo Lanzanas with a fellow
employee,Miscala, through an extension telephone line. Apparently, they were
discussing the low "census" or admission of patients to the hospital. She relayed
this information to Dr. Desipeda who, through a memorandum, required Dr.
Lanzanas to explain within 24 hours why no disciplinary action should be given to
him and placed the latter in preventive suspension for 30 days.
Inexplicably, petitioner did not give respondent Dr. Merceditha, who was not
involved in the said incident, any work schedule after sending her husband Dr.
Lanzanas the memorandum, nor inform her the reason therefor, albeit she was later
informed by the Human Resource Department (HRD) officer that that was part of
petitioner's cost-cutting measures.
March 1998, the rank-and-file employees union of petitioner went on strike due to
unresolved grievances over terms and conditions of employment

49

A few days after, Dr. Lanzanas filed a complaint for illegal suspension before the
NLRC-Regional Arbitration Board (RAB) IV. Dr. Merceditha subsequently filed a
complaint for illegal dismissal
Meantime, (DOLE) certified the labor dispute to the NLRC for compulsory arbitration
and issued on April 21, 1998 return-to-work Order to the striking union officers and
employees of petitioner pending resolution of the labor dispute
Dr. Desipeda later sent Dr. Lanzanas a notice of termination which he received on
April 25, 1998, indicating as grounds therefor his failure to report back to work
despite the DOLE order and his supposed role in the striking union and was
observed (re: signatories [sic] to the Saligang Batas of BMCMC-UWP) to be
unlawfully participating as member in the rank-and-file union's concerted
activities despite knowledge that your position in the hospital is managerial in
nature Dr. Lanzanas thus amended his original complaint to include illegal dismissal.
Labor Arbiter: CMCs favor, dismissed the spouses' complaints for want of
jurisdiction upon a finding that there was no employer-employee relationship
between the parties, the fourth requisite or the "control test" in the determination of
an employment bond being absent.
NLRC: Spouses Lanzanas favor by reversing Labor Arbiters decision. Then, ordered
CMC are to pay the complainants their full backwages; separation pay of one month
salary for every year of service in lieu of reinstatement; moral damages of
P500,000.00 each; exemplary damages of P250,000.00 each plus ten percent (10%)
of the total award as attorney's fees.
CA 1: CMCs favor by setting aside NLRCs decision.
CA 2: Spouses Lanzanas favor by reinstating NLRCdecision but tempered the
award to each of the spouses of moral and exemplary damages to P100,000.00 and
P50,000.00, respectively and omitted the award of attorney's fees.
Hence, this instant petition
ISSUE/S:
W/N there exist an employer-employee relationship between petitioner and
respondents.
W/N respondent-spouses were illegally dismissed.
DECISION:
The court denied CMCs petition by affirming NLRCs decision with modifications that
10% if the total judgment award as Attorneys fees is reinstated.

50

Under the "control test," an employment relationship exists between a

physician and a hospital if the hospital controls both the means and the
details of the process by which the physician is to accomplish his task.
Where a person who works for another does so more or less at his own pleasure and
is not subject to definite hours or conditions of work, and is compensated according
to the result of his efforts and not the amount thereof, the element of control is
absent. As priorly stated, private respondents maintained specific work-schedules,
as determined by petitioner through its medical director, which consisted of 24-hour
shifts totalling forty-eight hours each week and which were strictly to be observed
under pain of administrative sanctions.
For control test to apply, it is not essential for the employer to actually
supervise the performance of duties of the employee, it being enough that
it has the right to wield the power.
That petitioner exercised control over respondents gains light from the undisputed
fact that in the emergency room, the operating room, or any department or ward for
that matter, respondents' work is monitored through its nursing supervisors, charge
nurses and orderlies. Without the approval or consent of petitioner or its medical
director, no operations can be undertaken in those areas.
Mandatory coverage under the SSS Law is premised on the existence of an
employer-employee relationship, except in cases of compulsory coverage
of the self-employed.
More importantly, petitioner itself provided incontrovertible proof of the
employment status of respondents, namely, the identification cards it issued them,
the payslips and BIR W-2 (now 2316) Forms which reflect their status as employees,
and the classification as "salary" of their remuneration. Moreover, it enrolled
respondents in the SSS and Medicare (Philhealth) program. It bears noting at this
juncture that mandatory coverage under the SSS Law is premised on the existence
of an employer-employee relationship, except in cases of compulsory coverage of
the self-employed. It would be preposterous for an employer to report certain
persons as employees and pay their SSS premiums as well as their wages if they
are not its employees.
Section 15, Rule X of Book III of the Implementing Rules of the Labor Code,
an employer-employee relationship exists between the resident physicians
and the training hospitals, unless there is a training agreement between
them, and the training program is duly accredited or approved by the
appropriate government agency.
In respondents' case, they were not undergoing any specialization training. They
were considered non-training general practitioners, [37] assigned at the emergency
rooms and ward sections.
Mere membership in a labor union does not ipso facto mean participation
in a strike.
Participation in a strike and intransigence to a return-to-work order must, however,
be duly proved in order to justify immediate dismissal in a "national interest" case.
As the appellate court as well as the NLRC observed, however, there is nothing in
the records that would bear out Dr. Lanzanas' actual participation in the strike. And

51

the medical director's Memorandum of April 22, 1998 contains nothing more than a
general directive to all union officers and members to return-to-work.

GR No. 127590
Professional Services, Inc. (PSI) vs. Court of Appeals and
Natividad and Enrique Agana
February 02, 2010
Petitioner PSI is liable to the Aganas, not under the principle of
respondeat superior for lack of evidence of an employment relationship
with Dr. Ampil but under the principle of ostensible agency for the
negligence of Dr. Ampil and, pro hac vice, under the principle of corporate
negligence for its failure to perform its duties as a hospital.
Regardless of its relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure to follow
established standard of conduct to which it should conform as a
corporation.
Court still employs the "control test" to determine the existence of an
employer-employee relationship between hospital and doctor.
Control as a determinative factor in testing the employer-employee
relationship between doctor and hospital under which the hospital could
be held vicariously liable to a patient in medical negligence cases is a
requisite fact to be established by preponderance of evidence.
Ample evidence that the hospital (PSI) held out to the patient (Natividad)
that the doctor (Dr. Ampil) was its agent. Present are the two factors that
determine apparent authority: first, the hospital's implied manifestation
to the patient which led the latter to conclude that the doctor was the
hospital's agent; and second, the patients reliance upon the conduct of
the hospital and the doctor, consistent with ordinary care and prudence.
Ponente: Justice Corona
FACTS:
PSI, together with Dr. Ampil and Dr. Fuentes, was impleaded by Enrique Agana and
Natividad Agana (later substituted by her heirs), in a complaint for damages filed in
the (RTC) for the injuries suffered by Natividad when Dr. Ampil and Dr. Fuentes
neglected to remove from her body two gauzes which were used in the surgery they
performed on her on April 1984 at the Medical City General Hospital. PSI was
impleaded as owner, operator and manager of the hospital.
RTC: Dr. Ampil and Dr. Fuentes are solidarily liable for damages.
CA 1: Absolved Dr. Fuentes and affirmed liability of Dr. Ampil and PSI, subject to the
right of PSI to claim reimbursement from Dr. Ampil.
SC: Affirmed CAs decision
52

CA 2: Denied PSIs motion for reconsideration.

Hence, this instant petition where PSI argues:
1. The declaration in the 31 January 2007 Decision vis-a-vis the 11 February
2009 Resolution that the ruling in Ramos vs. Court of Appeals (G.R. No.
134354, December 29, 1999) that "an employer-employee relations exists
between hospital and their consultants" stays should be set aside for being
inconsistent with or contrary to the import of the resolution granting the
hospital's motion for reconsideration in Ramos vs. Court of Appeals (G.R. No.
134354, April 11, 2002), which is applicable to PSI since the Aganas failed to
prove an employer-employee relationship between PSI and Dr. Ampil and PSI
proved that it has no control over Dr. Ampil. In fact, the trial court has found
that there is no employer-employee relationship in this case and that the
doctor's are independent contractors.
2. Respondents Aganas engaged Dr. Miguel Ampil as their doctor and did not
primarily and specifically look to the Medical City Hospital (PSI) for medical
care and support; otherwise stated, respondents Aganas did not select
Medical City Hospital (PSI) to provide medical care because of any apparent
authority of Dr. Miguel Ampil as its agent since the latter was chosen
primarily and specifically based on his qualifications and being friend and
neighbor.
3. PSI cannot be liable under doctrine of corporate negligence since the
proximate cause of Mrs. Agana's injury was the negligence of Dr. Ampil, which
is an element of the principle of corporate negligence.
ISSUE/S:
W/N a hospital may be held liable for the negligence of physicians-consultants
allowed to practice in its premises.
DECISION:
The court denied PSIs motion and held that Professional Services, Inc. is ORDERED
pro hac vice to pay Natividad (substituted by her children Marcelino Agana III,
Enrique Agana, Jr., Emma Agana-Andaya, Jesus Agana and Raymund Agana) and
Enrique Agana the total amount of P15 million, subject to 12% p.a. interest from the
finality of this resolution to full satisfaction.
Petitioner PSI is liable to the Aganas, not under the principle of
respondeat superior for lack of evidence of an employment relationship
with Dr. Ampil but under the principle of ostensible agency for the
negligence of Dr. Ampil and, pro hac vice, under the principle of corporate
negligence for its failure to perform its duties as a hospital.
While in theory a hospital as a juridical entity cannot practice medicine, in reality it
utilizes doctors, surgeons and medical practitioners in the conduct of its business of
facilitating medical and surgical treatment. Within that reality, three legal
relationships crisscross:
1. Between the hospital and the doctor practicing within its premises;

53

2. Between the hospital and the patient being treated or examined within its
premises; and
3. Between the patient and the doctor.
The exact nature of each relationship determines the basis and extent of the liability
of the hospital for the negligence of the doctor.
Regardless of its relationship with the doctor, the hospital may be held
directly liable to the patient for its own negligence or failure to follow
established standard of conduct to which it should conform as a
corporation.
Where an employment relationship exists, the hospital may be held vicariously
liable under Article 2176 in relation to Article 2180 of the Civil Code or the principle
of respondeat superior. Even when no employment relationship exists but it is
shown that the hospital holds out to the patient that the doctor is its agent, the
hospital may still be vicariously liable under Article 2176 in relation to Article 1431
and Article 1869 of the Civil Code or the principle of apparent authority.
Court still employs the "control test" to determine the existence of an
employer-employee relationship between hospital and doctor.
In Calamba Medical Center, Inc. v. National Labor Relations Commission, et al. it
held:
Under the "control test", an employment relationship exists between a physician
and a hospital if the hospital controls both the means and the details of the process
by which the physician is to accomplish his task.
Control as a determinative factor in testing the employer-employee
relationship between doctor and hospital under which the hospital could
be held vicariously liable to a patient in medical negligence cases is a
requisite fact to be established by preponderance of evidence.
Nonetheless, to allay the anxiety of the intervenors, the Court holds that, in this
particular instance, the concurrent finding of the RTC and the CA that PSI was not
the employer of Dr. Ampil is correct. Here, there was insufficient evidence that PSI
exercised the power of control or wielded such power over the means and the
details of the specific process by which Dr. Ampil applied his skills in the treatment
of Natividad.
Ample evidence that the hospital (PSI) held out to the patient (Natividad)
that the doctor (Dr. Ampil) was its agent. Present are the two factors that
determine apparent authority: first, the hospital's implied manifestation
to the patient which led the latter to conclude that the doctor was the
hospital's agent; and second, the patients reliance upon the conduct of
the hospital and the doctor, consistent with ordinary care and prudence.

GR No. 170087
Francisco vs. NLRC, Kasei Corporation, Takahashi, Acedo,
Liza, Ballesteros and Escueta
August 31, 2006

54

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.
The better approach would therefore be to adopt a two-tiered test
involving: (1) the putative employers 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.
In Sevilla v. Court of Appeals, 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.
The determination of the relationship between employer and employee
depends upon the circumstances of the whole economic activity
1. The extent to which the services performed are an integral part of the
employers business;
2. The extent of the workers investment in equipment and facilities;
3. The nature and degree of control exercised by the employer;
4. The workers 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.
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.
In affording full protection to labor, this Court must ensure equal work
opportunities regardless of sex, race or creed.
Ponente: Justice Ynares-Santiago
FACTS:
Respondent Company hired petitioner Francisco in 1995 as an Accountant and
Corporate Secretary and subsequently designated as Liaison Officer to Makati for
the operation of the company.
In 1996, Company designated petitioner as Acting Manager.

55

In January 2001, Company replaced petitioner with Fuentes as Manager. Company

required her to sign a prepared resolution but was assured that she would still be
connected with the company.
Thereafter, respondent company reduced her salary and failed to pay her mid-year
bonus allegedly because the company was not earning well.
In October 2001, petitioner did not receive her salary; she was advised that the
company was not earning well.
In October 15, 2001, she asked her salary from Acedo but she was informed that
she is no longer connected with the company.
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.
Respondent company claims that Francisco is not their employee since she was
hired as one of its technical consultants in 1995. 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. 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. 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 petitioners
latest employer was Seiji Corporation
Labor Arbiter: Franciscos favor by finding that petitioner Francisco is an
employee of the company; declaring her dismissal illegal and ordering respondent
company to pay her money claims and separation pay with additional backwages in
reinstatement is no longer possible.
NLRC: Franciscos favor by affirming Labor Arbiters decision with modifications
on the awards granted to Francisco by omitting the moral and exemplary damages
and 10% share in the profit.
CA: Respondent Companys favor by reversing NLRCs decision and dismissing
Franciscos complaint and denying Franciscos motion for reconsideration
Hence, this instant petition
ISSUE/S:
Whether there was an employer-employee relationship between Francisco and
respondent company.
56

In the affirmative, whether Francisco was illegally dismissed

DECISION:
The court granted Franciscos petition by annulling CAs decision, reinstating NLRCs
decision and remanding the case to the Labor Arbiter for the recomputation of
monetary awards to Francisco.
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 employers 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 employers 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 latters employment.
In Sevilla v. Court of Appeals, 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.
The determination of the relationship between employer and employee
depends upon the circumstances of the whole economic activity
1. The extent to which the services performed are an integral part of the
employers business;
2. The extent of the workers investment in equipment and facilities;
3. The nature and degree of control exercised by the employer;
4. The workers 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.

57

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.
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.

LABOR STANDARDS
TOPIC: Overload Pay

GR No. 156225
Letran Calamba Faculty and Employees Association
(LCFEA) vs. NLRC and Collegio De San Juan De Letran
Calamba, Inc (Letran)
58

January 29, 2008

Ponente: Justice Austria-Martinez
FACTS:
Petitioner filed with Regional Arbitration Branch No. IV of the NLRC a
complaint against respondent for collection of various monetary claims due its
members:
3) In the computation of the thirteenth month pay of its academic personnel,
respondent does not include as basis therefor their compensation for overloads.
It only takes into account the pay the faculty members receive for their teaching
loads not exceeding eighteen (18) units. The teaching overloads are rendered
within eight (8) hours a day.
Petitioner argues that under the Revised Guidelines on the Implementation of the
13th-Month Pay Law, promulgated by the Secretary of Labor on November 1987, the
basic pay of an employee includes remunerations or earnings paid by his employer
for services rendered, and that excluded therefrom are the cash equivalents of
unused vacation and sick leave credits, overtime, premium, night differential,
holiday pay and cost-of-living allowances.
Petitioner claims that since the pay for excess loads or overloads does not fall under
any of the enumerated exclusions and considering that the said overloads are being
performed within the normal working period of eight hours a day, it only follows that
the overloads should be included in the computation of the faculty members' 13 thmonth pay.
The DOLE Order which was relied upon by the LA and the NLRC in their respective
Decisions cannot be applied to the instant case because the DOLE Order was issued
long after the commencement of petitioner's complaints for monetary claims; that
the prevailing rule at the time of the commencement of petitioner's complaints was
to include compensations for overloads in determining a faculty member's 13 thmonth pay; that to give retroactive application to the DOLE Order issued in 1996 is
to deprive workers of benefits which have become vested and is a clear violation of
the constitutional mandate on protection of labor
Letran argues that DOLE Order is an administrative regulation which interprets the
13th-Month Pay Law (P.D. No. 851) and, as such, it is mandatory for the LA to apply
the same to the present case. It further contends that Legal Services Office of the
DOLE issued an opinion dated March 1992, that remunerations for teaching in
excess of the regular load, which includes overload pay for work performed within
an eight-hour work day, may not be included as part of the basic salary in the
computation of the 13th-month pay unless this has been included by company
practice or policy.
Labor Arbiter: Letrans favor by dismissing petitioners complaint for lack of
merit.
NLRC: Letrans favor by affirming Labor Arbiters decision.

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CA: Letrans favor by affirming Labor Arbiter and NLRCs decision CA denied
petitioners motion for reconsideration; hence, this instant petition
ISSUE/S:
Whether overload pay for work performed within an eight-hour work day may be
included as part of the basic salary in the computation of the 13 th month pay.
DECISION:
The court denied LCFEAs petition and affirmed CAs decision.
Basic wage is defined by the Implementing Rules of RA 6727 as follows:
Basic Wage means all remuneration or earnings paid by an employer to a worker
for services rendered on normal working days and hours but does not include cost
of living allowances, 13th-month pay or other monetary benefits which are not
considered as part of or integrated into the regular salary of the workers
It is a settled rule that when an administrative or executive agency
renders an opinion or issues a statement of policy, it merely interprets a
pre-existing law and the administrative interpretation is at best advisory
for it is the courts that finally determine what the law means.
The petitioners claim that the DOLE Order should not be made to apply to the
present case because said Order was issued only in 1996, approximately four years
after the present case was initiated before the Regional Arbitration Branch of the
NLRC, is not without basis. The general rule is that administrative rulings and
circulars shall not be given retroactive effect.
Nevertheless, it is a settled rule that when an administrative or executive agency
renders an opinion or issues a statement of policy, it merely interprets a preexisting law and the administrative interpretation is at best advisory for it is the
courts that finally determine what the law means.
In the present case, while the DOLE Order may not be applicable, the Court finds
that overload pay should be excluded from the computation of the 13 th-month pay
of
petitioner's
members.
In resolving the issue of the inclusion or exclusion of overload pay in the
computation of a teacher's 13th-month pay, it is decisive to determine what basic
salary includes and excludes.
An overload pay, owing to its very nature and definition, may not be
considered as part of a teacher's regular or basic salary, because it is
being paid for additional work performed in excess of the regular teaching
load.
In the same manner that payment for overtime work and work performed during
special holidays is considered as additional compensation apart and distinct from an
employee's regular wage or basic salary, an overload pay, owing to its very nature
and definition, may not be considered as part of a teacher's regular or basic salary,
because it is being paid for additional work performed in excess of the regular
teaching load.
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The peculiarity of an overload lies in the fact that it may be performed within the
normal eight-hour working day. This is the only reason why the DOLE, in its
explanatory bulletin, finds it proper to include a teacher's overload pay in the
determination of his or her 13th-month pay. However, the DOLE loses sight of the
fact that even if it is performed within the normal eight-hour working day, an
overload is still an additional or extra teaching work which is performed after the
regular teaching load has been completed. Hence, any pay given as compensation
for such additional work should be considered as extra and not deemed as part of
the regular or basic salary.

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