G.R. NO.

166208, June 29, 2007

KING OF KINGS TRANSPORT, INC., CLAIRE DELA FUENTE, AND MELISSA LIM,
PETITIONERS, VS. SANTIAGO O. MAMAC, RESPONDENT.
DECISION
VELASCO, JR., J.:
Is a verbal appraisal of the charges against the employee a breach of the procedural due process?
This is the main issue to be resolved in this plea for review under Rule 45 of the September 16,
2004 Decision[1] of the Court of Appeals (CA) in CA-GR SP No. 81961. Said judgment affirmed
the dismissal of bus conductor Santiago O. Mamac from petitioner King of Kings Transport, Inc.
(KKTI), but ordered the bus company to pay full backwages for violation of the twin-notice
requirement and 13th-month pay. Likewise assailed is the December 2, 2004 CA Resolution[2]
rejecting KKTI's Motion for Reconsideration.
The Facts
Petitioner KKTI is a corporation engaged in public transportation and managed by Claire Dela
Fuente and Melissa Lim.
Respondent Mamac was hired as bus conductor of Don Mariano Transit Corporation (DMTC) on
April 29, 1999. The DMTC employees including respondent formed the Damayan ng mga
Manggagawa, Tsuper at Conductor-Transport Workers Union and registered it with the
Department of Labor and Employment. Pending the holding of a certification election in DMTC,
petitioner KKTI was incorporated with the Securities and Exchange Commission which acquired
new buses. Many DMTC employees were subsequently transferred to KKTI and excluded from
the election.
The KKTI employees later organized the Kaisahan ng mga Kawani sa King of Kings (KKKK)
which was registered with DOLE. Respondent was elected KKKK president.
Respondent was required to accomplish a "Conductor's Trip Report" and submit it to the
company after each trip. As a background, this report indicates the ticket opening and closing for
the particular day of duty. After submission, the company audits the reports. Once an irregularity
is discovered, the company issues an "Irregularity Report" against the employee, indicating the
nature and details of the irregularity. Thereafter, the concerned employee is asked to explain the
incident by making a written statement or counter-affidavit at the back of the same Irregularity
Report. After considering the explanation of the employee, the company then makes a

determination of whether to accept the explanation or impose upon the employee a penalty for
committing an infraction. That decision shall be stated on said Irregularity Report and will be
furnished to the employee.
Upon audit of the October 28, 2001 Conductor's Report of respondent, KKTI noted an
irregularity. It discovered that respondent declared several sold tickets as returned tickets causing
KKTI to lose an income of eight hundred and ninety pesos. While no irregularity report was
prepared on the October 28, 2001 incident, KKTI nevertheless asked respondent to explain the
discrepancy. In his letter,[3] respondent said that the erroneous declaration in his October 28, 2001
Trip Report was unintentional. He explained that during that day's trip, the windshield of the bus
assigned to them was smashed; and they had to cut short the trip in order to immediately report
the matter to the police. As a result of the incident, he got confused in making the trip report.
On November 26, 2001, respondent received a letter[4] terminating his employment effective
November 29, 2001. The dismissal letter alleged that the October 28, 2001 irregularity was an
act of fraud against the company. KKTI also cited as basis for respondent's dismissal the other
offenses he allegedly committed since 1999.
On December 11, 2001, respondent filed a Complaint for illegal dismissal, illegal deductions,
nonpayment of 13th-month pay, service incentive leave, and separation pay. He denied
committing any infraction and alleged that his dismissal was intended to bust union activities.
Moreover, he claimed that his dismissal was effected without due process.
In its April 3, 2002 Position Paper,[5] KKTI contended that respondent was legally dismissed after
his commission of a series of misconducts and misdeeds. It claimed that respondent had violated
the trust and confidence reposed upon him by KKTI. Also, it averred that it had observed due
process in dismissing respondent and maintained that respondent was not entitled to his money
claims such as service incentive leave and 13th-month pay because he was paid on commission
or percentage basis.
On September 16, 2002, Labor Arbiter Ramon Valentin C. Reyes rendered judgment dismissing
respondent's Complaint for lack of merit.[6]
Aggrieved, respondent appealed to the National Labor Relations Commission (NLRC). On
August 29, 2003, the NLRC rendered a Decision, the dispositive portion of which reads:
WHEREFORE, the decision dated 16 September 2002 is MODIFIED in that respondent King of
Kings Transport Inc. is hereby ordered to indemnify complainant in the amount of ten thousand
pesos (P10,000) for failure to comply with due process prior to termination.
The other findings are AFFIRMED.

SO ORDERED.[7]
Respondent moved for reconsideration but it was denied through the November 14, 2003
Resolution[8] of the NLRC.
Thereafter, respondent filed a Petition for Certiorari before the CA urging the nullification of the
NLRC Decision and Resolution.
The Ruling of the Court of Appeals
Affirming the NLRC, the CA held that there was just cause for respondent's dismissal. It ruled
that respondent's act in "declaring sold tickets as returned tickets x x x constituted fraud or acts
of dishonesty justifying his dismissal."[9]
Also, the appellate court sustained the finding that petitioners failed to comply with the required
procedural due process prior to respondent's termination. However, following the doctrine in
Serrano v. NLRC,[10] it modified the award of PhP 10,000 as indemnification by awarding full
backwages from the time respondent's employment was terminated until finality of the decision.
Moreover, the CA held that respondent is entitled to the 13th-month pay benefit.
Hence, we have this petition.
The Issues
Petitioner raises the following assignment of errors for our consideration:
Whether the Honorable Court of Appeals erred in awarding in favor of the complainant/private
respondent, full back wages, despite the denial of his petition for certiorari.
Whether the Honorable Court of Appeals erred in ruling that KKTI did not comply with the
requirements of procedural due process before dismissing the services of the complainant/private
respondent.
Whether the Honorable Court of Appeals rendered an incorrect decision in that [sic] it awarded
in favor of the complaint/private respondent, 13th month pay benefits contrary to PD 851.[11]
The Court's Ruling

The petition is partly meritorious.

The disposition of the first assigned error depends on whether petitioner KKTI complied with the
due process requirements in terminating respondent's employment; thus, it shall be discussed
secondly.
Non-compliance with the Due Process Requirements
Due process under the Labor Code involves two aspects: first, substantivethe valid and
authorized causes of termination of employment under the Labor Code; and second,
proceduralthe manner of dismissal.[12] In the present case, the CA affirmed the findings of the
labor arbiter and the NLRC that the termination of employment of respondent was based on a
"just cause." This ruling is not at issue in this case. The question to be determined is whether the
procedural requirements were complied with.
Art. 277 of the Labor Code provides the manner of termination of employment, thus:
Art. 277. Miscellaneous Provisions.x x x
(b) Subject to the constitutional right of workers to security of tenure and their right to be
protected against dismissal except for a just and authorized cause without prejudice to the
requirement of notice under Article 283 of this Code, the employer shall furnish the worker
whose employment is sought to be terminated a written notice containing a statement of the
causes for termination and shall afford the latter ample opportunity to be heard and to defend
himself with the assistance of his representative if he so desires in accordance with company
rules and regulations promulgated pursuant to guidelines set by the Department of Labor and
Employment. Any decision taken by the employer shall be without prejudice to the right of the
worker to contest the validity or legality of his dismissal by filing a complaint with the regional
branch of the National Labor Relations Commission. The burden of proving that the termination
was for a valid or authorized cause shall rest on the employer.
Accordingly, the implementing rule of the aforesaid provision states:
SEC. 2. Standards of due process; requirements of notice.In all cases of termination of
employment, the following standards of due process shall be substantially observed:
I. For termination of employment based on just causes as defined in Article 282 of the Code:
(a) A written notice served on the employee specifying the ground or grounds for termination,
and giving said employee reasonable opportunity within which to explain his side.

(b) A hearing or conference during which the employee concerned, with the assistance of counsel
if he so desires is given opportunity to respond to the charge, present his evidence, or rebut the
evidence presented against him.
(c) A written notice of termination served on the employee, indicating that upon due
consideration of all the circumstances, grounds have been established to justify his termination.
[13]

In case of termination, the foregoing notices shall be served on the employee's last known
address.[14]
To clarify, the following should be considered in terminating the services of employees:
(1) The first written notice to be served on the employees should contain the specific causes or
grounds for termination against them, and a directive that the employees are given the
opportunity to submit their written explanation within a reasonable period. "Reasonable
opportunity" under the Omnibus Rules means every kind of assistance that management must
accord to the employees to enable them to prepare adequately for their defense.[15] This should be
construed as a period of at least five (5) calendar days from receipt of the notice to give the
employees an opportunity to study the accusation against them, consult a union official or
lawyer, gather data and evidence, and decide on the defenses they will raise against the
complaint. Moreover, in order to enable the employees to intelligently prepare their explanation
and defenses, the notice should contain a detailed narration of the facts and circumstances that
will serve as basis for the charge against the employees. A general description of the charge will
not suffice. Lastly, the notice should specifically mention which company rules, if any, are
violated and/or which among the grounds under Art. 282 is being charged against the employees.
(2) After serving the first notice, the employers should schedule and conduct a hearing or
conference wherein the employees will be given the opportunity to: (1) explain and clarify their
defenses to the charge against them; (2) present evidence in support of their defenses; and (3)
rebut the evidence presented against them by the management. During the hearing or conference,
the employees are given the chance to defend themselves personally, with the assistance of a
representative or counsel of their choice. Moreover, this conference or hearing could be used by
the parties as an opportunity to come to an amicable settlement.
(3) After determining that termination of employment is justified, the employers shall serve the
employees a written notice of termination indicating that: (1) all circumstances involving the
charge against the employees have been considered; and (2) grounds have been established to
justify the severance of their employment.
In the instant case, KKTI admits that it had failed to provide respondent with a "charge sheet."[16]

However, it maintains that it had substantially complied with the rules, claiming that "respondent
would not have issued a written explanation had he not been informed of the charges against
him."[17]
We are not convinced.
First, respondent was not issued a written notice charging him of committing an infraction. The
law is clear on the matter. A verbal appraisal of the charges against an employee does not comply
with the first notice requirement. In Pepsi Cola Bottling Co. v. NLRC,[18] the Court held that
consultations or conferences are not a substitute for the actual observance of notice and hearing.
Also, in Loadstar Shipping Co., Inc. v. Mesano,[19] the Court, sanctioning the employer for
disregarding the due process requirements, held that the employee's written explanation did not
excuse the fact that there was a complete absence of the first notice.
Second, even assuming that petitioner KKTI was able to furnish respondent an Irregularity
Report notifying him of his offense, such would not comply with the requirements of the law. We
observe from the irregularity reports against respondent for his other offenses that such contained
merely a general description of the charges against him. The reports did not even state a
company rule or policy that the employee had allegedly violated. Likewise, there is no mention
of any of the grounds for termination of employment under Art. 282 of the Labor Code. Thus,
KKTI's "standard" charge sheet is not sufficient notice to the employee.
Third, no hearing was conducted. Regardless of respondent's written explanation, a hearing was
still necessary in order for him to clarify and present evidence in support of his defense.
Moreover, respondent made the letter merely to explain the circumstances relating to the
irregularity in his October 28, 2001 Conductor's Trip Report. He was unaware that a dismissal
proceeding was already being effected. Thus, he was surprised to receive the November 26, 2001
termination letter indicating as grounds, not only his October 28, 2001 infraction, but also his
previous infractions.
Sanction for Non-compliance with Due Process Requirements
As stated earlier, after a finding that petitioners failed to comply with the due process
requirements, the CA awarded full backwages in favor of respondent in accordance with the
doctrine in Serrano v. NLRC.[20] However, the doctrine in Serrano had already been abandoned in
Agabon v. NLRC by ruling that if the dismissal is done without due process, the employer should
indemnify the employee with nominal damages.[21]
Thus, for non-compliance with the due process requirements in the termination of respondent's
employment, petitioner KKTI is sanctioned to pay respondent the amount of thirty thousand
pesos (PhP 30,000) as damages.

Thirteenth (13th)-Month Pay

Section 3 of the Rules Implementing Presidential Decree No. 851[22] provides the exceptions in
the coverage of the payment of the 13th-month benefit. The provision states:
SEC. 3. Employers covered.The Decree shall apply to all employers except to:
xxxx
e) Employers of those who are paid on purely commission, boundary, or task basis, and those
who are paid a fixed amount for performing a specific work, irrespective of the time consumed
in the performance thereof, except where the workers are paid on piece-rate basis in which case
the employer shall be covered by this issuance insofar as such workers are concerned.
Petitioner KKTI maintains that respondent was paid on purely commission basis; thus, the latter
is not entitled to receive the 13th-month pay benefit. However, applying the ruling in Philippine
Agricultural Commercial and Industrial Workers Union v. NLRC,[23] the CA held that respondent
is entitled to the said benefit.
It was erroneous for the CA to apply the case of Philippine Agricultural Commercial and
Industrial Workers Union. Notably in the said case, it was established that the drivers and
conductors praying for 13th- month pay were not paid purely on commission. Instead, they were
receiving a commission in addition to a fixed or guaranteed wage or salary. Thus, the Court held
that bus drivers and conductors who are paid a fixed or guaranteed minimum wage in case their
commission be less than the statutory minimum, and commissions only in case where they are
over and above the statutory minimum, are entitled to a 13th-month pay equivalent to onetwelfth of their total earnings during the calendar year.
On the other hand, in his Complaint,[24] respondent admitted that he was paid on commission
only. Moreover, this fact is supported by his pay slips[25] which indicated the varying amount of
commissions he was receiving each trip. Thus, he was excluded from receiving the 13th-month
pay benefit.
WHEREFORE, the petition is PARTLY GRANTED and the September 16, 2004 Decision of
the CA is MODIFIED by deleting the award of backwages and 13th-month pay. Instead,
petitioner KKTI is ordered to indemnify respondent the amount of thirty thousand pesos (PhP
30,000) as nominal damages for failure to comply with the due process requirements in
terminating the employment of respondent.
No costs.

SO ORDERED.

G.R. No. L-55236, December 12, 1986

PHILIPPINE TELEGRAPH AND TELEPHONE CORPORATION, PETITIONER, VS.
THE COMMISSION ON AUDIT AND HON. FRANCISCO S. TANTUICO, JR., ACTING
CHAIRMAN, COMMISSION ON AUDIT, RESPONDENTS.
DECISION
PARAS, J.:
Petitioner Philippine Telegraph and Telephone Corporation (PT&T), for short) was granted on
June 20, 1964, under Republic Act No. 4161, a franchise "to establish, install, maintain and
operate wire and/or wireless telecommunication systems, lines, circuits and stations throughout
the Philippines for public, domestic and international communications". Under the franchise, the
petitioner is required to pay a franchise tax of one and one-half per cent (1 1/2%) on all gross
receipts from business transacted thereunder.
Under the provisions of a subsequent law, Republic Act No. 5048, in the event of "any
competing individual, partnership or corporation, receiving a similar permit or franchise with
terms and/or provisions more favorable than those granted under Republic Act No. 4161, or
tending to place petitioner PT & T at any disadvantage, then such term or terms and/or
provisions shall ipso facto become part of the terms and/or provisions of Republic Act No. 4161,
and shall operate equally in favor of petitioner PT & T as in the case of said competing
individual, partnership or corporation."
On June 17, 1976, Domestic Satellite Philippines, Inc. (DOMSAT for short) was granted by
Presidential Decree No. 947 a franchise to operate "as a carrier's carrier, any and all types of
telecommunications services available through the use of space relay and repeater stations for
domestic public communications with authority to receive and transmit messages, impressions,
pictures, music, entertainment, advertising, and signals throughout the Philippines and between
the Philippines and ships at sea, airplanes and other conveyances contract with and furnish
channels of communication, both satellite and terrestial to authorized users" (Sec. 1).
Under its franchise, DOMSAT is required to pay a franchise tax of only one-half percent (1/2%)
on all gross receipts from business transacted thereunder.
Subsequently, respondent Commission on Audit (Commission, for short) in its examination of

the books of petitioner, found that PT&T had a franchise tax deficiency of P387,370.50 for the
year 1979. This amount was computed at 1 1/2% of petitioner's gross receipts from business
transacted under its franchise. Accordingly, in its letter dated June 4, 1980, the Commission
informed petitioner of its liability for said amount.
On July 29, 1980, petitioner took exception to the Commission's finding on the ground that under
the "most favored treatment clause" of Republic Act No. 4161, as amended by Republic Act
5048, its franchise tax liability should no longer be at the rate of 1 1/2% of its gross receipts but
only 1/2%, and if the latter percentage were used as basis for computation, it has clearly fully
settled its franchise tax liability.
In a letter dated August 26, 1980, the Commission found petitioner's contention without merit
and reiterated its previous stand that petitioner's franchise tax should be computed at the rate of 1
1/2%.
Hence, the instant petition which seeks the review of the letter dated June 4, 1980 and the letter
dated August 26, 1980 of respondent Commission.
We find the instant petition devoid of merit.
The letters dated June 4, 1980 and August 26, 1980 of respondent Commission are not proper
subjects of appeal and/or review by this Court.
Section 1 Rule 44 of the Rules of Court provides:
SECTION 1. How appeal taken. -- An appeal from a final award, order or decision of the Public
Service Commission, the Court of Tax Appeals, and the General Auditing Office, shall be
perfected by filing with said bodies a notice of appeal and with the Supreme Court twelve (12)
copies of a petition for review of the award, order or ruling complained of, within a period of
thirty (30) days from notice of such award, order or decision."
A cursory examination of the two (2) letters in question shows that the same are not a "final
award, order or decision" within the meaning of the aforequoted provisions. Respondent
Commission in the said letters did not decide the issue. It did not render a decision, order or
final award. It merely expressed an opinion. This is obvious from the letter dated May 13, 1980
of Auditors Virginia A. Geronimo, Carmelita M. Agullana, Maria M. Bautista and Lilia S. Perez
to the Acting Chairman of the Commission (Annex 'A' of the Petition) the pertinent portion of
which states:
"In view of the foregoing, we respectfully recommend that the franchise tax deficiency of the
company in the amount of P387,370.50, exclusive of surcharge and penalty thereon, for the year
1979 as well as the franchise tax liabilities for 1975, 1976, 1977 and 1978 in the amounts of

P8,637.63, P4,275.71, P369,902.19 and P292,949.28, respectively, likewise exclusive of

surcharge and penalties thereon, be brought to the attention of the Bureau of Internal Revenue
for immediate assessment and/or collection."
This conclusion is likewise obvious from the letter dated August 26, 1980 of respondent Acting
Chairman to petitioner (Annex 'B' of the petition) which states:
"May we, therefore, reiterate our opinion that there being no business competition between
PT&T and DOMSAT 'as the customers of one are not necessarily the customers of the other and
vice-versa', the rate of franchise tax of PT&T should be one and one half (1 1/2%) percent as
provided under Republic Act No. 4161."
Then too, respondent Commission cannot render a "final order, decision or award" on the
question of whether petitioner should pay 1 1/2% or 1/2% of franchise tax. This is not a matter
falling under its jurisdiction. Rather, it is a matter for resolution by the Bureau of Internal
Revenue whose decision may be appealed to the Court of Tax Appeals.
The two (2) letters of respondent Commission, being a mere "opinion", the same cannot be
brought to this Court for review.
Even assuming that the "opinion" of respondent Commission expressed in its two (2) letters is
proper subject for review, the same is in accordance with the law.
In construing the "most favored treatment clause" of Republic Act No. 5048, it has been held that
the principle behind such provision is that of "fair play" - "to place both competing groups or
entities on equal footing and not to give one an advantage over the other." (Davao Light and
Power Co., Inc. vs. the Commissioner of Customs, 44 SCRA 127). An examination of the
franchises of petitioner PT&T and DOMSAT discloses that while they are both engaged in
telecommunication activities, they are not necessarily in competition with each other. DOMSAT
is a "carrier's carrier". It is a communications outfit that provides services to other
communications outfits. It was formed for the exploitation of the benefits of the
communications satellite system. It is principally a "middleman" between the operators of the
communications satellite system and the domestic carriers such as petitioner. Thus, its franchise
states that petitioner shall have "the right and authority x x x to construct, maintain and operate
such ground and other facilities, as needed to deliver telecommunications services to and from
the communications satellite system and the telephone, telegraph, telex and other networks and
terminals of specialized telecommunications network of government and/or private persons
and/or corporations such as computer - data communications systems and point-to-point or
switched voice network.
On the other hand, petitioner was granted a franchise to render communications services to end
users. It was not licensed to operate as a "carrier's carrier". Thus, its franchise states that it has

authority to install and operate facilities for "international and domestic public communications."
Therefore, since DOMSAT caters to other carriers while petitioner caters to end-users they are
not competitors. Stated otherwise, there can be no business rivalry between the two firms
inasmuch as the customers of one are not the customers of the other and vice-versa.
Another reason why DOMSAT and petitioner cannot be considered competing firms is the fact
that the former principally provides communications services through the communications satellite system, while the latter does so principally through its own facilities.
Since petitioner and DOMSAT are not competitors, petitioner cannot avail itself of the privilege
of paying its franchise tax at the rate of 1/2% instead of 1 1/2% as provided in its franchise.
Moreover, what petitioner is claiming, in effect, is a reduction of its taxes due the Government.
The rule is that, as the power of taxation is a high prerogative of sovereignty, its relinquishment
is never presumed and any reduction or dimunition thereof with respect to its mode or its rate
must be strictly construed, and the same must be couched in clear and unmistakable terms in
order that it may be applied. (84 C.J.S. pp. 659-800).
WHEREFORE, the petition is DISMISSED for lack of merit.
SO ORDERED.