MAE NIAGARA M.

BALANAY
Labor Law I
CAPITOL MEDICAL CENTER, INC. vs DR. CESAR E. MERIS
FACTS:
Capitol Medical Center, Inc. (Capitol) hired Dr. Cesar Meris (Dr.
Meris), one of its stockholders, as in charge of its Industrial Service Unit
(ISU) at a monthly salary of P10,270.00. Until the closure of the ISU
on April 30, 1992, Dr. Meris performed dual functions of providing
medical services to Capitols more than 500 employees and health
workers as well as to employees and workers of companies having
retainer contracts with it. On March 31, 1992, Dr. Meris received from
Capitols president, a notice advising him of the managements decision
to close or abolish the ISU and the consequent termination of his
services as Chief thereof. The notice explained that the hospital
management has decided to abolish CMCs Industrial Service Unit as
of April 30, 1992 in view of the almost extinct demand for direct
medical services by the private and semi-government corporations in
providing health care for their employees. Such a decision was arrived
at, after considering the existing trend of industrial companies
allocating their health care requirements to Health Maintenance
Organizations (HMOs) or thru a tripartite arrangement with medical
insurance carriers and designated hospitals. As a consequence thereof,
all positions in the unit will be decommissioned at the same time
industrial services [are] deactivated. Dr. Meris believed it was a mere
ploy for his ouster due to his refusal to retire. He sought reinstatement
but was unheeded.
Dr. Meris thus filed a complaint against Capitol and Dr. Clemente
for illegal dismissal and reinstatement with claims for backwages,
moral and exemplary damages, plus attorneys fees.
The Labor Arbiter held that the abolition of the ISU was a valid
and lawful exercise of management prerogatives and there was
convincing evidence to show that ISU was being operated at a loss.
However, respondents were ordered to pay complainant all sums due
him under the hospital retirement plan. On appeal, the NLRC
modified the Labor Arbiters decision. It held that in the exercise of
Capitols management prerogatives, it had the right to close the ISU
even if it was not suffering business losses in light of Article 283 of the
Labor Code and jurisprudence. And the NLRC set aside the Labor
Arbiters directive for the payment of retirement benefits to Dr. Meris
because he did not retire. Instead, it ordered the payment of
separation pay as provided under Article 283 as he was discharged due
to closure of ISU, to be charged against the retirement fund. Hence,
this appeal.
ISSUE: ISSUE: Was there illegal dismissal?
HELD:
Yes. Dr. Meris was illegally dismissed. Work is a necessity that has
economic significance deserving legal protection. The social justice and
protection to labor provisions in the Constitution dictate so. Employers
are also accorded rights and privileges to assure their selfdetermination and independence and reasonable return of capital. This
mass of privileges comprises the so-called management prerogatives.
Although they may be broad and unlimited in scope, the State has the
right to determine whether an employers privilege is exercised in a

MAE NIAGARA M. BALANAY

Labor Law I
manner that complies with the legal requirements and does not offend
the protected rights of labor. One of the rights accorded an employer is
the right to close an establishment or undertaking.
The right to close the operation of an establishment or
undertaking is explicitly recognized under the Labor Code as one of the
authorized causes in terminating employment of workers, the only
limitation being that the closure must not be for the purpose of
circumventing the provisions on termination of employment embodied
in the Labor Code. the phrase closures or cessation of operations of
establishment or undertaking includes a partial or total closure or
cessation. And the phrase closures or cessation x x x not due to serious
business losses or financial reverses recognizes the right of the
employer to close or cease his business operations or undertaking
even if he is not suffering from serious business losses or financial
reverses, as long as he pays his employees their termination pay in the
amount corresponding to their length of service.
It would indeed be stretching the intent and spirit of the law if a
court were to unjustly interfere in managements prerogative to close
or cease its business operations just because said business operation or
undertaking is not suffering from any loss. As long as the companys exercise of the
same is in good faith to advance its interest and not for the

purpose of defeating or circumventing the rights of employees

under the law or a valid agreement, such exercise will be upheld.
Clearly then, the right to close an establishment or undertaking
may be justified on grounds other than business losses but it cannot be
an unbridled prerogative to suit the whims of the employer. The
ultimate test of the validity of closure or cessation of
establishment or undertaking is that it must be bona fide in
character. And the burden of proving such falls upon the
employer.
In the case at bar, Capitol failed to sufficiently prove its good faith
in closing the ISU. The records of the case, however, fail to impress
that there was indeed extinct demand for the medical services
rendered by the ISU. If there was extinct demand for the ISU medical
services as what Capitol purport to convey, why the number of client
companies of the ISU increased from 11 to 18 from 1986 to 1991, as
well as the number of patients from both industrial corporations and
Capitol employees, they did not explain.
At all events, the claimed losses are contradicted by the accounting
records of Capitol itself which show that ISU had increasing revenue
from 1989 to 1991. The closure of ISU then surfaces to be contrary to
the provisions of the Labor Code on termination of employment.
The termination of the services of Dr. Meris not having been
premised on a just or authorized cause, he is entitled to either
reinstatement or separation pay if reinstatement is no longer viable,
and to backwages. Reinstatement, however, is not feasible in case of a
strained employer-employee relationship or when the work or position
formerly held by the dismissed employee no longer exists, as in the
instant case. Dr. Meris is thus entitled to payment of separation pay at
the rate of one (1) month salary for every year of his employment, with
a fraction of at least six (6) months being considered as one (1)
year, and full backwages from the time of his dismissal from April 30,
1992 until the expiration of his term as Chief of ISU or his mandatory
retirement, whichever comes first.

MAE NIAGARA M. BALANAY

Labor Law I

THE MANILA HOTEL CORP. vs. NLRC

434 SCRA 1

FACTS:
Marcelo Santos was an overseas worker employed as a printer at the
Mazoon Printing Press, Sultanate of Oman. During his employment with the
Mazoon Printing Press in the Sultanate of Oman, he received a letter from Mr.
Gerhard R. Shmidt, General Manager of Palace Hotel, Beijing, China wherein
he was informed that he was recommended by one Nestor Buenio, a friend of
his. Mr. Shmidt offered Santos the same position as printer, but with a higher
monthly salary and increased benefits. Santos resigned from the Mazoon
Printing Press under the pretext that he was needed at home to help with the
familys piggery and poultry business. His employment contract with Palace
Hotel stated that his employment would be for a period of two years. It
provided for a monthly salary of nine hundred dollars (US$900.00) net of
taxes, payable fourteen (14) times a year.
On November 1988, Santos left for Beijing, China and started to work
at the Palace Hotel. Subsequently, Santos signed an amended employment
agreement with the Palace Hotel. In the contract, Mr. Shmidt represented the
Palace Hotel. The Vice President (Operations and Development) of petitioner
MHICL Miguel D. Cergueda signed the employment agreement under the
word noted. On August 1989, the Palace Hotel informed Santos by letter
signed by Mr. Shmidt that his employment at the Palace Hotel print shop
would be terminated due to business reverses brought about by the political
upheaval in China. The Palace Hotel terminated the employment of Santos
and paid all benefits due him, including his plane fare back to the Philippines.

MAE NIAGARA M. BALANAY

Labor Law I
On October 1989, respondent Santos was repatriated to the
Philippines. Through his lawyer, Atty. Ednave, Santos wrote to Mr. Shmidt,
demanding full compensation pursuant to the employment agreement, in
which Mr. Scmidt said in reply, that Santos service with the Palace Hotel,
Beijing was not abruptly terminated but we followed the one-month notice
clause and Mr. Santos received all benefits due him. He further informed that
the Print Shop at the Palace Hotel is still not operational and with a low
business outlook, retrenchment in various departments of the hotel is going
on which is a normal management practice to control costs, that when they
go through the latest performance ratings, Santos performance was below
average and a Chinese National who is doing his job now shows a better
approach and in closing, said that after Santos received the letter of notice,
he
hardly
showed
up
for
work
but
still
enjoyed
free
accommodation/laundry/meals up to the day of his departure. Santos then
filed a complaint for illegal dismissal with the Arbitration Branch, NCR,
National Labor Relations Commission (NLRC). He sued for actual damages,
exemplary damages and attorneys fees. The complaint named MHC, MHICL,
the Palace Hotel and Mr. Shmidt as respondents. The Palace Hotel and Mr.
Shmidt were not served with summons and neither participated in the
proceedings before the Labor Arbiter. The Labor Arbiter decided in favour of
Santos however, on appeal, the NLRC, reversed the decision for lack of
jurisdiction and referred the case to POEA. Santos argued that the case was
not cognizable by the POEA as he was not an overseas contract worker. The
NLRC granted the motion and reversed itself. The NLRC directed the Labor
Arbiter to hear the case on the question of whether private respondent was
retrenched or dismissed on which it was found out that Santos was illegally
dismissed from employment and recommended that he be paid actual
damages equivalent to his salaries for the unexpired portion of his contract.

ISSUE:
Whether or not there was an existing employer-employee relationship
between Santos and MHICL.

HELD:
There was no existing employer-employee relationship between Santos
and MHICL. In determining the existence of an employer-employee
relationship, the following elements are considered: (1) the
selection and engagement of the employee; (2) the payment of
wages; (3) the power to dismiss; and (4) the power to control
employees conduct.
MHICL did not have and did not exercise any of the aforementioned
powers. It did not select respondent Santos as an employee for the Palace
Hotel. He was referred to the Palace Hotel by his friend, Nestor
Buenio. MHICL did not engage respondent Santos to work. The terms of
employment were negotiated and finalized through correspondence between

MAE NIAGARA M. BALANAY

Labor Law I
respondent Santos, Mr. Schmidt and Mr. Henk, who were officers and
representatives of the Palace Hotel and not MHICL. Neither did respondent
Santos adduce any proof that MHICL had the power to control his
conduct. Finally, it was the Palace Hotel, through Mr. Schmidt and not MHICL
that terminated respondent Santos services.
Neither is there evidence to suggest that MHICL was a labor-only
contractor. There is no proof that MHICL supplied respondent Santos or even
referred him for employment to the Palace Hotel.
Likewise, there is no evidence to show that the Palace Hotel and MHICL are
one and the same entity. The fact that the Palace Hotel is a member of the
Manila Hotel Group is not enough to pierce the corporate veil between MHICL
and the Palace Hotel
Further, the Vice President (Operations and Development) of MHICL,
Miguel D. Cergueda signed the employment contract as a mere witness. He
merely signed under the word noted. When one notes a contract, one is not
expressing his agreement or approval, as a party would.

MAE NIAGARA M. BALANAY

Labor Law I

PAZ MARTIN JO and CESAR JO vs. NLCR

G.R. No. 121605. February 2, 2000

FACTS:
Peter Mejila worked as barber on a piece rate basis at Dinas Barber
Shop. The owner sold the barbershop to petitioners Paz Martin Jo and Cesar
Jo. All the employees, including Mejila, were absorbed by the new owners.
The name of the barbershop was changed to Windfield Barber Shop. The
owners and the barbers shared in the earnings of the barber shop. The
barbers got two-thirds (2/3) of the fee paid for every haircut or shaving job
done, while one-third (1/3) went to the owners of the shop. Years after,
petitioners designated private respondent as caretaker of the shop because
the former caretaker became physically unfit. Private respondents duties as
caretaker, in addition to his being a barber, were: (1) to report to the owners
of the barbershop whenever the airconditioning units malfunctioned and/or
whenever water or electric power supply was interrupted; (2) to call the
laundry woman to wash dirty linen; (3) to recommend applicants for
interview and hiring; (4) to attend to other needs of the shop. For this
additional job, he was given an honorarium equivalent to one-third (1/3) of
the net income of the shop.
When the building occupied by the shop was demolished, the
barbershop closed. But soon a place nearby was rented by petitioners and
the barbershop resumed operations as Cesars Palace Barbershop and
Massage Clinic. In this new location, private respondent continued to be a
barber and caretaker, but with a fixed monthly honorarium as caretaker.
Mejila then had an altercation with his co-barber which became serious so
that he reported the matter to Atty. Allan Macaraya of the labor department.
Upon investigation, it was found out that the dispute was not between
private respondent and petitioners; rather, it was between the former and his

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Labor Law I
fellow barber. Atty. Prudencio Abragan, the lawyer of Jo then held a mediation
meeting. Despite the assurance that he was not being driven out as
caretaker-barber, Mejila demanded payment for several thousand pesos as
his separation pay and other monetary benefits. In order to give the parties
enough time to cool off, Atty. Abragan set another conference but private
respondent did not appear in such meeting anymore. Mejila continued
reporting for work at the barbershop but eventually turned over the duplicate
keys of the shop to the cashier and took away all his belongings therefrom.
He then began working as a regular barber at another Barbershop in Iligan
City.
Mejila filed a complaint for illegal dismissal. the Labor Arbiter found
that Mejila was an employee of Jo, and that he was not dismissed but had left
his job voluntarily because of his misunderstanding with his co-worker. Thus,
the Labor Arbiter dismissed the complaint but ordered Jo to pay Mejila his
13th month pay and attorneys fees. On appeal, the NLRC sustained the
finding of the Labor Arbiter as to the existence of employer-employee
relationship between petitioners and private respondent, but ruled that
Mejila was illegally dismissed. Petitioners contend that public respondent
gravely erred in declaring that private respondent was their employee. They
claim that private respondent was their "partner in trade" whose
compensation was based on a sharing arrangement per haircut or shaving
job done. They argue that private respondents task as caretaker could be
considered an employment because the chores are very minimal.
ISSUE:
Whether or not there exists an employer-employee relationship
between petitioners and private respondent.
HELD:
There exists an employer-employee relationship between petitioners
and private respondent. In determining the existence of an employeremployee relationship, the following elements are considered: (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 workers conduct, with the latter assuming primacy in

the overall consideration. The power of control refers to the
existence of the power and not necessarily to the actual exercise
thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the
employer has the right to wield that power.
Absent a clear showing that petitioners and private
respondent had intended to pursue a relationship of industrial
partnership, we entertain no doubt that private respondent was
employed by petitioners as caretaker-barber. Initially, petitioners, as

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Labor Law I
new owners of the barbershop, hired private respondent as barber by
absorbing the latter in their employ. Undoubtedly, the services performed by
private respondent as barber is related to, and in the pursuit of the principal
business activity of petitioners. Later on, petitioners tapped private
respondent to serve concurrently as caretaker of the shop. Certainly,
petitioners had the power to dismiss private respondent being the ones who
engaged the services of the latter. In fact, private respondent sued
petitioners for illegal dismissal, albeit contested by the latter. As a caretaker,
private respondent was paid by petitioners wages in the form of honorarium,
originally, at the rate of one-third (1/3) of the shops net income but
subsequently pegged at a fixed amount per month. As a barber, private
respondent earned two-thirds (2/3) of the fee paid per haircut or shaving job
done. Furthermore, the following facts indubitably reveal that petitioners
controlled private respondents work performance, in that: (1) private
respondent had to inform petitioners of the things needed in the shop; (2) he
could only recommend the hiring of barbers and masseuses, with petitioners
having the final decision; (3) he had to be at the shop at 9:00 a.m. and could
leave only at 9:00 p.m. because he was the one who opened and closed it,
being the one entrusted with the key. These duties were complied with by
private respondent upon instructions of petitioners. Moreover, such task was
far from being negligible as claimed by petitioners. On the contrary, it was
crucial to the business operation of petitioners as shown in the preceding
discussion. Hence, there was enough basis to declare private respondent an
employee of petitioners. Accordingly, there is no cogent reason to disturb the
findings of the labor arbiter and NLRC on the existence of employeremployee relationship between herein private parties.

MAE NIAGARA M. BALANAY

Labor Law I

REPUBLIC OF THE PHILS. vs ASIAPRO COOPERATIVE

FACTS:
Asiapro, as a cooperative, is composed of owners-members. Under its
by-laws, owners-members are of two categories, to wit: (1) regular member,
who is entitled to all the rights and privileges of membership; and (2)
associate member, who has no right to vote and be voted upon and shall be
entitled only to such rights and privileges provided in its by-laws. Its primary
objectives are to provide savings and credit facilities and to develop other
livelihood services for its owners-members. In the discharge of the aforesaid
primary objectives, respondent cooperative entered into several Service
Contracts with Stanfilco - a division of DOLE Philippines, Inc. and a company
based in Bukidnon. The owners-members do not receive compensation or
wages from the respondent cooperative. Instead, they receive a share in the
service surplus which the respondent cooperative earns from different areas
of trade it engages in, such as the income derived from the said Service
Contracts with Stanfilco. The owners-members get their income from the
service surplus generated by the quality and amount of services they
rendered, which is determined by the Board of Directors of the respondent
cooperative.
In order to enjoy the benefits under the Social Security Law of 1997,
the owners-members of the respondent cooperative, who were assigned to
Stanfilco requested the services of the latter to register them with the SSS as
self-employed and to remit their contributions as such. Also, to comply with
Section 19-A of Republic Act No. 1161, as amended by Republic Act No. 8282,
the SSS contributions of the said owners-members were equal to the share of
both the employer and the employee.
The SSS sent a letter to the Asiapro, informing the latter that based on
the Service Contracts it executed with Stanfilco, Asiapro is actually a
manpower contractor supplying employees to Stanfilco and for that reason, it
is an employer of its owners-members working with Stanfilco. Thus, Asiapro
should register itself with the SSS as an employer and make the
corresponding report and remittance of premium contributions in accordance
with the Social Security Law of 1997. Asiapro, through its counsel, sent a
reply to SSS letter asserting that it is not an employer because its ownersmembers are the cooperative itself; hence, it cannot be its own
employer. SSS sent a letter again to respondent cooperative ordering the
latter to register as an employer and report its owners-members as
employees for compulsory coverage with the petitioner SSS. Respondent
cooperative continuously ignored the demand of petitioner SSS. SSS, then
filed a Petition before Social Security Commission against the Asiapro and
Stanfilco praying that Asiapro or, in the alternative, Stanfilco be directed to
register as an employer and to report respondent cooperatives ownersmembers as covered employees under the compulsory coverage of SSS and
to remit the necessary contributions in accordance with the Social Security
Law of 1997. Asiapro alleging that no employer-employee relationship exists
between it and its owners-members, thus, SSC has no jurisdiction over the
them. Stanfilco, on the other hand, filed an Answer with Cross-claim against
the Asiapro.
ISSUE:
Whether or not there exist an employer-employee relationship between
Asiapro and its owner-members.

MAE NIAGARA M. BALANAY

Labor Law I
HELD:
There exist an employer-employee relationship between Asiapro and
its owner-members. In determining the existence of an employer-employee
relationship, the following elements are considered: (1) the selection and
engagement of the workers; (2) the payment of wages by whatever means;
(3) the power of dismissal; and (4) the power to control the workers conduct,
with the latter assuming primacy in the overall consideration. The most
important element is the employers control of the employees
conduct, not only as to the result of the work to be done, but also as
to the means and methods to accomplish. The power of control refers to
the existence of the power and not necessarily to the actual exercise
thereof. It is not essential for the employer to actually supervise the
performance of duties of the employee; it is enough that the employer has
the right to wield that power. All the aforesaid elements are present in this
case.
First. It is expressly provided in the Service Contracts that it is the
respondent cooperative which has the exclusive discretion in
the selection and engagement of the
owners-members as well as its team leaders who will be assigned at
Stanfilco. Second. Wages are defined as remuneration or earnings,
however designated, capable of being expressed in terms of money,
whether fixed or ascertained, on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an employer to
an employee under a written or unwritten contract of employment
for work done or to be done, or for service rendered or to be
rendered. In this case, the weekly stipends or the so-called shares in the
service surplus given by the respondent cooperative to its owners-members
were in reality wages, as the same were equivalent to an amount not lower
than that prescribed by existing labor laws, rules and regulations, including
the wage order applicable to the area and industry; or the same shall not be
lower than the prevailing rates of wages. It cannot be doubted then that
those stipends or shares in the service surplus are indeed wages, because
these are given to the owners-members as compensation in rendering
services to respondent cooperatives client, Stanfilco. Third. It is also stated in
the above-mentioned Service Contracts that it is the respondent cooperative
which has the power to investigate, discipline and remove the
owners-members and its team leaders who were rendering services at
Stanfilco. Fourth. As earlier opined, of the four elements of the employeremployee relationship, the control test is the most important. In the case at
bar, it is the respondent cooperative which has the sole control over
the manner and means of performing the services under the Service
Contracts with Stanfilco as well as the means and methods of
work. Also, the respondent cooperative is solely and entirely responsible for
its owners-members, team leaders and other representatives at Stanfilco. All
these clearly prove that, indeed, there is an employer-employee relationship
between the respondent cooperative and its owners-members.
It is true that the Service Contracts executed between the respondent
cooperative and Stanfilco expressly provide that there shall be no employeremployee relationship between the respondent cooperative and its ownersmembers. This Court, however, cannot give the said provision force and
effect.
As previously pointed out by this Court, an employee-employer
relationship actually exists between the respondent cooperative and its
owners-members. The four elements in the four-fold test for the existence of
an employment relationship have been complied with. The respondent
cooperative must not be allowed to deny its employment relationship with its

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Labor Law I
owners-members by invoking the questionable Service Contracts provision,
when in actuality, it does exist. The existence of an employer-employee
relationship cannot be negated by expressly repudiating it in a
contract, when the terms and surrounding circumstances show
otherwise. The employment status of a person is defined and
prescribed by law and not by what the parties say it should be.

INSULAR LIFE ASSURANCE CO., LTD. vs NLRC

FACTS:
Insular Life Assurance Co., Ltd. (the Company) and Melecio T. Basiao
entered into a contract by which, Basiao was "authorized to solicit within the
Philippines applications for insurance policies and annuities in accordance
with the existing rules and regulations" of the Company and that he would
receive "compensation, in the form of commissions. The contract also
contained, among others, provisions governing the relations of the parties,
the duties of the Agent, the acts prohibited to him, and the modes of
termination of the agreement, such as, the Agent shall be free to exercise his
own judgment as to time, place and means of soliciting insurance. Nothing
herein contained shall therefore be construed to create the relationship of
employee and employer between the Agent and the Company. However, the
Agent shall observe and conform to all rules and regulations which the
Company may from time to time prescribe. With regards to termination, the
Company may terminate the contract at will, without any previous notice to
the Agent for or on account of ... (explicitly specified causes). ...Either party
may terminate this contract by giving to the other notice in writing to that
effect. It shall become ipso facto cancelled if the Insurance Commissioner
should revoke a Certificate of Authority previously issued or should the Agent
fail to renew his existing Certificate of Authority upon its expiration. The
Agent shall not have any right to any commission on renewal of premiums
that may be paid after the termination of this agreement for any cause
whatsoever, except when the termination is due to disability or death in line
of service. As to commission corresponding to any balance of the first year's
premiums remaining unpaid at the termination of this agreement, the Agent
shall be entitled to it if the balance of the first year premium is paid, less

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Labor Law I
actual cost of collection, unless the termination is due to a violation of this
contract, involving criminal liability or breach of trust.
Years later, the parties entered into another contract an Agency
Manager's Contract and to implement his end of it Basiao organized an
agency or office to which he gave the name M. Basiao and Associates, while
concurrently fulfilling his commitments under the first contract with the
Company. The Company terminated the Agency Manager's Contract. After
vainly seeking reconsideration, Basiao sued the Company in a civil action
and this, he was later to claim, prompted the latter to terminate also his
engagement under the first contract and to stop payment of his
commissions.
Basiao thereafter filed with the Ministry of Labor a complaint against
the Company and its president. Without contesting the termination of the
first contract, the complaint sought to recover commissions allegedly unpaid
thereunder, plus attorney's fees. The respondents disputed the Ministry's
jurisdiction over Basiao's claim, asserting that he was not the Company's
employee, but an independent contractor and that the Company had no
obligation to him for unpaid commissions under the terms and conditions of
his contract. However, the Labor Arbiter ruled in favor of Basiao stating that
the underwriting agreement had established an employer-employee
relationship between him and the Company, and the directed payment of his
unpaid commissions plus 10% attorney's fees.
ISSUE:
Whether or not Basiao had become the Company's employee by virtue
of the contract.
HELD:
Basiao had not become the Company's employee by virtue of the
contract. It is true that the "control test" has been followed and applied in
some fairly recent cases. Indeed, it is without question a valid test of the
character of a contract or agreement to render service. It should, however,
be obvious that not every form of control that the hiring party
reserves to himself over the conduct of the party hired in relation to
the services rendered may be accorded the effect of establishing an
employer-employee relationship between them in the legal or
technical sense of the term. A line must be drawn somewhere, if the
recognized distinction between an employee and an individual
contractor is not to vanish altogether. Realistically, it would be a rare
contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely
serve as guidelines towards the achievement of the mutually
desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the
methodology
and bind or restrict the party hired to the use of such means . The
first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means
used to achieve it. The distinction acquires particular relevance in the case of
an enterprise affected with public interest, as is the business of insurance,
and is on that account subject to regulation by the State with respect, not
only to the relations between insurer and insured but also to the internal
affairs of the insurance company. Rules and regulations governing the
conduct of the business are provided for in the Insurance Code and enforced
by the Insurance Commissioner. It is, therefore, usual and expected for an
insurance company to promulgate a set of rules to guide its commission

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Labor Law I
agents in selling its policies that they may not run afoul of the law and what
it requires or prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications
to processing and approval by the Company, and also reserve to the
Company the determination of the premiums to be paid and the schedules of
payment. None of these really invades the agent's contractual
prerogative to adopt his own selling methods or to sell insurance at
his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the
company.
Thus, there is no dearth of authority holding persons similarly placed
as respondent Basiao to be independent contractors, instead of employees of
the parties for whom they worked. Basiao was not an employee of the
petitioner, but a commission agent, an independent contractor.

GREGORIO V. TONGKO vs THE MANUFACTURERS LIFE INSURANCE CO.

(PHILS.), INC.

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Labor Law I
FACTS:
Manufacturers Life Insurance Co. (Phils.), Inc. (Manulife) is a domestic
corporation engaged in life insurance business.Renato A. Vergel De Dios was,
during the period material, its President and Chief Executive Officer. Gregorio
V. Tongko started his professional relationship with Manulife on July 1, 1977
by virtue of a Career Agent's Agreement (Agreement) he executed with
Manulife. In the Agreement, it is provided that: It is understood and agreed
that the Agent is an independent contractor and nothing contained herein
shall be construed or interpreted as creating an employer-employee
relationship between the Company and the Agent. The Company may
terminate this Agreement for any breach or violation of any of the provisions
hereof by the Agent by giving written notice to the Agent within fifteen (15)
days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to
terminate this Agreement by the Company shall be construed for any
previous failure to exercise its right under any provision of this Agreement.
Either of the parties hereto may likewise terminate his Agreement at any
time without cause, by giving to the other party fifteen (15) days notice in
writing. In 1983, Tongko was named as a Unit Manager in Manulife's Sales
Agency Organization.In 1990, he became a Branch Manager. As the CA
found, Tongko's gross earnings from his work at Manulife, consisting of
commissions, persistency income, and management overrides. The problem
started sometime in 2001, when Manulife instituted manpower development
programs in the regional sales management level. Relative thereto, De Dios
addressed a letter dated November 6, 2001 to Tongko regarding an October
18, 2001 Metro North Sales Managers Meeting. Stating that Tongkos Region
was the lowest performer (on a per Manager basis) in terms of recruiting in
2000 and, as of today, continues to remain one of the laggards in this area.
Other issues were:"Some Managers are unhappy with their earnings
and would want to revert to the position of agents." And "Sales Managers are
doing what the company asks them to do but, in the process, they earn less."
Tongko was then terminated. Therefrom, Tongko filed a Complaint dated
November 25, 2002 with the NLRC against Manulife for illegal dismissal in
the Complaint. In a Decision dated April 15, 2004, Labor Arbiter dismissed
the complaint for lack of an employer-employee relationship. The NLRC's First
Division, while finding an employer-employee relationship between Manulife
and Tongko applying the four-fold test, held Manulife liable for illegal
dismissal. Thus, Manulife filed an appeal with the CA. Thereafter, the CA
issued the assailed Decision dated March 29, 2005, finding the absence of an
employer employee relationship between the parties and deeming the NLRC
with no jurisdiction over the case. Hence, Tongko filed this petition.
ISSUES:
Whether or not Tongko was an employee of Manulife.
Whether or not Tongko was illegally dismissed.
RULING:
(1) Tongko was an employee of Manulife. In the instant case, Manulife
had the power of control over Tongko that would make him its employee.
Several factors contribute to this conclusion. In the Agreement dated July 1,
1977 executed between Tongko and Manulife, it is provided that: The Agent
hereby agrees to comply with all regulations and requirements of the
Company as herein provided as well as maintain a standard of knowledge
and competency in the sale of the Company's products which satisfies those
set by the Company and sufficiently meets the volume of new business
required of Production Club membership. Under this provision, an agent of
Manulife must comply with three (3) requirements: (1) compliance with the
regulations and requirements of the company; (2) maintenance of a level of

MAE NIAGARA M. BALANAY

Labor Law I
knowledge of the company's products that is satisfactory to the company;
and (3) compliance with a quota of new businesses. Among the company
regulations of Manulife are the different codes of conduct such as the Agent
Code of Conduct, Manulife Financial Code of Conduct, and Manulife Financial
Code of Conduct Agreement, which demonstrate the power of control
exercised by the company over Tongko. The fact that Tongko was obliged to
obey and comply with the codes of conduct was not disowned by
respondents. Thus, with the company regulations and requirements alone,
the fact that Tongko was an employee of Manulife may already be
established. Certainly, these requirements controlled the means and
methods by which Tongko was to achieve the company's goals.
More importantly, Manulife's evidence establishes the fact that Tongko
was tasked to perform administrative duties that establishes his employment
with Manulife. Additionally, it must be pointed out that the fact that Tongko
was tasked with recruiting a certain number of agents, in addition to his
other administrative functions, leads to no other conclusion that he was an
employee of Manulife.
(2) Tongko was illegally dismissed. In its Petition for Certiorari dated
January 7, 2005[26] filed before the CA, Manulife argued that even if Tongko
is considered as its employee, his employment was validly terminated on the
ground of gross and habitual neglect of duties, inefficiency, as well as wilful
disobedience of the lawful orders of Manulife. Manulife stated: In the instant
case, private respondent, despite the written reminder from Mr. De Dios
refused to shape up and altogether disregarded the latter's advice resulting
in his laggard performance clearly indicative of his wilful disobedience of the
lawful orders of his superior. As private respondent has patently failed to
perform a very fundamental duty, and that is to yield obedience to all
reasonable rules, orders and instructions of the Company, as well as gross
failure to reach at least minimum quota, the termination of his engagement
from Manulife is highly warranted and therefore, there is no illegal dismissal
to speak of. It is readily evident from the above-quoted portions of Manulife's
petition that it failed to cite a single iota of evidence to support its claims.
Manulife did not even point out which order or rule that Tongko disobeyed.
More importantly, Manulife did not point out the specific acts that Tongko
was guilty of that would constitute gross and habitual neglect of duty or
disobedience. Manulife merely cited Tongko's alleged "laggard performance,"
without substantiating such claim, and equated the same to disobedience
and neglect of duty. Apropos thereto, Art. 277(b), of the Labor Code
mandates in explicit terms that the burden of proving the validity of the
termination of employment rests on the employer. Failure to discharge this
evidential burden would necessarily mean that the dismissal was not
justified, and, therefore, illegal.
The Labor Code provides that an employer may terminate the services
of an employee for just cause and this must be supported by substantial
evidence. The settled rule in administrative and quasi-judicial proceedings is
that proof beyond reasonable doubt is not required in determining the
legality of an employer's dismissal of an employee, and not even a
preponderance of evidence is necessary as substantial evidence is
considered sufficient. Substantial evidence is more than a mere scintilla of
evidence or relevant evidence as a reasonable mind might accept as
adequate to support a conclusion, even if other minds, equally reasonable,
might conceivably opine otherwise. Here, Manulife failed to overcome such
burden of proof. It must be reiterated that Manulife even failed to identify the
specific acts by which Tongko's employment was terminated much less
support the same with substantial evidence. To repeat, mere conjectures
cannot work to deprive employees of their means of livelihood. Thus, it must
be concluded that Tongko was illegally dismissed. Moreover, as to Manulife's

MAE NIAGARA M. BALANAY

Labor Law I
failure to comply with the twin notice rule, it reasons that Tongko not being
its employee is not entitled to such notices. Since we have ruled that Tongko
is its employee, however, Manulife clearly failed to afford Tongko said
notices. Thus, on this ground too, Manulife is guilty of illegal dismissal.

MANILA GOLF CLUB VS. IAC

G.R. NO. 64948 SEPTEMBER 27, 1994
FACTS:
This is originally filed with the Social Security Commission (SSC) via
petition of 17 persons who styled themselves as Caddies of Manila Golf and
Country Club-PTCCEA for the coverage and availment of benefits of the
Social Security Act as amended, PTCCEA (Philippine Technical, Clerical,
Commercial Employees Association) a labor organization where which they
claim for membership. The same time two other proceedings were filed and
pending. These are certification election case filed by PTCCEA on behalf of
the same caddies of Manila Golf and Country club which was in favor of the
caddies and compulsory arbitration case involving PTCCEA and Manila Golf
and Country Club which was dismissed and ruled that there was no
employer-employeerelationship between the caddies and the club.
ISSUE:
Whether or not persons rendering caddying services for members of
golf clubs and their guests in said clubs' courses or premises are the
employees of such clubs and therefore within the compulsory coverage of
the Social Security System (SSS).
RULING:
SC ruled in favor of the petitioner. Llamar is not an employee of the
Manila Golf and Country Club, Inc. The club is under no obligation to report
him for compulsory coverage to the SSS. In the very nature of things,
caddies must submit to some supervision of their conduct while enjoying the
privilege of pursuing their occupation within the premises and grounds of
whatever club they do work in. They work for the club to which they attach
themselves on sufferance but, on the other hand, also without having to
observe any working hours, free to leave anytime they please, to stay away
for as long they like.

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Labor Law I
These considerations clash frontally with the concept of employment. It
can happen that
a caddy who has rendered services to a player on one day may still find
sufficient time to work elsewhere. Under such circumstances, the caddy may
leave the premises and to go to such other place of work that he wishes.
These are things beyond the control of the petitioner.

SONZA VS. ABS-CBN

G.R. NO. 138051; JUNE 10, 2004
FACTS:
Respondent ABS-CBN Broadcasting Corporation ("ABS-CBN") signed an
Agreement ("Agreement") with the Mel and Jay Management and
Development Corporation ("MJMDC"). ABSCBN was represented by its
corporate officers while MJMDC was represented by SONZA, as President and
General Manager, and Carmela Tiangco ("TIANGCO"), as EVP and Treasurer.
Referred to in the Agreement as "AGENT," MJMDC agreed to provide SONZAs
services exclusively to ABS-CBN as talent for radio and television. ABS-CBN
agreed to pay for SONZAs services a monthly talent fee of P310,000 for the
first year and P317,000 for the second and third year of the Agreement. ABSCBN would pay the talent fees on the 10th and 25th days of the month.
SONZA filed a complaint against ABS-CBN before the Department of Labor
and Employment, National Capital Region in Quezon City. SONZA complained
that ABS-CBN did not pay his salaries, separation pay, service incentive leave
pay, 13th month pay, signing bonus, travel allowance and amounts due
under the Employees Stock Option Plan ("ESOP").
ISSUE:
Whether Jay Sonza is an employee of ABS-CBN or an independent
contractor.

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Labor Law I
RULING:
SC ruled that Sonza is an independent contractor.
Selection and Engagement of Employees. Independent contractors
often present themselves to possess unique skills, expertise or talent to
distinguish them from ordinary employees. The specific selection and hiring
of SONZA, because of his unique skills, talent and celebrity status not
possessed by ordinary employees, is a circumstance indicative, but not
conclusive, of an independent contractual relationship. If SONZA did not
possess such unique skills, talent and celebrity status, ABS-CBN would not
have entered into the Agreement with SONZA but would have hired him
through its personnel department just like any other employee.
Payment of Wages. All the talent fees and benefits paid to SONZA were
the result of negotiations that led to the Agreement. If SONZA were ABSCBNs employee, there would be no need for the parties to stipulate on
benefits such as "SSS, Medicare, x x x and 13th month pay"20 which the law
automatically incorporates into every employer-employee contract.
Whatever benefits SONZA enjoyed arose from contract and not because of
an employer employee relationship. SONZAs talent fees, amounting to
P317,000 monthly in the second and
third year, are so huge and out of the ordinary that they indicate more an
independent contractual relationship rather than an employer-employee
relationship.
Power of Dismissal. During the life of the Agreement, ABS-CBN agreed
to pay SONZAs
talent fees as long as "AGENT and Jay Sonza shall faithfully and completely
perform each condition of this Agreement."24 Even if it suffered severe
business losses, ABS-CBN could not retrench SONZA because ABS-CBN
remained obligated to pay SONZAs talent fees during the life of the
Agreement. This circumstance indicates an independent contractual
relationship between SONZA and ABS-CBN.
Power of Control. Applying the control test to the present case, we find
that SONZA is not an employee but an independent contractor. The control
test is the most important test our courts apply in distinguishing an
employee from an independent contractor.29 This test is based on the extent
of control the hirer exercises over a worker. The greater the supervision and
control the hirer exercises, the more likely the worker is deemed an
employee. The converse holds true as well the less control the hirer
exercises, the more likely the worker is considered an independent
contractor.30

FRANCISCO VS. NLRC

G.R. NO. 170087; AUGUST 31, 2006
FACTS:
Angelina Francisco was hired by Kasei Corporation during the
incorporation stage. She was designated as accountant and corporate
secretary and was assigned to handle all the accounting needs of the
company. She was also designated as Liason Officer to the City of Manila to
secure permits for the operation of the company. In 1996, Petitioner was
designated as Acting Manager. She was assigned to handle recruitment of all

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Labor Law I
employees and perform management administration functions. In 2001, she
was replaced by Liza Fuentes as Manager. Kasei Corporation reduced her
salary to P2,500 per month which was until September. She asked for her
salary but was informed that she was no longer connected to the company.
She did not anymore report to work since she was not paid for her salary. She
filed an action for constructive dismissal with the Labor Arbiter.
ISSUE:
Whether or not there was an employer-employee relationship.
RULING:
SC held that there was such relationship. Francisco was constructively
dismissed. To ascertain if such relationship exists, the Court used two-tiered
testcontrol test and economic
reality test. The court held that in this jurisdiction, there has been no uniform
test to determine the existence of an employer-employee relation. Generally,
courts have relied on the so-called right of control test where the person for
whom the services are performed reserves a right to control not only the end
to be achieved but also the means to be used in reaching such end. In
addition to the standard of right-of-control, the existing economic conditions
prevailing between the parties, like the inclusion of the employee in the
payrolls, can help in determining the existence of an employer-employee
relationship.
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.
The court observed the need to consider the existing economic
conditions prevailing between the parties, in addition to the standard of
right-of-control like the inclusion of the employee in the payrolls, to give a
clearer picture in determining the existence of an employer employee
relationship based on an analysis of the totality of economic circumstances
of the worker.
Thus, the determination of the relationship between employer and
employee depends upon the circumstances of the whole economic activity,
such as: (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. The proper standard of economic dependence is
whether the worker is dependent on the alleged employer for his continued
employment in that line of business. By applying the control test, there is no
doubt that petitioner is an employee of Kasei Corporation because she was
under the direct control and supervision of Seiji Kamura, the corporations
Technical Consultant. It is therefore apparent that petitioner is economically
dependent on respondent corporation for her continued employment in the
latters line of business. There can be no other conclusion that petitioner is
an employee of respondent Kasei Corporation. She was selected and
engaged by the company for compensation, and is economically dependent
upon respondent for her continued employment in that line of business. Her
main job function involved accounting and tax services rendered to
Respondent Corporation on a regular basis over an indefinite period of
engagement. Respondent Corporation hired and engaged petitioner for
compensation, with the power to dismiss her for cause. More importantly,

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Labor Law I
Respondent Corporation had the power to control petitioner with the means
and methods by which the work is to be accomplished.

CALAMBA MEDICAL CENTER VS. NLRC ET. AL.

G.R. NO. 176484; NOVEMBER 25, 2008
FACTS:
The Calamba Medical Center (petitioner), a privately-owned hospital,
engaged the services of medical doctors-spouses Ronaldo Lanzanas (Dr.
Lanzanas) and Merceditha Lanzanas (Dr. Merceditha) in March 1992 and
August 1995, respectively, as part of its team of resident physicians.
Reporting at the hospital twice-a-week on twenty-four-hour shifts,
respondents were paid a monthly "retainer" of P4,800.00 each. It appears
that resident physicians were also given a percentage share out of fees
charged for out-patient treatments, operating room assistance and discharge
billings, in addition to their fixed monthly retainer. The work schedules of the
members of the team of resident physicians were fixed by petitioner's
medical director Dr. Raul Desipeda (Dr. Desipeda). And they were issued
identification cards by petitioner and were enrolled in the Social Security
System (SSS). Income taxes were withheld from them. Dr. Meluz Trinidad (Dr.
Trinidad), also a resident physician at the hospital, inadvertently overheard a
telephone conversation of respondent Dr. Lanzanas with a fellow employee,
Diosdado Miscala, through an extension telephone line. Apparently, Dr.
Lanzanas and Miscala were discussing the low "census" or admission of
patients to the hospital. Dr. Trinidad issued to Dr. Lanzanas a memorandum
asking her to explain within 24 hours why no disciplinary action should be
taken against him. Pending investigation, he was placed under a 30-day
preventive suspension. 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. Dr. Lanzanas filed a complaint for illegal suspension before the
National Labor Relations Commission (NLRC)-Regional Arbitration Board
(RAB) IV. Dr. Merceditha subsequently filed a complaint for illegal dismissal.
ISSUE:
Whether or not there exists an employer-employee relationship
between petitioner and the spouses-respondents.
Whether or not the spouses-respondents were legally dismissed.
RULING:
SC held that there exists such relationship. The spouses-respondents
were illegally dismissed.
On the first issue
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. As
priorly stated, private respondents maintained specific work-schedules, as
determined by petitioner through its medical director, which consisted of 24hour shifts totaling forty-eight hours each week and which were strictly to be
observed under pain of administrative sanctions. That petitioner exercised
control over respondents gains light from the undisputed fact that in the
emergency room, the operating room, or any department or ward for that
matter, respondents' work is monitored through its nursing supervisors,
charge nurses and orderlies. Without the approval or consent of petitioner or
its medical director, no operations can be undertaken in those areas. For

MAE NIAGARA M. BALANAY

Labor Law I
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.
On the second issue
Petitioner thus failed to observe the two requirements,before dismissal can
be effected notice and hearing which constitute essential elements of the
statutory process; the first to apprise the employee of the particular acts or
omissions for which his dismissal is sought, and the second to inform the
employee of the employer's decision to dismiss him. Non-observance of
these requirements runs afoul of the procedural mandate. The termination
notice sent to and received by Dr. Lanzanas on April 25, 1998 was the first
and only time that he was apprised of the reason for his dismissal. He was
not afforded, however, even the slightest opportunity to explain his side. His
was a "termination upon receipt" situation. While he was priorly made to
explain on his telephone conversation with Miscala, he was not with respect
to his supposed participation in the strike and failure to heed the return-towork order.
As for the case of Dr. Merceditha, her dismissal was worse, it having been
effected without any just or authorized cause and without observance of due
process. In fact, petitioner never proferred any valid cause for her dismissal
except its view that "her marriage to [Dr. Lanzanas] has given rise to the
presumption that her sympath[y] [is] with her husband; [and that when [Dr.
Lanzanas] declared that he was going to boycott the scheduling of their
workload by the medical doctor, he was presumed to be speaking for himself
[and] for his wife
Merceditha."

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Labor Law I

R TRANSPORT CORPORATION vs. ROGELIO EJANDRA

[G.R. No. 148508. May 20, 2004]
FACTS:

Rogelio Ejandra worked as a bus driver of R Transport

Corporation. He worked from 5:00 a.m. up to 2:00 a.m. the next day
and was paid 10% of his daily earnings.
One day, he was apprehended by an officer of the Land
Transportation Office (LTO), for obstruction of traffic for which his
license was confiscated. Upon his arrival at companys garage, he
immediately reported the incident to his manager, Mr. Oscar Pasquin,
who gave him P500 to redeem his license. The following day, he went
to LTO, Guadalupe Branch, to claim it but he was told that it had not
yet been turned over by the officer who apprehended him. He was able
to retrieve his license only after a week. Thereafter, Ajendra informed
Mr. Pasquin that he was ready to report for work. However, he was told
that the company was still studying whether to allow him to drive
again. He was likewise accused of causing damage to the bus he used
to drive. Denying the charge, Ajendra blamed the person who drove
the said bus during his absence, considering that the damage was
sustained during the week that he did not drive the bus. Mr. Pacquin
nonetheless told him Magpahinga ka muna at tatawagin ka na lang
namin kung kailangan ka na para magmaneho. Magbakasyon ka
muna, bata. When respondent asked how long he had to rest, the
manager did not give a definite time. Thus prompting Ejandra to file for
illegal dismissal and prayed for reinstatement.
The company denied Ejandras allegations and claimed that the
latter was a habitual absentee, abandoned his job. The company
even argued that Ejandra was not an employee because theirs
was a contract of lease and not of employment, with petitioner
being paid on commission basis. The labor arbiter rendered his
decision in favor of Ejandra and ordered the company REINSTATE him

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Labor Law I
and to pay him backwages from the time of his dismissal until actual
reinstatement.
ISSUE:
Whether there exist an employer-employee relationship between
R Transport Corporation and Ejandra.
HELD:
Yes. There exist an employer-employee relationship between R
Transport Corporation and Ejandra.
In this case, the company deny the existence of an employeremployee relationship. It insists that the parties agreement was for a
contract of lease of services. The Court disagree. The company is
barred to negate the existence of an employer-employee
relationship. In its petition filed before this Court, the company invoked
the rulings on the right of an employer to dismiss an employee for just
cause. It maintained that Ejandra was justifiably dismissed due to
abandonment of work. By adopting said rulings, the company impliedly
admitted that it was in fact the employer of Ejandra. According to
the control test, the power to dismiss an employee is one of
the
indications
of
an
employer-employee
relationship. Companys claim that Ejandra was legally dismissed for
abandonment was in fact a negative pregnant: an acknowledgement
that there was no mutual termination of the alleged contract of lease
and that Ejandra was its employee. The fact that the company paid
Ejandra on commission basis did not rule out the presence of an
employee-employer relationship. Article 97(f) of the Labor Code
clearly provides that an employees wages can be in the form of
commissions.