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G.R. No. 79255 January 20, 1992

UNION OF FILIPRO EMPLOYEES (UFE), petitioner,vs.BENIGNO VIVAR, JR., NATIONAL LABOR RELATIONS COMMISSION and NESTLPHILIPPINES, INC. (formerly FILIPRO, INC.), respondents.

Jose C. Espinas for petitioner.

Siguion Reyna, Montecillo & Ongsiako for private respondent.

GUTIERREZ, JR., J .:

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

On November 8, 1985, respondent Filipro, Inc. (now Nestle Philippines, Inc.) filed with the National

Labor Relations Commission (NLRC) a petition for declaratory relief seeking a ruling on its rights andobligations respecting claims of its monthly paid employees for holidaypay in the light of the Court's

decision in Chartered Bank Employees Association v.Ople(138 SCRA273 [1985]).

Both Filipro and the Union of Filipino Employees (UFE) agreed to submit the case for voluntaryarbitration and appointed respondent Benigno Vivar, Jr. as voluntary arbitrator.

On January 2, 1980, Arbitrator Vivar rendered a decision directing Filipro to:

pay its monthly paid employees holiday pay pursuant to Article 94 of the Code, subjectonly to the exclusions and limitations specified in Article 82 and such other legal

restrictions as are provided for in the Code. (Rollo,p.31)

Filipro filed a motion for clarification seeking (1) the limitation of the award to three years, (2)theexclusion of salesmen, sales representatives, truck drivers, merchandisers and medicalrepresentatives (hereinafter referred to as sales personnel) from the award of the holiday pay, and (3)deduction from theholiday pay award of overpayment for overtime, night differential, vacation andsick leave benefits due to the use of 251 divisor. (Rollo, pp. 138-145)

Petitioner UFE answered that the award should be made effective from the date of effectivity of theLabor Code, that their sales personnel are not field personnel and are therefore entitled to holiday

pay, and that the use of251 as divisor is an established employee benefit whichcannot bediminished.

On January 14, 1986, the respondent arbitrator issued an order declaring that the effectivity of theholiday pay award shall retroact to November 1, 1974, the date of effectivity of the Labor Code. Headjudged, however, that the company's sales personnel are field personnel and, as such, are notentitled to holiday pay. He likewise ruled that with the grant of 10 days' holiday pay, the divisor shouldbe changed from 251 to 261 and ordered the reimbursement of overpayment for overtime, nightdifferential, vacation and sick leave pay due to the use of 251 days as divisor.

Both Nestle and UFE filed their respective motions for partial reconsideration. Respondent Arbitrator

treated the two motions as appeals and forwarded the case to the NLRC which issued a resolutiondated May 25, 1987 remanding the case to the respondent arbitrator on the ground that it has no

jurisdiction to review decisions in voluntary arbitration cases pursuant to Article 263 of the LaborCode as amended by Section 10, Batas Pambansa Blg. 130 and as implemented by Section 5 of therules implementing B.P. Blg. 130.

However, in a letter dated July 6, 1987, the respondent arbitrator refused to take cognizance of thecase reasoning that he had no more jurisdiction to continue as arbitrator because he had resignedfrom service effective May 1, 1986.


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Hence, this petition.

The petitioner union raises the following issues:

1) Whether or not Nestle's sales personnel are entitled to holiday pay; and

2) Whether or not, concomitant with the award of holiday pay, the divisor should be changed from 251to 261 days and whether or not the previous use of 251 as divisor resulted in overpayment for

overtime, night differential, vacation and sick leave pay.

The petitioner insists that respondent's sales personnel are not field personnel under Article 82 of theLabor Code. The respondent company controverts this assertion.

Under Article 82, field personnel are not entitled to holiday pay. Said article defines field personnel as"non-agritultural employees who regularly perform their duties away from the principal place ofbusiness or branch office of the employer and whose actual hours of work in the field cannot bedetermined with reasonable certainty."

The controversy centers on the interpretation of the clause "whose actual hours of work in the field

cannot be determined with reasonable certainty."

It is undisputed that these sales personnel start their field work at 8:00 a.m. after having reported tothe office and come back to the office at 4:00 p.m. or 4:30 p.m. if they are Makati-based.

The petitioner maintains that the period between 8:00 a.m. to 4:00 or 4:30 p.m. comprises the salespersonnel's working hours which can be determined with reasonable certainty.

The Court does not agree. The law requires that the actual hours of work in the field be reasonablyascertained. The company has no way of determining whether or not these sales personnel, even ifthey report to the office before 8:00 a.m. prior to field work and come back at 4:30 p.m, really spend

the hours in between in actual field work.

We concur with the following disquisition by the respondent arbitrator:

The requirement for the salesmen and other similarly situated employees to report forwork at the office at 8:00 a.m. and return at 4:00 or 4:30 p.m. is not within the realm ofwork in the field as defined in the Code but an exercise of purely managementprerogative of providing administrative control over such personnel. This does not in anymanner provide a reasonable level of determination on the actual field work of theemployees which can be reasonably ascertained. The theoretical analysis thatsalesmen and other similarly-situated workers regularly report for work at 8:00 a.m. and

return to their home station at 4:00 or 4:30 p.m., creating the assumption that their fieldwork is supervised, is surface projection. Actual field work begins after 8:00 a.m. , whenthe sales personnel follow their field itinerary, and ends immediately before 4:00 or 4:30p.m. when they report back to their office. The period between 8:00 a.m. and 4:00 or4:30 p.m. comprises their hours of work in the field, the extent or scope and result ofwhich are subject to their individual capacity and industry and which "cannot bedetermined with reasonable certainty." This is the reason why effective supervision overfield work of salesmen and medical representatives, truck drivers and merchandisers ispractically a physical impossibility. Consequently, they are excluded from the tenholidays with pay award. (Rollo, pp. 36-37)

Moreover, the requirement that "actual hours of work in the field cannot be determined withreasonable certainty" must be read in conjunction with Rule IV, Book III of the Implementing Ruleswhich provides:

Rule IV Holidays with Pay

Sec. 1. Coverage This rule shall apply to all employees except:

xxx xxx xxx


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(e) Field personnel and other employees whose time and performance is unsupervisedby the employer. . . (Emphasis supplied)

While contending that such rule added another element not found in the law (Rollo, p. 13), thepetitioner nevertheless attempted to show that its affected members are not covered by theabovementioned rule. The petitioner asserts that the company's sales personnel are strictlysupervised as shown by the SOD (Supervisor of the Day) schedule and the company circular datedMarch 15, 1984 (Annexes 2 and 3, Rollo, pp. 53-55).

Contrary to the contention of the petitioner, the Court finds that the aforementioned rule did not addanother element to the Labor Code definition of field personnel. The clause "whose time andperformance is unsupervised by the employer" did not amplify but merely interpreted and expoundedthe clause "whose actual hours of work in the field cannot be determined with reasonable certainty."The former clause is still within the scope and purview of Article 82 which defines field personnel.Hence, in deciding whether or not an employee's actual working hours in the field can be determinedwith reasonable certainty, query must be made as to whether or not such employee's time andperformance is constantly supervised by the employer.

The SOD schedule adverted to by the petitioner does not in the least signify that these sales

personnel's time and performance are supervised. The purpose of this schedule is merely to ensurethat the sales personnel are out of the office not later than 8:00 a.m. and are back in the office notearlier than 4:00 p.m.

Likewise, the Court fails to see how the company can monitor the number of actual hours spent infield work by an employee through the imposition of sanctions on absenteeism contained in thecompany circular of March 15, 1984.

The petitioner claims that the fact that these sales personnel are given incentive bonus every quarterbased on their performance is proof that their actual hours of work in the field can be determined withreasonable certainty.

The Court thinks otherwise.

The criteria for granting incentive bonus are: (1) attaining or exceeding sales volume based on salestarget; (2) good collection performance; (3) proper compliance with good market hygiene; (4) goodmerchandising work; (5) minimal market returns; and (6) proper truck maintenance. (Rollo, p. 190).

The above criteria indicate that these sales personnel are given incentive bonuses precisely becauseof the difficulty in measuring their actual hours of field work. These employees are evaluated by theresult of their work and not by the actual hours of field work which are hardly susceptible todetermination.

In San Miguel Brewery, Inc.v.Democratic Labor Organization (8 SCRA 613 [1963]), the Court hadoccasion to discuss the nature of the job of a salesman. Citing the case of Jewel TeaCo.v.Williams, C.C.A. Okla.,118 F. 2d 202, the Court stated:

The reasons for excluding an outside salesman are fairly apparent. Such a salesman, toa greater extent, works individually. There are no restrictions respecting the time heshall work and he can earn as much or as little, within the range of his ability, as hisambition dictates. In lieu of overtime he ordinarily receives commissions as extracompensation. He works away from his employer's place of business, is not subject tothe personal supervision of his employer, and his employer has no way of knowing the

number of hours he works per day.

While in that case the issue was whether or not salesmen were entitled to overtime pay, the samerationale for their exclusion as field personnel from holiday pay benefits also applies.

The petitioner union also assails the respondent arbitrator's ruling that, concomitant with the award ofholiday pay, the divisor should be changed from 251 to 261 days to include the additional 10 holidaysand the employees should reimburse the amounts overpaid by Filipro due to the use of 251 days'divisor.


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Arbitrator Vivar's rationale for his decision is as follows:

. . . The new doctrinal policy established which ordered payment of ten holidayscertainly adds to or accelerates the basis of conversion and computation by ten days.With the inclusion of ten holidays as paid days, the divisor is no longer 251 but 261 or262 if election day is counted. This is indeed an extremely difficult legal question ofinterpretation which accounts for what is claimed as falling within the concept of "solutioindebti."

When the claim of the Union for payment of ten holidays was granted, there was aconsequent need to abandon that 251 divisor. To maintain it would create an impossiblesituation where the employees would benefit with additional ten days with pay but wouldsimultaneously enjoy higher benefits by discarding the same ten days for purposes ofcomputing overtime and night time services and considering sick and vacation leavecredits. Therefore, reimbursement of such overpayment with the use of 251 as divisorarises concomitant with the award of ten holidays with pay. (Rollo, p. 34)

The divisor assumes an important role in determining whether or not holiday pay is already includedin the monthly paid employee's salary and in the computation of his daily rate. This is the thrust of our

pronouncement inChartered Bank Employees Association v. Ople(supra). In that case, We held:

It is argued that even without the presumption found in the rules and in the policyinstruction, the company practice indicates that the monthly salaries of the employeesare so computed as to include the holiday pay provided by law. The petitioner contendsotherwise.

One strong argument in favor of the petitioner's stand is the fact that the CharteredBank, in computing overtime compensation for its employees, employs a "divisor" of251 days. The 251 working days divisor is the result of subtracting all Saturdays,Sundays and the ten (10) legal holidays from the total number of calendar days in a

year. If the employees are already paid for all non-working days, the divisor should be365 and not 251.

In the petitioner's case, its computation of daily ratio since September 1, 1980, is as follows:

monthly rate x 12 months

251 days

Following the criterion laid down in the Chartered Bankcase, the use of 251 days' divisor byrespondent Filipro indicates that holiday pay is not yet included in the employee's salary, otherwisethe divisor should have been 261.

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

The respondent arbitrator's order to change the divisor from 251 to 261 days would result in a lowerdaily rate which is violative of the prohibition on non-diminution of benefits found in Article 100 of the

Labor Code. To maintain the same daily rate if the divisor is adjusted to 261 days, then the dividend,whichrepresents the employee's annual salary, should correspondingly be increased to incorporatethe holiday pay. To illustrate, if prior to the grant of holiday pay, the employee's annual salary isP25,100, then dividing such figure by 251 days, his daily rate is P100.00 After the payment of 10days' holiday pay, his annual salary already includes holiday pay and totals P26,100 (P25,100 +

1,000). Dividing this by 261 days, thedaily rate is still P100.00. There is thus no merit in respondentNestle's claim of overpayment of overtime and night differential pay and sick and vacation leavebenefits, the computation of which are all based on the daily rate, since the daily rate is still the samebefore and after the grant of holiday pay.


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Respondent Nestle's invocation of solutio indebiti, or payment by mistake, due to its use of 251 daysas divisor must fail in light of the Labor Code mandate that "all doubts in the implementation andinterpretation of this Code, including its implementing rules and regulations, shall be resolved in favorof labor." (Article 4). Moreover, prior to September 1, 1980, when the company was on a 6-dayworking schedule, the divisor used by the company was 303, indicating that the 10 holidays werelikewise not paid. When Filipro shifted to a 5-day working schebule on September 1, 1980, it had thechance to rectify its error, if ever there was one but did not do so. It is now too late to allege paymentby mistake.

Nestle also questions the voluntary arbitrator's ruling that holiday pay should be computed fromNovember 1, 1974. This ruling was not questioned by the petitioner union as obviously said decisionwas favorable to it. Technically, therefore, respondent Nestle should have filed a separate petitionraising the issue of effectivity of the holiday pay award. This Court has ruled that an appellee who isnot an appellant may assign errors in his brief where his purpose is to maintain the judgment on othergrounds, but he cannot seek modification or reversal of the judgment or affirmative relief unless hehas also appealed. (Franco v. Intermediate Appellate Court, 178 SCRA 331 [1989], citing LaCampana Food Products, Inc. v. Philippine Commercial and Industrial Bank, 142 SCRA 394 [1986]).Nevertheless, in order to fully settle the issues so that the execution of the Court's decision in thiscase may not be needlessly delayed by another petition, the Court resolved to take up the matter of

effectivity of the holiday pay award raised by Nestle.

Nestle insists that the reckoning period for the application of the holiday pay award is 1985 whenthe Chartered Bankdecision, promulgated on August 28, 1985, became final and executory, and notfrom the date of effectivity of the Labor Code. Although the Court does not entirely agree with Nestle,we find its claim meritorious.

In Insular Bank of Asia and America Employees' Union (IBAAEU) v.Inciong, 132 SCRA 663 [1984],hereinafter referred to as the IBAA case, the Court declared that Section 2, Rule IV, Book III of theimplementing rules and Policy Instruction No. 9, issued by the then Secretary of Labor on February16, 1976 and April 23, 1976, respectively, and which excluded monthly paid employees from holiday

pay benefits, are null and void. The Court therein reasoned that, in the guise of clarifying the LaborCode's provisions on holiday pay, the aforementioned implementing rule and policy instructionamended them by enlarging the scope of their exclusion. The Chartered Bankcase reiterated theabove ruling and added the "divisor" test.

However, prior to their being declared null and void, the implementing rule and policy instructionenjoyed the presumption of validity and hence, Nestle's non-payment of the holiday benefit up to thepromulgation of the IBAA case on October 23, 1984 was in compliance with these presumably validrule and policy instruction.

In the case of De Agbayani v.Philippine National Bank, 38 SCRA 429 [1971], the Court discussed the

effect to be given to a legislative or executive act subsequently declared invalid:

xxx xxx xxx

. . . It does not admit of doubt that prior to the declaration of nullity such challengedlegislative or executive act must have been in force and had to be complied with. This isso as until after the judiciary, in an appropriate case, declares its invalidity, it is entitledto obedience and respect. Parties may have acted under it and may have changed theirpositions. What could be more fitting than that in a subsequent litigation regard be hadto what has been done while such legislative or executive act was in operation andpresumed to be valid in all respects. It is now accepted as a doctrine that prior to its

being nullified, its existence as a fact must be reckoned with. This is merely to reflectawareness that precisely because the judiciary is the government organ which has thefinal say on whether or not a legislative or executive measure is valid, a period of timemay have elapsed before it can exercise the power of judicial review that may lead to adeclaration of nullity. It would be to deprive the law of its quality of fairness and justicethen, if there be no recognition of what had transpired prior to such adjudication.

In the language of an American Supreme Court decision: "The actual existence of astatute, prior to such a determination of [unconstitutionality], is an operative fact andmay have consequences which cannot justly be ignored. The past cannot always be


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[G.R. No. 138051. June 10, 2004]

JOSE Y. SONZA, pet i t ioner, vs. ABS-CBN BROADCASTING CORPORATION, respondent.

D E C I S I O N

CARPIO, J.:

The Case

Before this Court is a petition for review on certiorari[1]assailing the 26 March 1999 Decision[2]ofthe Court of Appeals in CA-G.R. SP No. 49190 dismissing the petition filed by Jose Y. Sonza(SONZA). The Court of Appeals affirmed the findings of the National Labor Relations Commission(NLRC), which affirmed the Labor Arbiters dismissal of the case for lack of jurisdiction.

The Facts

In May 1994, respondent ABS-CBN Broadcasting Corporation (ABS-CBN) signed anAgreement (Agreement) with the Mel and Jay Management and Development Corporation(MJMDC). ABS-CBN was represented by its corporate officers while MJMDC was represented bySONZA, as President and General Manager, and Carmela Tiangco (TIANGCO), as EVP andTreasurer. Referred to in the Agreement as AGENT, MJMDC agreed to provide SONZAs servicesexclusively to ABS-CBN as talent for radio and television. The Agreement listed the services SONZAwould render to ABS-CBN, as follows:

a. Co-host for Mel & Jay radio program, 8:00 to 10:00 a.m., Mondays to Fridays;

b. Co-host for Mel & Jay television program, 5:30 to 7:00 p.m., Sundays.[3]

ABS-CBN agreed to pay for SONZAs services a monthly talent fee ofP310,000 for the first yearand P317,000 for the second and third year of the Agreement. ABS-CBN would pay the talent feeson the 10thand 25thdays of the month.

On 1 April 1996, SONZA wrote a letter to ABS-CBNs President, Eugenio Lopez III, which reads:

Dear Mr. Lopez,

We would like to call your attention to the Agreement dated May 1994 entered into by your goodself on behalfof ABS-CBN with our company relative to our talent JOSE Y. SONZA.

As you are well aware, Mr. Sonza irrevocably resigned in view of recent events concerning his programs andcareer. We consider these acts of the station violative of the Agreement and the station as in breach thereof. Inthis connection, we hereby serve notice of rescission of said Agreement at our instance effective as of date.

Mr. Sonza informed us that he is waiving and renouncing recovery of the remaining amount stipulated inparagraph 7 of the Agreement but reserves the right to seek recovery of the other benefits under saidAgreement.

Thank you for your attention.

Very truly yours,

(Sgd.)JOSE Y. SONZA

President and Gen. Manager[4]

On 30 April 1996, SONZA filed a complaint against ABS-CBN before the Department of Laborand Employment, National Capital Region in Quezon City. SONZA complained that ABS-CBN did
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not pay his salaries, separation pay, service incentive leave pay, 13 th month pay, signing bonus,travel allowance and amounts due under the Employees Stock Option Plan (ESOP).

On 10 July 1996, ABS-CBN filed a Motion to Dismiss on the ground that no employer-employeerelationship existed between the parties. SONZA filed an Opposition to the motion on 19 July 1996.

Meanwhile, ABS-CBN continued to remit SONZAs monthly talent fees through his account atPCIBank, Quezon Avenue Branch, Quezon City. In July 1996, ABS-CBN opened a new account withthe same bank where ABS-CBN deposited SONZAs talent fees and other payments due him under

the Agreement.

In his Order dated 2 December 1996, the Labor Arbiter[5]denied the motion to dismiss anddirected the parties to file their respective position papers. The Labor Arbiter ruled:

In this instant case, complainant for having invoked a claim that he was an employee of respondent companyuntil April 15, 1996 and that he was not paid certain claims, it is sufficient enough as to confer jurisdiction overthe instant case in this Office. And as to whether or not such claim would entitle complainant to recover uponthe causes of action asserted is a matter to be resolved only after and as a result of a hearing. Thus, therespondents plea of lack of employer-employee relationship may be pleaded only as a matter of defense. Itbehooves upon it the duty to prove that there really is no employer-employee relationship between it and the

complainant.

The Labor Arbiter then considered the case submitted for resolution. The parties submitted theirposition papers on 24 February 1997.

On 11 March 1997, SONZA filed a Reply to Respondents Position Paper with Motion to ExpungeRespondents Annex 4 and Annex 5 from the Records. Annexes 4 and 5 are affidavits of ABS-CBNswitnesses Soccoro Vidanes and Rolando V. Cruz. These witnesses stated in their affidavits that theprevailing practice in the television and broadcast industry is to treat talents like SONZA asindependent contractors.

The Labor Arbiter rendered his Decision dated 8 July 1997 dismissing the complaint for lack of

jurisdiction.

[6]

The pertinent parts of the decision read as follows:

x x x

While Philippine jurisprudence has not yet, with certainty, touched on the true nature of the contract of atalent, it stands to reason that a talent as above-described cannot be considered as an employee by reason ofthe peculiar circumstances surrounding the engagement of his services.

It must be noted that complainant was engaged by respondent by reason of his peculiar skills and talent asa TV host and a radio broadcaster. Unlike an ordinary employee, he was free to perform the services he

undertook to render in accordance with his own style. The benefits conferred to complainant under the May1994 Agreement are certainly very much higher than those generally given to employees. For one, complainantSonzas monthly talent fees amount to a staggeringP317,000. Moreover, his engagement as a talent wascovered by a specific contract. Likewise, he was not bound to render eight (8) hours of work per day as heworked only for such number of hours as may be necessary.

The fact that per the May 1994 Agreement complainant was accorded some benefits normally given to anemployee is inconsequential. Whatever benefits complainant enjoyed arose from specific agreement by theparties and not by reason of employer-employee relationship. As correctly put by the respondent, Allthese benefits are merely talent fees and other contractual benefits and should not be deemed as salaries, wagesand/or other remuneration accorded to an employee, notwithstanding the nomenclature appended to thesebenefits. Apropos to this is the rule that the term or nomenclature given to a stipulated benefit is notcontrolling, but the intent of the parties to the Agreement conferring such benefit.

The fact that complainant was made subject to respondents Rules and Regulations, likewise, does not

detract from the absence of employer-employee relationship. As held by the Supreme Court, The lineshould be drawn between rules that merely serve as guidelines towards the achievement of the mutually desiredresult without dictating the means or methods to be employed in attaining it, and those that control or fix themethodology and bind or restrict the party hired to the use of such means. The first, which aim only to promotethe result, create no employer-employee relationship unlike the second, which address both the result and themeans to achieve it. (Insular Life Assurance Co., Ltd. vs. NLRC, et al., G.R. No. 84484, November 15, 1989).
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x x x (Emphasis supplied)[7]

SONZA appealed to the NLRC. On 24 February 1998, the NLRC rendered a Decision affirmingthe Labor Arbiters decision. SONZA filed a motion for reconsideration, which the NLRC denied in itsResolution dated 3 July 1998.

On 6 October 1998, SONZA filed a special civil action for certiorari before the Court of Appealsassailing the decision and resolution of the NLRC. On 26 March 1999, the Court of Appeals rendered

a Decision dismissing the case.

[8]

Hence, this petition.

The Rulings of the NLRC and Court of Appeals

The Court of Appeals affirmed the NLRCs finding that no employer-employee relationship existedbetween SONZA and ABS-CBN. Adopting the NLRCs decision, the appellate court quoted thefollowing findings of the NLRC:

x x x the May 1994 Agreement will readily reveal that MJMDC entered into the contract merely as an agent ofcomplainant Sonza, the principal. By all indication and as the law puts it, the act of the agent is the act of theprincipal itself. This fact is made particularly true in this case, as admittedly MJMDC is a managementcompany devoted exclusively to managing the careers of Mr. Sonza and his broadcast partner, Mrs. Carmela C.Tiangco. (Opposition to Motion to Dismiss)

Clearly, the relations of principal and agent only accrues between complainant Sonza and MJMDC, and notbetween ABS-CBN and MJMDC. This is clear from the provisions of the May 1994 Agreement whichspecifically referred to MJMDC as the AGENT. As a matter of fact, when complainant herein unilaterallyrescinded said May 1994 Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr.Sonza, who himself signed the same in his capacity as President.

Moreover, previous contracts between Mr. Sonza and ABS-CBN reveal the fact that historically, the parties tothe said agreements are ABS-CBN and Mr. Sonza. And it is only in the May 1994 Agreement, which is thelatest Agreement executed between ABS-CBN and Mr. Sonza, that MJMDC figured in the said Agreement asthe agent of Mr. Sonza.

We find it erroneous to assert that MJMDC is a mere labor-only contractor of ABS-CBN such that thereexist[s] employer-employee relationship between the latter and Mr. Sonza. On the contrary, We find itindubitable, that MJMDC is an agent, not of ABS-CBN, but of the talent/contractor Mr. Sonza, as expresslyadmitted by the latter and MJMDC in the May 1994 Agreement.

It may not be amiss to state that jurisdiction over the instant controversy indeed belongs to the regular courts,the same being in the nature of an action for alleged breach of contractual obligation on the part of respondent-appellee. As squarely apparent from complainant-appellants Position Paper, his claims for compensation forservices, 13thmonth pay, signing bonus and travel allowance against respondent-appellee are not based on theLabor Code but rather on the provisions of the May 1994 Agreement, while his claims for proceeds under StockPurchase Agreement are based on the latter. A portion of the Position Paper of complainant-appellant bearsperusal:

Under [the May 1994 Agreement] with respondentABS-CBN, the latter contractually bound itself to paycomplainant a signing bonus consisting of shares of stockswith FIVE HUNDRED THOUSAND PESOS(P500,000.00).

Similarly, complainant is also entitled to be paid 13 thmonth pay based on an amount not lower than the amounthe was receiving prior to effectivity of (the) Agreement.

Under paragraph 9 of (the May 1994 Agreement), complainant is entitled to a commutable travel benefitamounting to at least One Hundred Fifty Thousand Pesos (P150,000.00) per year.

Thus, it is precisely because of complainant-appellants own recognition of the fact that his contractual relationswith ABS-CBN are founded on the New Civil Code, rather than the Labor Code, that instead of merelyresigning from ABS-CBN, complainant-appellant served upon the latter a notice of rescission of Agreement
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with the station, per his letter dated April 1, 1996, which asserted that instead of referring to unpaid employeebenefits, he is waiving and renouncing recovery of the remaining amount stipulated in paragraph 7 of theAgreement but reserves the right to such recovery of the other benefits under said Agreement. (Annex 3 of therespondent ABS-CBNs Motion to Dismiss dated July 10, 1996).

Evidently, it is precisely by reason of the alleged violation of the May 1994 Agreement and/or the StockPurchase Agreement by respondent-appellee that complainant-appellant filed his complaint. Complainant-appellants claims being anchored on the alleged breach of contract on the part of respondent-appellee, the same

can be resolved by reference to civil law and not to labor law. Consequently, they are within the realm of civillaw and, thus, lie with the regular courts. As held in the case of Dai-Chi Electronics Manufacturing vs.Villarama, 238 SCRA 267, 21 November 1994, an action for breach of contractual obligation is intrinsicallya civil dispute.

[9](Emphasis supplied)

The Court of Appeals ruled that the existence of an employer-employee relationship betweenSONZA and ABS-CBN is a factual question that is within the jurisdiction of the NLRC to resolve.[10]Aspecial civil action for certiorari extends only to issues of want or excess of jurisdiction of theNLRC.[11]Such action cannot cover an inquiry into the correctness of the evaluation of the evidencewhich served as basis of the NLRCs conclusion.[12]The Court of Appeals added that it could not re-examine the parties evidence andsubstitute the factual findings of the NLRC with its own.[13]

The Issue

In assailing the decision of the Court of Appeals, SONZA contends that:

THE COURT OF APPEALS GRAVELY ERRED IN AFFIRMING THE NLRCS DECISION ANDREFUSING TO FIND THAT AN EMPLOYER-EMPLOYEE RELATIONSHIP EXISTED BETWEENSONZA AND ABS-CBN, DESPITE THE WEIGHT OF CONTROLLING LAW, JURISPRUDENCE ANDEVIDENCE TO SUPPORT SUCH A FINDING.

[14]

The Courts Ruling

We affirm the assailed decision.

No convincing reason exists to warrant a reversal of the decision of the Court of Appeals affirmingthe NLRC ruling which upheld the Labor Arbiters dismissal of the case for lack of jurisdiction.

The present controversy is one of first impression. Although Philippine labor laws andjurisprudence define clearly the elements of an employer-employee relationship, this is the first timethat the Court will resolve the nature of the relationship between a television and radio station and

one of its talents. There is no case law stating that a radio and television program host is anemployee of the broadcast station.

The instant case involves big names in the broadcast industry, namely Jose Jay Sonza, aknown television and radio personality, and ABS-CBN, one of the biggest television and radionetworks in the country.

SONZA contends that the Labor Arbiter has jurisdiction over the case because he was anemployee of ABS-CBN. On the other hand, ABS-CBN insists that the Labor Arbiter has no jurisdictionbecause SONZA was an independent contractor.

Emplo yee or Independent Contractor?

The existence of an employer-employee relationship is a question of fact. Appellate courtsaccord the factual findings of the Labor Arbiter and the NLRC not only respect but also finality whensupported by substantial evidence.[15]Substantial evidence means such relevant evidence as areasonable mind might accept as adequate to support a conclusion.[16]A party cannot prove theabsence of substantial evidence by simply pointing out that there is contrary evidence on record,direct or circumstantial. The Court does not substitute its own judgment for that of the tribunal indetermining where the weight of evidence lies or what evidence is credible.[17]
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During the life of the Agreement, ABS-CBN agreed to pay SONZAs talent fees as long asAGENT 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 SONZAbecause ABS-CBN remained obligated to pay SONZAs talent fees during the life of the

Agreement. This circumstance indicates an independent contractual relationship between SONZAand ABS-CBN.

SONZA admits that even after ABS-CBN ceased broadcasting his programs, ABS-CBN still paid

him his talent fees. Plainly, ABS-CBN adhered to its undertaking in the Agreement to continue payingSONZAs talent fees during the remaining life of the Agreement even ifABS-CBN cancelled SONZAsprograms through no fault of SONZA.[25]

SONZA assails the Labor Arbiters interpretation of his rescission of the Agreement as anadmission that he is not an employee of ABS-CBN. The Labor Arbiter stated that if it were true thatcomplainant was really an employee, he would merely resign, instead. SONZA did actually resignfrom ABS-CBN but he also, as president of MJMDC, rescinded the Agreement. SONZAs letterclearly bears this out.[26]However, the manner by which SONZA terminated his relationship with ABS-CBN is immaterial. Whether SONZA rescinded the Agreement or resigned from work does notdetermine his status as employee or independent contractor.

D. Power of Control

Since there is no local precedent on whether a radio and television program host is an employeeor an independent contractor, we refer to foreign case law in analyzing the present case. The UnitedStates Court of Appeals, First Circuit, recently held in Alb erty -Vlez v. Co rp oracin De Puerto RicoPara La Difusin Pblica (WIPR)[27]that a television program host is an independent contractor.We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled

position requiring talent and training not available on-the-job. x x x In this regard, Alberty possesses amasters degree in public communications and journalism; is trained in dance, singing, and modeling; taughtwith the drama department at the University of Puerto Rico; and acted in several theater and televisionproductions prior to her affiliation with Desde Mi Pueblo. Second, Alberty provided the tools andinstrumentalities necessary for her to perform. Specifically, she provided, or obtained sponsors to provide,the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Albertydisputes that this factor favors independent contractor status because WIPR provided the equipmentnecessaryto tape the show. Albertys argument is misplaced. The equipment necessary for Alberty to conduct herjob as host of Desde Mi Pueblo related to her appearance on the show. Others provided equipment forfilming and producing the show, but these were not the primary tools that Alberty used to perform her particularfunction. If we accepted this argument, independent contractors could never work on collaborative projectsbecause other individuals often provide the equipment required for different aspects of the collaboration. x x x

Third, WIPR could not assign Alberty work in addition to filming Desde Mi Pueblo . Albertys contractswith WIPR specifically provided that WIPR hired her professional services as Hostess for the Program DesdeMi Pueblo. There is no evidence that WIPR assigned Alberty tasks in addition to work related to thesetapings. x x x[28](Emphasis supplied)

Applying the control test to the present case, we find that SONZA is not an employee but anindependent contractor. The control test is the most important test our courts apply in distinguishingan employee from an independent contractor.[29]This test is based on the extent of control the hirerexercises over a worker. The greater the supervision and control the hirer exercises, the more likelythe worker is deemed an employee. The converse holds true as well the less control the hirerexercises, the more likely the worker is considered an independent contractor.[30]

First, SONZA contends that ABS-CBN exercised control over the means and methods of hiswork.

SONZAs argument is misplaced. ABS-CBN engaged SONZAs services specifically to co-hostthe Mel & Jay programs. ABS-CBN did not assign any other work to SONZA. To perform his work,SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television,and sounded on radio were outside ABS-CBNs control.SONZA did not have to render eight hours ofwork per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows,
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as well as pre- and post-production staff meetings.[31]ABS-CBN could not dictate the contents ofSONZAs script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBNor its interests.[32]The clear implication is that SONZA had a free hand on what to say or discuss in hisshows provided he did not attack ABS-CBN or its interests.

We find that ABS-CBN was not involved in the actual performance that produced the finishedproduct of SONZAs work.[33]ABS-CBN did not instruct SONZA how to perform his job. ABS-CBNmerely reserved the right to modify the program format and airtime schedule for more effective

programming.

[34]

ABS-CBNs sole concern was the quality of the shows and their standing in theratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance ofSONZAs work.

SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power overthe means and methods of the performance of his work. Although ABS-CBN did have the option notto broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees. Thus, even if

ABS-CBN was completely dissatisfied with the means and methods of SONZAs performance of hiswork, or even with the quality or product of his work, ABS-CBN could not dismiss or even disciplineSONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABS -CBN must still payhis talent fees in full.[35]

Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation tocontinue paying in full SONZAs talent fees, did not amount to control over the means and methods ofthe performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if themeans and methods of performance of his work - how he delivered his lines and appeared ontelevision - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited onlyto the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the Agreement.

In Vaughan, et al. v. Warner, et al.,[36]the United States Circuit Court of Appeals ruled thatvaudeville performers were independent contractors although the management reserved the right todelete objectionable features in their shows. Since the management did not have control over themanner of performance of the skills of the artists, it could only control the result of the work by

deleting objectionable features.[37]

SONZA further contends that ABS-CBN exercised control over his work by supplying allequipment and crew. No doubt, ABS-CBN supplied the equipment, crew and airtime needed tobroadcast the Mel & Jay programs. However, the equipment, crew and airtime are not the toolsand instrumentalities SONZAneeded to perform his job. What SONZA principally needed were histalent or skills and the costumes necessary for his appearance. [38]Even though ABS-CBN providedSONZA with the place of work and the necessary equipment, SONZA was still an independentcontractor since ABS-CBN did not supervise and control his work. ABS-CBNs sole concern was forSONZA to display his talent during the airing of the programs.[39]

A radio broadcast specialist who works under minimal supervision is an independent

contractor.[40]

SONZAs work as television and radio program host required special skills and talent,which SONZA admittedly possesses. The records do not show that ABS-CBN exercised anysupervision and control over how SONZA utilized his skills and talent in his shows.

Second, SONZA urges us to rule that he was ABS-CBNs employee because ABS-CBNsubjected him to its rules and standards of performance. SONZA claims that this indicates ABS-CBNs control not only [over] his manner of work but also the quality of his work.

The Agreement stipulates that SONZA shall abide with the rules and standards of performancecovering talents[41]of ABS-CBN. The Agreement does not require SONZA to comply with the rulesand standards of performance prescribed for employees of ABS-CBN. The code of conduct imposedon SONZA under the Agreement refers to the Television and Radio Code of the Kapisanan ng mga

Broadcaster sa Pilipinas (KBP), which has been adopted by the COMPANY (ABS-CBN) as its Codeof Ethics.[42]The KBP code applies to broadcasters, not to employees of radio and televisionstations. Broadcasters are not necessarily employees of radio and television stations. Clearly, therules and standards of performance referred to in the Agreement are those applicable to talents andnot to employees of ABS-CBN.

In any event, not all rules imposed by the hiring party on the hired party indicate that the latter isan employee of the former.[43]In this case, SONZA failed to show that these rules controlled hisperformance. We find that these general rules are merely guidelines towards the achievement of the
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mutually desired result, which are top-rating television and radio programs that comply with standardsof the industry. We have ruled that:

Further, not every form of control that a party reserves to himself over the conduct of the other party in relationto the services being rendered may be accorded the effect of establishing an employer-employee relationship.The facts of this case fall squarely with the case of Insular Life Assurance Co., Ltd. vs. NLRC. In said case, weheld that:

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement ofthe mutually desired result without dictating the means or methods to be employed in attaining it, and those thatcontrol or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aimonly to promote the result, create no employer-employee relationship unlike the second, which address both theresult and the means used to achieve it.

[44]

The Vaughancase also held that one could still be an independent contractor although the hirerreserved certain supervision to insure the attainment of the desired result. The hirer, however, mustnot deprive the one hired from performing his services according to his own initiative.[45]

Lastly, SONZA insists that the exclusivity clause in the Agreement is the most extreme form of

control which ABS-CBN exercised over him.This argument is futile. Being an exclusive talent does not by itself mean that SONZA is an

employee of ABS-CBN. Even an independent contractor can validly provide his services exclusivelyto the hiring party. In the broadcast industry, exclusivity is not necessarily the same as control.

The hiring of exclusive talents is a widespread and accepted practice in the entertainmentindustry.[46]This practice is not designed to control the means and methods of work of the talent, butsimply to protect the investment of the broadcast station. The broadcast station normally spendssubstantial amounts of money, time and effort in building up its talents as well as the programs t heyappear in and thus expects that said talents remain exclusive with the station for a commensurateperiod of time.

[47]Normally, a much higher fee is paid to talents who agree to work exclusively for aparticular radio or television station. In short, the huge talent fees partially compensates forexclusivity, as in the present case.

MJMDC as Agent o f SONZA

SONZA protests the Labor Arbiters finding that he is a talent of MJMDC, which contracted out hisservices to ABS-CBN. The Labor Arbiter ruled that as a talent of MJMDC, SONZA is not an employeeof ABS-CBN. SONZA insists that MJMDC is a labor-only contractor and ABS-CBN is his employer.

In a labor-only contract, there are three parties involved: (1) the labor-only contractor; (2) the

employee who is ostensibly under the employ of the labor-only contractor; and (3) the principal whois deemed the real employer. Under this scheme, the labor-onlycontractor is the agent of theprincipal. The law makes the principal responsible to the employees of the labor-only contractor asif the principal itself directly hired or employed the employees.[48]These circumstances are notpresent in this case.

There are essentially only two parties involved under the Agreement, namely, SONZA and ABS-CBN. MJMDC merely acted as SONZAs agent. The Agreement expressly states that MJMDC actedas the AGENT of SONZA. The records do not show that MJMDC acted as ABS-CBNsagent. MJMDC, which stands for Mel and Jay Management and Development Corporation, is acorporation organized and owned by SONZA and TIANGCO. The President and General Manager ofMJMDC is SONZA himself. It is absurd to hold that MJMDC, which is owned, controlled, headed and

managed by SONZA, acted as agent of ABS-CBN in entering into the Agreement with SONZA, whohimself is represented by MJMDC. That would make MJMDC the agent of both ABS-CBN andSONZA.

As SONZA admits, MJMDC is a management company devoted exclusively to managing thecareers of SONZA and his broadcast partner, TIANGCO. MJMDC is not engaged in any otherbusiness, not even job contracting. MJMDC does not have any other function apart from acting asagent of SONZA or TIANGCO to promote their careers in the broadcast and television industry.[49]
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Pol icy Instruct ion No. 40

SONZA argues that Policy Instruction No. 40 issued by then Minister of Labor Blas Ople on 8January 1979 finally settled the status of workers in the broadcast industry. Under this policy, thetypes of employees in the broadcast industry are the station and program employees.

Policy Instruction No. 40 is a mere executive issuance which does not have the force and effectof law. There is no legal presumption that Policy Instruction No. 40 determines SONZAs status. A

mere executive issuance cannot exclude independent contractors from the class of service providersto the broadcast industry. The classification of workers in the broadcast industry into only two groupsunder Policy Instruction No. 40 is not binding on this Court, especially when the classification has nobasis either in law or in fact.

Aff idavi ts of ABS-CBNs Witnesses

SONZA also faults the Labor Arbiter for admitting the affidavits of Socorro Vidanes and RolandoCruz without giving his counsel the opportunity to cross-examine these witnesses. SONZA brands

these witnesses as incompetent to attest on the prevailing practice in the radio and televisionindustry. SONZA views the affidavits of these witnesses as misleading and irrelevant.

While SONZA failed to cross-examine ABS-CBNs witnesses, he was never prevented fromdenying or refuting the allegations in the affidavits. The Labor Arbiter has the discretion whether toconduct a formal (trial-type) hearing after the submission of the position papers of the parties, thus:

Section 3. Submission of Position Papers/Memorandum

x x x

These verified position papers shall cover only those claims and causes of action raised in the complaint

excluding those that may have been amicably settled, and shall be accompanied by all supporting documentsincluding the affidavits of their respective witnesses which shall take the place of the latters direct testimony. xx x

Section 4. Determination of Necessity of Hearing.Immediately after the submission of the parties of theirposition papers/memorandum, the Labor Arbiter shall motu propio determine whether there is need for a formaltrial or hearing. At this stage, he may, at his discretion and for the purpose of making such determination, askclarificatory questions to further elicit facts or information, including but not limited to the subpoena of relevantdocumentary evidence, if any from any party or witness.

[50]

The Labor Arbiter can decide a case based solely on the position papers and the supporting

documents without a formal trial.[51]The holding of a formal hearing or trial is something that theparties cannot demand as a matter of right.[52]If the Labor Arbiter is confident that he can rely on thedocuments before him, he cannot be faulted for not conducting a formal trial, unless under theparticular circumstances of the case, the documents alone are insufficient. The proceedings before aLabor Arbiter are non-litigious in nature. Subject to the requirements of due process, thetechnicalities of law and the rules obtaining in the courts of law do not strictly apply in proceedingsbefore a Labor Arbiter.

Talents as Independent Con tractors

ABS-CBN claims that there exists a prevailing practice in the broadcast and entertainmentindustries to treat talents like SONZA as independent contractors. SONZA argues that if such practiceexists, it is void for violating the right of labor to security of tenure.

The right of labor to security of tenure as guaranteed in the Constitution[53]arises only if there isan employer-employee relationship under labor laws. Not every performance of services for a feecreates an employer-employee relationship. To hold that every person who renders services toanother for a fee is an employee - to give meaning to the security of tenure clause - will lead toabsurd results.
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Individuals with special skills, expertise or talent enjoy the freedom to offer their services asindependent contractors. The right to life and livelihood guarantees this freedom to contract asindependent contractors. The right of labor to security of tenure cannot operate to deprive anindividual, possessed with special skills, expertise and talent, of his right to contract as anindependent contractor. An individual like an artist or talent has a right to render his services withoutany one controlling the means and methods by which he performs his art or craft. This Court will notinterpret the right of labor to security of tenure to compel artists and talents to render their servicesonly as employees. If radio and television program hosts can render their services only as

employees, the station owners and managers can dictate to the radio and television hosts what theysay in their shows. This is not conducive to freedom of the press.

Dif ferent Tax Treatment of Talents and Broadc asters

The National Internal Revenue Code (NIRC)[54]in relation to Republic Act No. 7716,[55]asamended by Republic Act No. 8241,[56]treats talents, television and radio broadcasters differently.Under the NIRC, these professionals are subject to the 10% value-added tax (VAT) on services theyrender. Exempted from the VAT are those under an employer-employee relationship.[57]This different

tax treatment accorded to talents and broadcasters bolters our conclusion that they are independentcontractors, provided all the basic elements of a contractual relationship are present as in this case.

Nature of SONZAs Claims

SONZA seeks the recovery of allegedly unpaid talent fees, 13 th month pay, separation pay,service incentive leave, signing bonus, travel allowance, and amounts due under the Employee StockOption Plan. We agree with the findings of the Labor Arbiter and the Court of Appeals that SONZAsclaims are all based on the May 1994 Agreement and stock option plan, and not on the LaborCode. Clearly, the present case does not call for an application of the Labor Code provisions but aninterpretation and implementation of the May 1994 Agreement. In effect, SONZAs cause of action isfor breach of contract which is intrinsically a civil dispute cognizable by the regular courts .[58]

WHEREFORE, we DENY the petition. The assailed Decision of the Court of Appeals dated 26March 1999 in CA-G.R. SP No. 49190 is AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Panganiban, Ynares-Santiago, andAzcuna, JJ., concur.
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G.R. No. 75112 August 17, 1992

FILAMER CHRISTIAN INSTITUTE, petitioner,vs.HON. INTERMEDIATE APPELLATE COURT, HON. ENRIQUE P. SUPLICO, in his capacity asJudge of the Regional Trial Court, Branch XIV, Roxas City and POTENCIANO KAPUNAN,SR., respondents.

Bedona & Bedona Law Office for petitioner.

Rhodora G. Kapunan for private respondents.

GUTIERREZ, JR., J .:

The private respondents, heirs of the late Potenciano Kapunan, seek reconsideration of the decisionrendered by this Court on October 16, 1990 (Filamer Christian Institute v. Court of Appeals, 190SCRA 477) reviewing the appellate court's conclusion that there exists an employer-employeerelationship between the petitioner and its co-defendant Funtecha. The Court ruled that the petitioneris not liable for the injuries caused by Funtecha on the grounds that the latter was not an authorizeddriver for whose acts the petitioner shall be directly and primarily answerable, and that Funtecha wasmerely a working scholar who, under Section 14, Rule X, Book III of the Rules and RegulationsImplementing the Labor Code is not considered an employee of the petitioner.

The private respondents assert that the circumstances obtaining in the present case call for theapplication of Article 2180 of the Civil Code since Funtecha is no doubt an employee of the petitioner.The private respondents maintain that under Article 2180 an injured party shall have recourse againstthe servant as well as the petitioner for whom, at the time of the incident, the servant was performingan act in furtherance of the interest and for the benefit of the petitioner. Funtecha allegedly did notsteal the school jeep nor use it for a joy ride without the knowledge of the school authorities.

After a re-examination of the laws relevant to the facts found by the trial court and the appellate court,the Court reconsiders its decision. We reinstate the Court of Appeals' decision penned by the lateJustice Desiderio Jurado and concurred in by Justices Jose C. Campos, Jr. and Serafin E. Camilon.

Applying Civil Code provisions, the appellate court affirmed the trial court decision which ordered thepayment of the P20,000.00 liability in the Zenith Insurance Corporation policy, P10,000.00 moraldamages, P4,000.00 litigation and actual expenses, and P3,000.00 attorney's fees.

It is undisputed that Funtecha was a working student, being a part-time janitor and a scholar ofpetitioner Filamer. He was, in relation to the school, an employee even if he was assigned to cleanthe school premises for only two (2) hours in the morning of each school day.

Having a student driver's license, Funtecha requested the driver, Allan Masa, and was allowed, to

take over the vehicle while the latter was on his way home one late afternoon. It is significant to notethat the place where Allan lives is also the house of his father, the school president, Agustin Masa.Moreover, it is also the house where Funtecha was allowed free board while he was a student ofFilamer Christian Institute.

Allan Masa turned over the vehicle to Funtecha only after driving down a road, negotiating a sharpdangerous curb, and viewing that the road was clear. (TSN, April 4, 1983, pp. 78-79) According to

Allan's testimony, a fast moving truck with glaring lights nearly hit them so that they had to swerve tothe right to avoid a collision. Upon swerving, they heard a sound as if something had bumped againstthe vehicle, but they did not stop to check. Actually, the Pinoy jeep swerved towards the pedestrian,Potenciano Kapunan who was walking in his lane in the direction against vehicular traffic, and hit him.

Allan affirmed that Funtecha followed his advise to swerve to the right. (Ibid., p. 79) At the time of theincident (6:30 P.M.) in Roxas City, the jeep had only one functioning headlight.

Allan testified that he was the driver and at the same time a security guard of the petitioner-school.He further said that there was no specific time for him to be off-duty and that after driving the studentshome at 5:00 in the afternoon, he still had to go back to school and then drive home using the samevehicle.

Driving the vehicle to and from the house of the school president where both Allan and Funtechareside is an act in furtherance of the interest of the petitioner-school. Allan's job demands that hedrive home the school jeep so he can use it to fetch students in the morning of the next school day.


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It is indubitable under the circumstances that the school president had knowledge that the jeep wasroutinely driven home for the said purpose. Moreover, it is not improbable that the school presidentalso had knowledge of Funtecha's possession of a student driver's license and his desire to undergodriving lessons during the time that he was not in his classrooms.

In learning how to drive while taking the vehicle home in the direction of Allan's house, Funtechadefinitely was not having a joy ride. Funtecha was not driving for the purpose of his enjoyment or for a"frolic of his own" but ultimately, for the service for which the jeep was intended by the petitioner

school. (See L. Battistoni v. Thomas, Can SC 144, 1 D.L.R. 577, 80 ALR 722 [1932]; See alsoAssociation of Baptists for World Evangelism, Inc. v. Fieldmen's Insurance Co., Inc. 124 SCRA 618[1983]). Therefore, the Court is constrained to conclude that the act of Funtecha in taking over thesteering wheel was one done for and in behalf of his employer for which act the petitioner-schoolcannot deny any responsibility by arguing that it was done beyond the scope of his janitorial duties.The clause "within the scope of their assigned tasks" for purposes of raising the presumption ofliability of an employer, includes any act done by an employee, in furtherance of the interests of theemployer or for the account of the employer at the time of the infliction of the injury or damage.(Manuel Casada, 190 Va 906, 59 SE 2d 47 [1950]) Even if somehow, the employee driving thevehicle derived some benefit from the act, the existence of a presumptive liability of the employer isdetermined by answering the question of whether or not the servant was at the time of the accident

performing any act in furtherance of his master's business. (Kohlman v. Hyland, 210 NW 643, 50 ALR1437 [1926]; Jameson v. Gavett, 71 P 2d 937 [1937])

Section 14, Rule X, Book III of the Rules implementing the Labor Code, on which the petitioneranchors its defense, was promulgated by the Secretary of Labor and Employment only for thepurpose of administering and enforcing the provisions of the Labor Code on conditions ofemployment. Particularly, Rule X of Book III provides guidelines on the manner by which the powersof the Labor Secretary shall be exercised; on what records should be kept; maintained andpreserved; on payroll; and on the exclusion of working scholars from, and inclusion of residentphysicians in the employment coverage as far as compliance with the substantive labor provisions onworking conditions, rest periods, and wages, is concerned.

In other words, Rule X is merely a guide to the enforcement of the substantive law on labor. TheCourt, thus, makes the distinction and so holds that Section 14, Rule X, Book III of the Rules is notthe decisive law in a civil suit for damages instituted by an injured person during a vehicular accidentagainst a working student of a school and against the school itself.

The present case does not deal with a labor dispute on conditions of employment between an allegedemployee and an alleged employer. It invokes a claim brought by one for damages for injury causedby the patently negligent acts of a person, against both doer-employee and his employer. Hence, thereliance on the implementing rule on labor to disregard the primary liability of an employer under

Article 2180 of the Civil Code is misplaced. An implementing rule on labor cannot be used by anemployer as a shield to avoid liability under the substantive provisions of the Civil Code.

There is evidence to show that there exists in the present case an extra-contractual obligation arisingfrom the negligence or reckless imprudence of a person "whose acts or omissions are imputable, by alegal fiction, to other(s) who are in a position to exercise an absolute or limited control over (him)."(Bahia v. Litonjua and Leynes, 30 Phil. 624 [1915])

Funtecha is an employee of petitioner Filamer. He need not have an official appointment for a driver'sposition in order that the petitioner may be held responsible for his grossly negligent act, it beingsufficient that the act of driving at the time of the incident was for the benefit of the petitioner. Hence,the fact that Funtecha was not the school driver or was not acting within the scope of his janitorialduties does not relieve the petitioner of the burden of rebutting the presumption juris tantumthat therewas negligence on its part either in the selection of a servant or employee, or in the supervision over

him. The petitioner has failed to show proof of its having exercised the required diligence of a goodfather of a family over its employees Funtecha and Allan.

The Court reiterates that supervision includes the formulation of suitable rules and regulations for theguidance of its employees and the issuance of proper instructions intended for the protection of thepublic and persons with whom the employer has relations through his employees. (Bahia v. Litonjuaand Leynes, supra, at p. 628; Phoenix Construction, v. Intermediate Appellate Court, 148 SCRA 353[1987])


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G.R. No. L-69870 November 29, 1988

NATIONAL SERVICE CORPORATION (NASECO) AND ARTURO L. PEREZ, petitioners,vs.THE HONORABLE THIRD DIVISION, NATIONAL LABOR RELATIONS COMMISSION, MINISTRYOF LABOR AND EMPLOYMENT, MANILA AND EUGENIA C. CREDO, respondents.

G.R. No. 70295 November 29,1988

EUGENIA C. CREDO, petitioner,vs.NATIONAL LABOR RELATIONS COMMISSION, NATIONAL SERVICES CORPORATION ANDARTURO L. PEREZ, respondents.

The Chief Legal Counsel for respondents NASECO and Arturo L. Perez.

Melchor R. Flores for petitioner Eugenia C. Credo.

PADILLA, J .:

Consolidated special civil actions for certiorari seeking to review the decision *of the Third Division,National Labor Relations Commission in Case No. 11-4944-83 dated 28 November 1984 and itsresolution dated 16 January 1985 denying motions for reconsideration of said decision.

Eugenia C. Credo was an employee of the National Service Corporation (NASECO), a domesticcorporation which provides security guards as well as messengerial, janitorial and other similarmanpower services to the Philippine National Bank (PNB) and its agencies. She was first employedwith NASECO as a lady guard on 18 July 1975. Through the years, she was promoted to ClerkTypist, then Personnel Clerk until she became Chief of Property and Records, on 10 March 1980. 1

Sometime before 7 November 1983, Credo was administratively charged by Sisinio S. Lloren,

Manager of Finance and Special Project and Evaluation Department of NASECO, stemming from hernon-compliance with Lloren's memorandum, dated 11 October 1983, regarding certain entryprocedures in the company's Statement of Billings Adjustment. Said charges alleged that Credo "didnot comply with Lloren's instructions to place some corrections/additional remarks in the Statement ofBillings Adjustment; and when [Credo] was called by Lloren to his office to explain further the saidinstructions, [Credo] showed resentment and behaved in a scandalous manner by shouting anduttering remarks of disrespect in the presence of her co-employees." 2

On 7 November 1983, Credo was called to meet Arturo L. Perez, then Acting General Manager ofNASECO, to explain her side before Perez and NASECO's Committee on Personnel Affairs inconnection with the administrative charges filed against her. After said meeting, on the same date,

Credo was placed on "Forced Leave" status for 1 5 days, effective 8 November 1983.3

Before the expiration of said 15-day leave, or on 18 November 1983, Credo filed a complaint,docketed as Case No. 114944-83, with the Arbitration Branch, National Capital Region, Ministry ofLabor and Employment, Manila, against NASECO for placing her on forced leave, without dueprocess. 4

Likewise, while Credo was on forced leave, or on 22 November 1983, NASECO's Committee onPersonnel Affairs deliberated and evaluated a number of past acts of misconduct or infractionsattributed to her. 5As a result of this deliberation, said committee resolved:

1. That, respondent [Credo] committed the following offenses in the Code of Discipline, viz:

OFFENSE vs. Company Interest & Policies

No. 3 Any discourteous act to customer, officer and employee of client company or officer of theCorporation.

OFFENSE vs. Public Moral

No. 7 Exhibit marked discourtesy in the course of official duties or use of profane or insultinglanguage to any superior officer.


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OFFENSE vs. Authority

No. 3 Failure to comply with any lawful order or any instructions of a superior officer.

2. That, Management has already given due consideration to respondent's [Credo] scandalousactuations for several times in the past. Records also show that she was reprimanded for someoffense and did not question it. Management at this juncture, has already met its maximum tolerancepoint so it has decided to put an end to respondent's [Credo] being an undesirable employee. 6

The committee recommended Credo's termination, with forfeiture of benefits. 7

On 1 December 1983, Credo was called age to the office of Perez to be informed that she was beingcharged with certain offenses. Notably, these offenses were those which NASECO's Committee onPersonnel Affairs already resolved, on 22 November 1983 to have been committed by Credo.

In Perez's office, and in the presence of NASECO's Committee on Personnel Affairs, Credo wasmade to explain her side in connection with the charges filed against her; however, due to her failureto do so, 8she was handed a Notice of Termination, dated 24 November 1983, and made effective 1December 1983. 9Hence, on 6 December 1983, Credo filed a supplemental complaint for illegaldismissal in Case No. 11-4944-83, alleging absence of just or authorized cause for her dismissal and

lack of opportunity to be heard.

10

After both parties had submitted their respective position papers, affidavits and other documentaryevidence in support of their claims and defenses, on 9 May 1984, the labor arbiter rendered adecision: 1) dismissing Credo's complaint, and 2) directing NASECO to pay Credo separation payequivalent to one half month's pay for every year of service. 11

Both parties appealed to respondent National Labor Relations Commission (NLRC) which, on 28November 1984, rendered a decision: 1) directing NASECO to reinstate Credo to her former position,or substantially equivalent position, with six (6) months' backwages and without loss of seniority rightsand other privileges appertaining thereto, and 2) dismissing Credo's claim for attorney's fees, moraland exemplary damages. As a consequence, both parties filed their respective motions for

reconsideration,12

which the NLRC denied in a resolution of 16 January 1985.13

Hence, the present recourse by both parties. In G.R. No. 68970, petitioners challenge as grave abuseof discretion the dispositive portion of the 28 November 1984 decision which ordered Credo'sreinstatement with backwages. 14Petitioners contend that in arriving at said questioned order, theNLRC acted with grave abuse of discretion in finding that: 1) petitioners violated the requirementsmandated by law on termination, 2) petitioners failed in the burden of proving that the termination ofCredo was for a valid or authorized cause, 3) the alleged infractions committed by Credo were notproven or, even if proved, could be considered to have been condoned by petitioners, and 4) thetermination of Credo was not for a valid or authorized cause. 15

On the other hand, in G.R. No. 70295, petitioner Credo challenges as grave abuse of discretion thedispositive portion of the 28 November 1984 decision which dismissed her claim for attorney's fees,moral and exemplary damages and limited her right to backwages to only six (6) months. 16

As guidelines for employers in the exercise of their power to dismiss employees for just causes, thelaw provides that:

Section 2. Notice of dismissal. Any employer who seeks to dismiss a worker shall furnish him awritten notice stating the particular acts or omission constituting the grounds for his dismissal.

xxx xxx xxx

Section 5.Answer and Hearing. The worker may answer the allegations stated against him in the

notice of dismissal within a reasonable period from receipt of such notice. The employer shall affordthe worker ample opportunity to be heard and to defend himself with the assistance of hisrepresentative, if he so desires.

Section 6. Decision to dismiss. The employer shall immediately notify a worker in writing of adecision to dismiss him stating clearly the reasons therefor. 17

These guidelines mandate that the employer furnish an employee sought to be dismissed two (2)written notices of dismissal before a termination of employment can be legally effected. These are thenotice which apprises the employee of the particular acts or omissions for which his dismissal is


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sought and the subsequent notice which informs the employee of the employer's decision to dismisshim.

Likewise, a reading of the guidelines in consonance with the express provisions of law on protectionto labor 18(which encompasses the right to security of tenure) and the broader dictates of proceduraldue process necessarily mandate that notice of the employer's decision to dismiss an employee, withreasons therefor, can only be issued after the employer has afforded the employee concerned ampleopportunity to be heard and to defend himself.

In the case at bar, NASECO did not comply with these guidelines in effecting Credo's dismissal.Although she was apprised and "given the chance to explain her side" of the charges filed againsther, this chance was given so perfunctorily, thus rendering illusory C

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