2002,[4] in NLRC-NCR Case No.

30-10-0-489-01, finding that private

FIRST DIVISION

respondents were liable for constructive dismissal.

ANGELINA FRANCISCO, G.R. No. 170087
Petitioner,
Present:
- versus - Ynares-Santiago,
Austria-Martinez,

Panganiban, C.J.
(Chairperson),
Callejo,
and
ChicoNazario, JJ.

Sr.,

NATIONAL LABOR RELATIONS

COMMISSION, KASEI CORPORATION,
SEIICHIRO TAKAHASHI, TIMOTEO
ACEDO, DELFIN LIZA, IRENE
BALLESTEROS, TRINIDAD LIZA Promulgated:
and RAMON ESCUETA,
Respondents.
August 31, 2006
x ---------------------------------------------------------------------------------------- x
DECISION
YNARES-SANTIAGO, J.:

In 1995, petitioner was hired by Kasei Corporation during its incorporation

stage. She was designated as Accountant and Corporate Secretary and was
assigned to handle all the accounting needs of the company. She was also
designated as Liaison Officer to the City of Makati to secure business
permits, construction permits and other licenses for the initial operation of
the company.[5]

Although she was designated as Corporate Secretary, she was not

entrusted with the corporate documents; neither did she attend any board
meeting nor required to do so. She never prepared any legal document and
never represented the company as its Corporate Secretary. However, on
some occasions, she was prevailed upon to sign documentation for the
company.[6]

This petition for review on certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the Decision and Resolution of the Court of

In

1996,

petitioner

was

designated

Acting

Manager. The

Appeals dated October 29, 2004 [1] and October 7, 2005,[2] respectively, in

corporation also hired Gerry Nino as accountant in lieu of petitioner.As

CA-G.R. SP No. 78515 dismissing the complaint for constructive dismissal

Acting Manager, petitioner was assigned to handle recruitment of all

filed by herein petitioner Angelina Francisco. The appellate court reversed

employees and perform management administration functions; represent

and set aside the Decision of the National Labor Relations Commission

the company in all dealings with government agencies, especially with the

(NLRC) dated April 15, 2003, [3] in NLRC NCR CA No. 032766-02 which

Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the

affirmed with modification the decision of the Labor Arbiter dated July 31,

city government of Makati; and to administer all other matters pertaining to

the operation of Kasei Restaurant which is owned and operated by Kasei
Corporation.[7]

For

five

years,

petitioner

performed

the

duties

of

Acting

Since she was no longer paid her salary, petitioner did not report

Manager. As of December 31, 2000 her salary was P27,500.00 plus

for work and filed an action for constructive dismissal before the labor

P3,000.00 housing allowance and a 10% share in the profit of Kasei

arbiter.

Corporation.[8]
Private respondents averred that petitioner is not an employee of
In January 2001, petitioner was replaced by Liza R. Fuentes as

Kasei Corporation. They alleged that petitioner was hired in 1995 as one of

Manager. Petitioner alleged that she was required to sign a prepared

its technical consultants on accounting matters and act concurrently as

resolution for her replacement but she was assured that she would still be

Corporate Secretary. As technical consultant, petitioner performed her work

connected

designated

at her own discretion without control and supervision of Kasei Corporation.

Treasurer, convened a meeting of all employees of Kasei Corporation and

Petitioner had no daily time record and she came to the office any time she

announced that nothing had changed and that petitioner was still

wanted. The company never interfered with her work except that from time

connected with Kasei Corporation as Technical Assistant to Seiji Kamura and

to time, the management would ask her opinion on matters relating to her

with

Kasei

Corporation. Timoteo

in charge of all BIR matters.

Acedo,

the

[9]

profession. Petitioner did not go through the usual procedure of selection of

employees, but her services were engaged through a Board Resolution

Thereafter, Kasei Corporation reduced her salary by P2,500.00 a

designating her as technical consultant. The money received by petitioner

month beginning January up to September 2001 for a total reduction of

from the corporation was her professional fee subject to the 10% expanded

P22,500.00 as of September 2001. Petitioner was not paid her mid-year

withholding tax on professionals, and that she was not one of those

bonus allegedly because the company was not earning well. On October

reported to the BIR or SSS as one of the companys employees. [12]

2001, petitioner did not receive her salary from the company. She made
repeated follow-ups with the company cashier but she was advised that the
company was not earning well.

[10]

Petitioners designation as technical consultant depended solely

upon the will of management. As such, her consultancy may be terminated
any time considering that her services were only temporary in nature and

On October 15, 2001, petitioner asked for her salary from Acedo
and the rest of the officers but she was informed that she is no longer
connected with the company.[11]

dependent on the needs of the corporation.

To prove that petitioner was not an employee of the corporation,

private respondents submitted a list of employees for the years 1999 and
2000 duly received by the BIR showing that petitioner was not among the

On April 15, 2003, the NLRC affirmed with modification the

Decision of the Labor Arbiter, the dispositive portion of which reads:

employees reported to the BIR, as well as a list of payees subject to

expanded withholding tax which included petitioner. SSS records were also
submitted showing that petitioners latest employer was Seiji Corporation. [13]

The Labor Arbiter found that petitioner was illegally dismissed,

thus:
WHEREFORE, premises considered, judgment is hereby
rendered as follows:
1. finding
complainant
an
employee
of
respondent corporation;
2. declaring complainants dismissal as illegal;
3. ordering respondents to reinstate complainant
to her former position without loss of seniority rights and
jointly and severally pay complainant her money claims
in accordance with the following computation:
a. Backwages 10/2001 07/2002 275,000.00
(27,500 x 10 mos.)
b. Salary
Differentials
(01/2001
09/2001) 22,500.00
c. Housing
Allowance
(01/2001
07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorneys fees 87,076.50
P957,742.50
If reinstatement is no longer feasible, respondents are
ordered to pay complainant separation pay with
additional backwages that would accrue up to actual
payment of separation pay.
SO ORDERED.[14]

PREMISES CONSIDERED, the Decision of July 31,

2002 is hereby MODIFIED as follows:
1) Respondents are directed to pay complainant
separation pay computed at one month per year of
service in addition to full backwages from October 2001
to July 31, 2002;
2) The
awards
representing
moral
and
exemplary damages and 10% share in profit in the
respective accounts of P100,000.00 and P361,175.00 are
deleted;
3) The award of 10% attorneys fees shall be
based on salary differential award only;
4) The awards representing salary differentials,
housing allowance, mid year bonus and 13 th month pay
are AFFIRMED.
SO ORDERED.[15]

On appeal, the Court of Appeals reversed the NLRC decision, thus:

WHEREFORE, the instant petition is hereby GRANTED. The
decision of the National Labor Relations Commissions
dated April 15, 2003 is hereby REVERSED and SET ASIDE
and a new one is hereby rendered dismissing the
complaint filed by private respondent against Kasei
Corporation, et al. for constructive dismissal.
SO ORDERED.[16]

The appellate court denied petitioners motion for reconsideration, hence,

the present recourse.

to control the employee with respect to the means and methods by which
The core issues to be resolved in this case are (1) whether there

the work is to be accomplished, economic realities of the employment

was an employer-employee relationship between petitioner and private

relations help provide a comprehensive analysis of the true classification of

respondent Kasei Corporation; and if in the affirmative, (2) whether

the individual, whether as employee, independent contractor, corporate

petitioner was illegally dismissed.

officer or some other capacity.

Considering the conflicting findings by the Labor Arbiter and the

The better approach would therefore be to adopt a two-tiered test

National Labor Relations Commission on one hand, and the Court of

involving: (1) the putative employers power to control the employee with

Appeals on the other, there is a need to reexamine the records to

respect to the means and methods by which the work is to be

determine which of the propositions espoused by the contending parties is

accomplished; and (2) the underlying economic realities of the activity or

supported by substantial evidence.[17]

relationship.

We held in Sevilla v. Court of Appeals [18] that in this jurisdiction,

This two-tiered test would provide us with a framework of analysis,

there has been no uniform test to determine the existence of an employer-

which

would

take

into

consideration

the

totality

of

circumstances

employee relation. Generally, courts have relied on the so-called right of

surrounding the true nature of the relationship between the parties. This is

control test where the person for whom the services are performed

especially appropriate in this case where there is no written agreement or

reserves a right to control not only the end to be achieved but also the

terms of reference to base the relationship on; and due to the complexity of

means to be used in reaching such end.In addition to the standard of right-

the relationship based on the various positions and responsibilities given to

of-control, the existing economic conditions prevailing between the parties,

the worker over the period of the latters employment.

like the inclusion of the employee in the payrolls, can help in determining
the existence of an employer-employee relationship.

The control test initially found application in the case of Viaa v. AlLagadan and Piga,[19] and lately in Leonardo v. Court of Appeals,[20] where

However, in certain cases the control test is not sufficient to give a

we held that there is an employer-employee relationship when the person

complete picture of the relationship between the parties, owing to the

for whom the services are performed reserves the right to control not only

complexity of such a relationship where several positions have been held

the end achieved but also the manner and means used to achieve that end.

by the worker. There are instances when, aside from the employers power

In Sevilla v. Court of Appeals,[21] we observed the need to consider

the existing economic conditions prevailing between the parties, in addition
to the standard of right-of-control like the inclusion of the employee in the
payrolls, to give a clearer picture in determining the existence of an

By applying the control test, there is no doubt that petitioner is an

employee of Kasei Corporation because she was under the direct control

employer-employee relationship based on an analysis of the totality of

and supervision of Seiji Kamura, the corporations Technical Consultant. She

economic circumstances of the worker.

reported for work regularly and served in various capacities as Accountant,

Liaison Officer, Technical Consultant, Acting Manager and Corporate

Thus, the determination of the relationship between employer and

Secretary, with substantially the same job functions, that is, rendering

employee depends upon the circumstances of the whole economic activity,

accounting and tax services to the company and performing functions

[22]

such as: (1) the extent to which the services performed are an integral

necessary and desirable for the proper operation of the corporation such as

part of the employers business; (2) the extent of the workers investment in

securing business permits and other licenses over an indefinite period of

equipment and facilities; (3) the nature and degree of control exercised by

engagement.

the employer; (4) the workers opportunity for profit and loss; (5) the

Under the broader economic reality test, the petitioner can

amount of initiative, skill, judgment or foresight required for the success of

likewise be said to be an employee of respondent corporation because she

the claimed independent enterprise; (6) the permanency and duration of

had served the company for six years before her dismissal, receiving check

the relationship between the worker and the employer; and (7) the degree

vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses

of dependency of the worker upon the employer for his continued

and allowances, as well as deductions and Social Security contributions

employment in that line of business.

[23]

from August 1, 1999 to December 18, 2000. [26] When petitioner was
designated General Manager, respondent corporation made a report to the

The proper standard of economic dependence is whether the

SSS signed by Irene Ballesteros. Petitioners membership in the SSS as

worker is dependent on the alleged employer for his continued employment

manifested by a copy of the SSS specimen signature card which was signed

in that line of business.

[24]

In the United States, the touchstone of economic

by the President of Kasei Corporation and the inclusion of her name in the

reality in analyzing possible employment relationships for purposes of the

on-line inquiry system of the SSS evinces the existence of an employer-

Federal Labor Standards Act is dependency.

[25]

By analogy, the benchmark

of economic reality in analyzing possible employment relationships for

purposes of the Labor Code ought to be the economic dependence of the
worker on his employer.

employee relationship between petitioner and respondent corporation.[27]

It is therefore apparent that petitioner is economically dependent

on respondent corporation for her continued employment in the latters line

the corporation, although once in a while she was required to sign prepared
documentation for the company.[30]

of business.
The second affidavit of Kamura dated March 7, 2002 which
In Domasig v. National Labor Relations Commission,[28] we held

repudiated the December 5, 2001 affidavit has been allegedly withdrawn

that in a business establishment, an identification card is provided not only

by Kamura himself from the records of the case. [31] Regardless of this fact,

as a security measure but mainly to identify the holder thereof as a bona

we are convinced that the allegations in the first affidavit are sufficient to

fide employee of the firm that issues it.Together with the cash vouchers

establish that petitioner is an employee of Kasei Corporation.

covering petitioners salaries for the months stated therein, these matters
constitute substantial evidence adequate to support a conclusion that
petitioner was an employee of private respondent.

Granting arguendo, that the second affidavit validly repudiated the

first one, courts do not generally look with favor on any retraction or
recanted testimony, for it could have been secured by considerations other

We likewise ruled in Flores v. Nuestro[29] that a corporation who

than to tell the truth and would make solemn trials a mockery and place the

registers its workers with the SSS is proof that the latter were the formers

investigation of the truth at the mercy of unscrupulous witnesses. [32] A

employees. The coverage of Social Security Law is predicated on the

recantation does not necessarily cancel an earlier declaration, but like any

existence of an employer-employee relationship.

other testimony the same is subject to the test of credibility and should be
received with caution.[33]

Furthermore, the affidavit of Seiji Kamura dated December 5, 2001

has clearly established that petitioner never acted as Corporate Secretary

Based on the foregoing, there can be no other conclusion that

and that her designation as such was only for convenience. The actual

petitioner is an employee of respondent Kasei Corporation. She was

nature of petitioners job was as Kamuras direct assistant with the duty of

selected and engaged by the company for compensation, and is

acting

secure

economically dependent upon respondent for her continued employment in

construction permits, license to operate and other requirements imposed

that line of business. Her main job function involved accounting and tax

by government agencies. Petitioner was never entrusted with corporate

services rendered to respondent corporation on a regular basis over an

documents of the company, nor required to attend the meeting of the

indefinite

corporation. She was never privy to the preparation of any document for

engaged petitioner for compensation, with the power to dismiss her for

as

Liaison

Officer

in

representing

the

company

to

period

of

engagement. Respondent

corporation

hired

and

cause. More importantly, respondent corporation had the power to control

petitioner with the means and methods by which the work is to be
accomplished.

In affording full protection to labor, this Court must ensure equal

work opportunities regardless of sex, race or creed. Even as we, in every
case, attempt to carefully balance the fragile relationship between

The corporation constructively dismissed petitioner when it

employees and employers, we are mindful of the fact that the policy of the

reduced her salary by P2,500 a month from January to September

law is to apply the Labor Code to a greater number of employees. This

2001. This amounts to an illegal termination of employment, where the

would enable employees to avail of the benefits accorded to them by law,

petitioner is entitled to full backwages. Since the position of petitioner as

in line with the constitutional mandate giving maximum aid and protection

accountant is one of trust and confidence, and under the principle of

to labor, promoting their welfare and reaffirming it as a primary social

strained relations, petitioner is further entitled to separation pay, in lieu of

economic force in furtherance of social justice and national development.

reinstatement.[34]
A diminution of pay is prejudicial to the employee and amounts to

WHEREFORE,

the

petition

is GRANTED. The

Decision

and

constructive dismissal. Constructive dismissal is an involuntary resignation

Resolution of the Court of Appeals dated October 29, 2004 and October 7,

resulting in cessation of work resorted to when continued employment

2005, respectively, in CA-G.R. SP No. 78515 are ANNULLED and SET

becomes impossible, unreasonable or unlikely; when there is a demotion in

ASIDE. The Decision of the National Labor Relations Commission dated

rank or a diminution in pay; or when a clear discrimination, insensibility or

April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The case

disdain by an employer becomes unbearable to an employee. [35] In Globe

is REMANDED to the Labor Arbiter for the recomputation of petitioner

Telecom, Inc. v. Florendo-Flores,

[36]

we ruled that where an employee ceases

Angelina Franciscos full backwages from the time she was illegally

to work due to a demotion of rank or a diminution of pay, an unreasonable

terminated until the date of finality of this decision, and separation pay

situation arises which creates an adverse working environment rendering it

representing one-half month pay for every year of service, where a fraction

impossible for such employee to continue working for her employer. Hence,

of at least six months shall be considered as one whole year.

her severance from the company was not of her own making and therefore
amounted to an illegal termination of employment.

SO ORDERED.