SECOND DIVISION

[G.R. No. 129315. October 2, 2000.]

OSIAS I. CORPORAL, SR., PEDRO TOLENTINO, MANUEL CAPARAS,

ELPIDIO LACAP, SIMPLICIO PEDELOS, PATRICIA NAS, and
TERESITA FLORES , petitioners, vs . NATIONAL LABOR RELATIONS
COMMISSION, LAO ENTENG COMPANY, INC. and/or TRINIDAD LAO
ONG , respondents.

Francisco D. Estrada for petitioners.

Romero A. Yu for private respondents.

SYNOPSIS

It appeared that petitioners worked as barbers and manicurists in New Look Barber
Shop. Upon incorporation of the Lao Enteng Co. in 1982, respondents-owners of the
company took over the assets, equipments and properties of the New Look Barber Shop
and continued the business of their father. Sometime in April, 1995, petitioners' services
had to be terminated because the barber shop was closed due to serious losses.
Petitioners led complaint for illegal dismissal against respondents praying for
illegal deduction, separation pay, 13th month pay and salary differentials. The Labor
Arbiter and the NLRC dismissed the complaint, nding: there was no employer-employee
relationship between respondent and petitioners; and respondent had no control over
petitioners who were free to come and go as they wished.
The Supreme Court ruled that petitioners were employees of respondent company,
because: they were not carrying on an independent business but were performing work
necessary and desirable in the business of the respondent company; respondent
company's control over petitioners refers to the existence of the power and not
necessarily the actual exercise thereof; respondent company and/or private respondents
took over the barber shop owned by their father, retained the services of the petitioners
and continuously paid their wages for fteen (15) years; it is unlikely that respondent
company would report petitioners as their workers and pay SSS contributions and their
wages if it were not true that they were employees; nally, petitioners are entitled only to
separation and 13th month pay because the barber shop was closed due to serious
losses.

SYLLABUS

1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; WAGES; INDEPENDENT

CONTRACTOR, DEFINED. — 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,
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 work premises, and other materials which are necessary in the conduct of the business.
2. ID.; ID.; EMPLOYER-EMPLOYEE RELATIONSHIP, PRESENT IN CASE AT BAR. — 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. Records of the case show that the
late Vicente Lao engaged the services of the petitioners to work as barbers and
manicurists in the New Look Barber Shop, then a single proprietorship owned by him; that
in January 1982, his children organized a corporation which they registered with the
Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon its
incorporation, it took over the assets, equipment, and properties of the New Look Barber
Shop and continued the business; that the respondent company retained the services of all
the petitioners and continuously paid their wages. Clearly, all three elements exist in
petitioners' and private respondent's working arrangements. . . . 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 de nite
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 fteen (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.
3. ID.; ID.; ID.; POWER TO CONTROL WORKERS' CONDUCT; ACTUAL EXERCISE
THEREOF IS NOT NECESSARY. — The power to control refers to the existence of the power
and not necessarily to the actual exercise thereof, nor is it 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.
4. ID.; ID.; TERMINATION OF EMPLOYMENT; CLOSURE DUE TO SERIOUS BUSINESS
LOSSES; VALIDITY THEREOF. — We agree with the labor arbiter that there was su cient
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 pro t 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. CAaSED

5. ID.; ID.; ID.; ID.; AWARD OF SEPARATION PAY AND 13th MONTH PAY, PROPER;
CASE AT BAR. — Prescinding from the above, we hold that the seven petitioners are
employees of the private respondent company; as such, they are to be accorded the
bene ts provided under the Labor Code, speci cally Article 283 which mandates the grant
of separation pay in case of closure or cessation of employer's business which is
equivalent to one (1) month pay for every year of service. Likewise, they are entitled to the
protection of minimum wage statutes. Hence, the separation pay due them may be
computed on the basis of the minimum wage prevailing at the time their services were
terminated by the respondent company. The same is true with respect to the 13th month
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 pay. The Revised Guidelines on the Implementation of the 13th Month Pay Law states that
"all rank and le employees are now entitled to a 13th month pay regardless of the amount
of basic salary that they receive in a month. Such employees are entitled to the bene t
regardless of their designation or employment status, and irrespective of the method by
which their wages are paid, provided that they have worked for at least one (1) month
during a calendar year" and so all the seven (7) petitioners who were not paid their 13th
month pay must be paid accordingly.

DECISION

QUISUMBING , J : p

This special civil action for certiorari seeks the review of the Resolution dated
October 17, 1996 of public respondent National Labor Relations Commission (First
Division), 1 in NLRC NCR Case No. 00-04-03163-95, and the Resolution dated March 5,
1997 denying the motion for reconsideration. The aforecited October 17th Resolution
a rmed the Decision dated September 28, 1996 of Labor Arbiter Potenciano S. Cañizares
dismissing the petitioners' complaint for illegal dismissal and declaring that petitioners
are not regular employees of private respondent Lao Enteng Company, Inc. DTcACa

The records of the case show that the ve male petitioners, namely, Osias I.
Corporal, Sr., Pedro Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos
worked as barbers, while the two female petitioners, Teresita Flores and Patricia Nas
worked as manicurists in New Look Barber Shop located at 651 P. Paterno Street, Quiapo,
Manila owned by private respondent Lao Enteng Co. Inc. Petitioner Nas alleged that she
also worked as watcher and marketer of private respondent.
Petitioners claim that at the start of their employment with the New Look Barber
Shop, it was a single proprietorship owned and managed by Mr. Vicente Lao. In or about
January 1982, the children of Vicente Lao organized a corporation which was registered
with the Securities and Exchange Commission as Lao Enteng Co. Inc. with Trinidad Ong as
President of the said corporation. Upon its incorporation, the respondent company took
over the assets, equipment, and properties of the New Look Barber Shop and continued
the business. All the petitioners were allowed to continue working with the new company
until April 15, 1995 when respondent Trinidad 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. 2
On April 28, 1995, petitioners led with the Arbitration Branch of the NLRC, a
complaint for illegal dismissal, illegal deduction, separation pay, non-payment of 13th
month pay, and salary differentials. Only petitioner Nas asked for payment of salary
differentials as she alleged that she was paid a daily wage of P25.00 throughout her
period of employment. The petitioners also sought the refund of the P1.00 that the
respondent company collected from each of them daily as salary of the sweeper of the
barber shop.
Private respondent in its position paper averred that the petitioners were joint
venture partners and were receiving fty percent commission of the amount charged to
customers. Thus, there was no employer-employee relationship between them and
petitioners. And assuming arguendo, that there was an employer-employee relationship,
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 still petitioners are not entitled to separation pay because the cessation of operations of
the barber shop was due to serious business losses.
Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co. Inc.,
speci cally stated in her a davit dated September 06, 1995 that Lao Enteng Company,
Inc. did not take over the management of the New Look Barber Shop, that 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; that 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; that
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 that 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 that private respondents had no control
over petitioners who were free to come and go as they wished. Admittedly too by
petitioners they received fty percent to sixty percent of the gross paid by customers.
Trinidad explained that 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. Lastly, Trinidad avers that without any employee-employer
relationship petitioners claim for 13th month pay and separation pay have no basis in fact
and in law. 3
In a Decision dated September 28, 1995, Labor Arbiter Potenciano S. Cañizares, Jr.
ordered the dismissal of the complaint on the basis of his ndings that the complainants
and the respondents were engaged in a joint venture and that there existed no employer-
employee relation between them. The Labor Arbiter also found that the barber shop was
closed due to serious business losses or nancial reverses and consequently declared
that the law does not compel the establishment to pay separation pay to whoever were its
employees. 4
On appeal, NLRC a rmed the said ndings of the Labor Arbiter and dismissed the
complaint for want of merit, ratiocinating thus:
Indeed, complainants failed to show the existence of employer-employee
relationship under the four-way 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 pro ts. The barbers may be
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. 5

Its motion for reconsideration denied in the Resolution 6 dated March 5, 1997,
petitioners led the instant petition assigning that the NLRC committed grave abuse of
discretion in:
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING THAT
PETITIONERS WERE EMPLOYEES OF RESPONDENT COMPANY IN
RULING THAT PETITIONERS WERE INDEPENDENT CONTRACTORS.
DacASC

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED AND IN

NOT AWARDING THEIR MONEY CLAIMS. 7
Petitioners principally argue that public respondent NLRC gravely erred in declaring
that the petitioners were independent contractors. They contend that they were employees
of the respondent company and cannot be considered as independent contractors
because they did not carry on an independent business. They did not cut hair, manicure,
and do their work in their own manner and method. They insist they were not free from the
control and direction of private respondents in all matters, and their services were
engaged by the respondent company to attend to its customers in its barber shop.
Petitioners also stated that, individually or collectively, they do not have substantial capital
nor investments in tools, equipments, work premises and other materials necessary in the
conduct of the barber shop. What the barbers owned were merely combs, scissors, and
razors, while the manicurists owned only nail cutters, nail polishes, nippers and cuticle
removers. By no standard can these be considered "substantial capital" necessary to
operate a barbers shop.
Finally, petitioners fault the NLRC for arbitrarily disregarding substantial evidence on
record showing that petitioners Pedro Tolentino, Manuel Caparas, Simplicio Pedelos, and
Patricia Nas were registered with the Social Security System as regular employees of the
respondent company. The SSS employment records in common show that the employer's
ID No. of Vicente Lao/Barber and Pawn Shop was 03-0606200-1 and that of the
respondent company was 03-8740074-7. All the foregoing entries in the SSS employment
records were painstakingly detailed by the petitioners in their position paper and in their
memorandum appeal but were arbitrarily ignored rst by the Labor Arbiter and then by the
respondent NLRC which did not even mention said employment records in its questioned
decision.
We found petition is impressed with merit.
In our view, this case is an exception to the general rule that ndings of facts of the
NLRC are to be accorded respect and nality on appeal. We have long settled that this
Court will not uphold erroneous conclusions unsupported by substantial evidence. 8 We
must also stress that where the ndings of the NLRC contradict those of the labor arbiter,
the Court, in the exercise of its equity jurisdiction, may look into the records of the case
and reexamine the questioned findings. 9
The issues raised by petitioners boil down to whether or not an employer-employee
relationship existed between petitioners and private respondent Lao Enteng Company, Inc.
The Labor Arbiter has concluded that the petitioners and respondent company were
engaged in a joint venture. The NLRC concluded that the petitioners were independent
contractors. cHaDIA

The Labor Arbiter's ndings that the parties were engaged in a joint venture is
unsupported by any documentary evidence. It should be noted that aside from the self-
serving a davit of Trinidad Lao Ong, there were no other evidentiary documents, nor
written partnership agreements presented. We have ruled that 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. 1 0
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 Petitioner aver that NLRC was wrong when it concluded that petitioners were
independent contractors simply because they supplied their own working implements,
shared in the earnings of the barber shop with the owner and chose the manner of
performing their work. They stressed that as far as the result of their work was concerned
the barber shop owner controlled them.
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. 1 1
Juxtaposing this provision vis-a-vis the facts of this case, we are convinced that
petitioners are not "independent contractors." 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 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. From the records, it can be gleaned that petitioners
were not given work assignments in any place other than at the work premises of the New
Look Barber Shop owned by the respondent company. Also, petitioners were required to
observe rules and regulations of the respondent company pertaining, among other things,
observance of daily attendance, job performance, and regularity of job output. The nature
of work performed by were clearly directly related to private respondent's business of
operating barber shops. Respondent company did not dispute that it owned and operated
three (3) barber shops. Hence, petitioners were not independent contractors.
Did an employee-employer relationship exist between petitioners and private
respondent? 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. Records of
the case show that the late Vicente Lao engaged the services of the petitioners to work as
barbers and manicurists in the New Look Barber Shop, then a single proprietorship owned
by him; that in January 1982, his children organized a corporation which they registered
with the Securities and Exchange Commission as Lao Enteng Company, Inc.; that upon its
incorporation, it took over the assets, equipment, and properties of the New Look Barber
Shop and continued the business; that the respondent company retained the services of all
the petitioners and continuously paid their wages. Clearly, all three elements exist in
petitioners' and private respondent's working arrangements. THaDAE

Private respondent claims it had no control over petitioners. The power to control
refers to the existence of the power and not necessarily to the actual exercise thereof, nor
is it 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. 1 2 As to the
CD Technologies Asia, Inc. 2018 cdasiaonline.com
 "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 de nite 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
fteen (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.
While 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. 1 3
Finally, we agree with the labor arbiter that there was su cient 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 pro t
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. 1 4
Prescinding from the above, we hold that the seven petitioners are employees of the
private respondent company; as such, they are to be accorded the bene ts provided under
the Labor Code, speci cally Article 283 which mandates the grant of separation pay in
case of closure or cessation of employer's business which is equivalent to one (1) month
pay for every year of service. 1 5 Likewise, they are entitled to the protection of minimum
wage statutes. Hence, the separation pay due them may be computed on the basis of the
minimum wage prevailing at the time their services were terminated by the respondent
company. The same is true with respect to the 13th month pay. The Revised Guidelines on
the Implementation of the 13th Month Pay Law states that "all rank and le employees are
now entitled to a 13th month pay regardless of the amount of basic salary that they
receive in a month. Such employees are entitled to the bene t regardless of their
designation or employment status, and irrespective of the method by which their wages
are paid, provided that they have worked for at least one (1) month during a calendar year"
and so all the seven (7) petitioners who were not paid their 13th month pay must be paid
accordingly. 1 6
Anent the other claims of the petitioners, (such as the P10,000.00 as penalty for
non-compliance with procedural process; P10,000.00 as moral damages; refund of P1.00
per day paid to the sweeper; salary differentials for petitioner Nas; attorney's fees), we nd
them without basis. HaDEIc

CD Technologies Asia, Inc. 2018 cdasiaonline.com

 IN VIEW WHEREOF, the petition is GRANTED. The public respondent's Decision
dated October 17, 1996 and Resolution dated March 05, 1997 are SET ASIDE. Private
respondents are hereby ordered to pay, severally and jointly, the seven (7) petitioners their
(1) 13th month pay and (2) separation pay equivalent to one month pay for every year of
service, to be computed at the then prevailing minimum wage at the time of their actual
termination which was April 15, 1995.
Costs against private respondents.
SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

Footnotes
1. Per Commissioner Alberto R. Quimpo and concurred in by Presiding Commissioner
Bartolome S. Carale and Commissioner Vicente S E. Veloso.
2. Rollo, pp. 5-7.
3. Rollo, pp. 115-119.

4. Id. at 84-85.
5. Id. at 122.
6. Id. at 128-130.
7. Id. at 11.
8. Anino vs. NLRC, 290 SCRA 489, 499-500 (1998).

9. Paz Martin Jo vs. NLRC, G.R. No. 121605, February 02, 2000, p.7.
10. Labor Congress of the Philippines vs. NLRC, 290 SCRA 509, 528 (1998); San Miguel
Jeepney Service vs. NLRC, 265 SCRA 35 (1998).
11. Section 8, Rule VIII, Book III, of the Omnibus Rules Implementing the Labor Code; Ponce vs.
NLRC, 293 SCRA 366, 374-375 (1998).
12. Paz Martin Jo and Cesar Jo vs. NLRC, G.R. No. 121605, February 02, 2000, p. 5.
13. Nagusara vs. NLRC, 290 SCRA 245, 251 (1998).
14. Associated Labor Unions-VIMCONTU vs. NLRC, 204 SCRA 913, 923 (1991).
15. Phil. Tobacco Flue-Curing & Redrying Corp. vs. NLRC, 300 SCRA 37, 55 (1998)

16. See Sec. 1, P.D. 851; Osias Academy vs. DOLE, 192 SCRA 612, 619 (1990); Dentech Mfg.
Corp. vs. NLRC, 172 SCRA 588 (1989).

CD Technologies Asia, Inc. 2018 cdasiaonline.com