SECOND DIVISION

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

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

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

Francisco D. Estrada for petitioners.

Romero A. Yu for private respondents.

SYNOPSIS

It appeared that petitioners worked as barbers and manicurists in New

Look Barber Shop. Upon incorporation of the Lao Enteng Co. in 1982,
respondents-owners of the company took over the assets, equipments and
properties of the New Look Barber Shop and continued the business of their
father. Sometime in April, 1995, petitioners' services had to be terminated
because the barber shop was closed due to serious losses.

Petitioners filed complaint for illegal dismissal against respondents

praying for illegal deduction, separation pay, 13th month pay and salary
differentials. The Labor Arbiter and the NLRC dismissed the complaint, finding:
there was no employer-employee relationship between respondent and
petitioners; and respondent had no control over petitioners who were free to
come and go as they wished.
The Supreme Court ruled that petitioners were employees of respondent
company, because: they were not carrying on an independent business but
were performing work necessary and desirable in the business of the
respondent company; respondent company's control over petitioners refers to
the existence of the power and not necessarily the actual exercise thereof;
respondent company and/or private respondents took over the barber shop
owned by their father, retained the services of the petitioners and continuously
paid their wages for fifteen (15) years; it is unlikely that respondent company
would report petitioners as their workers and pay SSS contributions and their
wages if it were not true that they were employees; finally, petitioners are
entitled only to separation and 13th month pay because the barber shop was
closed due to serious losses.

SYLLABUS

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

INDEPENDENT CONTRACTOR, DEFINED. — An independent contractor is one
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 who undertakes "job contracting," i.e., a person who (a) carries on an
independent business and undertakes the contract work on his own account
under his own responsibility according to his own manner and method, free
from the control and direction of his employer or principal in all matters
connected with the performance of the work except as to the results thereof,
and (b) has substantial capital or investment in the form of tools, equipment,
machineries, work premises, and other materials which are necessary in the
conduct of the business.
2. ID.; ID.; EMPLOYER-EMPLOYEE RELATIONSHIP, PRESENT IN CASE AT
BAR. — The following elements must be present for an employer-employee
relationship to exist: (1) the selection and engagement of the workers; (2)
power of dismissal; (3) the payment of wages by whatever means; and (4) the
power to control the worker's conduct, with the latter assuming primacy in the
overall consideration. Records of the case show that the late Vicente Lao
engaged the services of the petitioners to work as barbers and manicurists in
the New Look Barber Shop, then a single proprietorship owned by him; that in
January 1982, his children organized a corporation which they registered with
the Securities and Exchange Commission as Lao Enteng Company, Inc.; that
upon its incorporation, it took over the assets, equipment, and properties of the
New Look Barber Shop and continued the business; that the respondent
company retained the services of all the petitioners and continuously paid their
wages. Clearly, all three elements exist in petitioners' and private respondent's
working arrangements. . . . As to the "control test," the following facts
indubitably reveal that respondent company wielded control over the work
performance of petitioners, in that: (1) they worked in the barber shop owned
and operated by the respondents; (2) they were required to report daily and
observe definite hours of work; (3) they were not free to accept other
employment elsewhere but devoted their full time working in the New Look
Barber Shop for all the fifteen (15) years they have worked until April 15, 1995;
(4) that some have worked with respondents as early as in the 1960's; (5) that
petitioner Patricia Nas was instructed by the respondents to watch the other six
(6) petitioners in their daily task. Certainly, respondent company was clothed
with the power to dismiss any or all of them for just and valid cause. Petitioners
were unarguably performing work necessary and desirable in the business of
the respondent company.
3. ID.; ID.; ID.; POWER TO CONTROL WORKERS' CONDUCT; ACTUAL
EXERCISE THEREOF IS NOT NECESSARY. — The power to control refers to the
existence of the power and not necessarily to the actual exercise thereof, nor is
it essential for the employer to actually supervise the performance of duties of
the employee. It is enough that the employer has the right to wield that power.
4. ID.; ID.; TERMINATION OF EMPLOYMENT; CLOSURE DUE TO SERIOUS
BUSINESS LOSSES; VALIDITY THEREOF. — We agree with the labor arbiter that
there was sufficient evidence that the barber shop was closed due to serious
business losses and respondent company closed its barber shop because the
building where the barber shop was located was sold. An employer may adopt
policies or changes or adjustments in its operations to insure profit to itself or
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 protect investment of its stockholders. In the exercise of such management
prerogative, the employer may merge or consolidate its business with another,
or sell or dispose all or substantially all of its assets and properties which may
bring about the dismissal or termination of its employees in the process. CAaSED

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

DECISION

QUISUMBING, J : p

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

The records of the case show that the five male petitioners, namely, Osias
I. Corporal, Sr., Pedro Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio
Pedelos worked as barbers, while the two female petitioners, Teresita Flores
and Patricia Nas worked as manicurists in New Look Barber Shop located at 651
P. Paterno Street, Quiapo, Manila owned by private respondent Lao Enteng Co.
Inc. Petitioner Nas alleged that she also worked as watcher and marketer of
private respondent.
Petitioners claim that at the start of their employment with the New Look
Barber Shop, it was a single proprietorship owned and managed by Mr. Vicente
Lao. In or about January 1982, the children of Vicente Lao organized a
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 corporation which was registered with the Securities and Exchange Commission
as Lao Enteng Co. Inc. with Trinidad Ong as President of the said corporation.
Upon its incorporation, the respondent company took over the assets,
equipment, and properties of the New Look Barber Shop and continued the
business. All the petitioners were allowed to continue working with the new
company until April 15, 1995 when respondent Trinidad Ong informed them
that the building wherein the New Look Barber Shop was located had been sold
and that their services were no longer needed. 2

On April 28, 1995, petitioners filed with the Arbitration Branch of the
NLRC, a complaint for illegal dismissal, illegal deduction, separation pay, non-
payment of 13th month pay, and salary differentials. Only petitioner Nas asked
for payment of salary differentials as she alleged that she was paid a daily
wage of P25.00 throughout her period of employment. The petitioners also
sought the refund of the P1.00 that the respondent company collected from
each of them daily as salary of the sweeper of the barber shop.

Private respondent in its position paper averred that the petitioners were
joint venture partners and were receiving fifty percent commission of the
amount charged to customers. Thus, there was no employer-employee
relationship between them and petitioners. And assuming arguendo, that there
was an employer-employee relationship, still petitioners are not entitled to
separation pay because the cessation of operations of the barber shop was due
to serious business losses.

Respondent Trinidad Lao Ong, President of respondent Lao Enteng Co.

Inc., specifically stated in her affidavit dated September 06, 1995 that Lao
Enteng Company, Inc. did not take over the management of the New Look
Barber Shop, that after the death Lao Enteng petitioner were verbally informed
time and again that the partnership may fold up anytime because nobody in the
family had the time to be at the barber shop to look after their interest; that
New Look Barber Shop had always been a joint venture partnership and the
operation and management of the barber shop was left entirely to petitioners;
that her father's contribution to the joint venture included the place of
business, payment for utilities including electricity, water, etc. while petitioners
as industrial partners, supplied the labor; and that the barber shop was allowed
to remain open up to April 1995 by the children because they wanted to give
the partners a chance at making it work. Eventually, they were forced to close
the barber shop because they continued to lose money while petitioners earned
from it. Trinidad also added that private respondents had no control over
petitioners who were free to come and go as they wished. Admittedly too by
petitioners they received fifty percent to sixty percent of the gross paid by
customers. Trinidad explained that some of the petitioners were allowed to
register with the Social Security System as employees of Lao Enteng Company,
Inc. only as an act of accommodation. All the SSS contributions were made by
petitioners. Moreover, Osias Corporal, Elpidio Lacap and Teresita Flores were
not among those registered with the Social Security System. Lastly, Trinidad
avers that without any employee-employer relationship petitioners claim for
13th month pay and separation pay have no basis in fact and in law. 3
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 In a Decision dated September 28, 1995, Labor Arbiter Potenciano S.
Cañizares, Jr. ordered the dismissal of the complaint on the basis of his findings
that the complainants and the respondents were engaged in a joint venture and
that there existed no employer-employee relation between them. The Labor
Arbiter also found that the barber shop was closed due to serious business
losses or financial reverses and consequently declared that the law does not
compel the establishment to pay separation pay to whoever were its
employees. 4
On appeal, NLRC affirmed the said findings of the Labor Arbiter and
dismissed the complaint for want of merit, ratiocinating thus:
Indeed, complainants failed to show the existence of employer-
employee relationship under the four-way test established by the
Supreme Court. It is a common practice in the Barber Shop industry
that barbers supply their own scissors and razors and they split their
earnings with the owner of the barber shop. The only capital of the
owner is the place of work whereas the barbers provide the skill and
expertise in servicing customers. The only control exercised by the
owner of the barber shop is to ascertain the number of customers
serviced by the barber in order to determine the sharing of profits. The
barbers may be characterized as independent contractors because
they are under the control of the barber shop owner only with respect
to the result of the work, but not with respect to the details or manner
of performance. The barbers are engaged in an independent calling
requiring special skills available to the public at large. 5

Its motion for reconsideration denied in the Resolution 6 dated March 5,

1997, petitioners filed the instant petition assigning that the NLRC committed
grave abuse of discretion in:
I. ARBITRARILY DISREGARDING SUBSTANTIAL EVIDENCE PROVING
THAT PETITIONERS WERE EMPLOYEES OF RESPONDENT
COMPANY IN RULING THAT PETITIONERS WERE INDEPENDENT
CONTRACTORS. DacASC

II. NOT HOLDING THAT PETITIONERS WERE ILLEGALLY DISMISSED

AND IN NOT AWARDING THEIR MONEY CLAIMS. 7

Petitioners principally argue that public respondent NLRC gravely erred in

declaring that the petitioners were independent contractors. They contend that
they were employees of the respondent company and cannot be considered as
independent contractors because they did not carry on an independent
business. They did not cut hair, manicure, and do their work in their own
manner and method. They insist they were not free from the control and
direction of private respondents in all matters, and their services were engaged
by the respondent company to attend to its customers in its barber shop.
Petitioners also stated that, individually or collectively, they do not have
substantial capital nor investments in tools, equipments, work premises and
other materials necessary in the conduct of the barber shop. What the barbers
owned were merely combs, scissors, and razors, while the manicurists owned
only nail cutters, nail polishes, nippers and cuticle removers. By no standard
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 can these be considered "substantial capital" necessary to operate a barbers
shop.
Finally, petitioners fault the NLRC for arbitrarily disregarding substantial
evidence on record showing that petitioners Pedro Tolentino, Manuel Caparas,
Simplicio Pedelos, and Patricia Nas were registered with the Social Security
System as regular employees of the respondent company. The SSS
employment records in common show that the employer's ID No. of Vicente
Lao/Barber and Pawn Shop was 03-0606200-1 and that of the respondent
company was 03-8740074-7. All the foregoing entries in the SSS employment
records were painstakingly detailed by the petitioners in their position paper
and in their memorandum appeal but were arbitrarily ignored first by the Labor
Arbiter and then by the respondent NLRC which did not even mention said
employment records in its questioned decision.
We found petition is impressed with merit.
In our view, this case is an exception to the general rule that findings of
facts of the NLRC are to be accorded respect and finality on appeal. We have
long settled that this Court will not uphold erroneous conclusions unsupported
by substantial evidence. 8 We must also stress that where the findings of the
NLRC contradict those of the labor arbiter, the Court, in the exercise of its
equity jurisdiction, may look into the records of the case and reexamine the
questioned findings. 9
The issues raised by petitioners boil down to whether or not an employer-
employee relationship existed between petitioners and private respondent Lao
Enteng Company, Inc. The Labor Arbiter has concluded that the petitioners and
respondent company were engaged in a joint venture. The NLRC concluded
that the petitioners were independent contractors. cHaDIA

The Labor Arbiter's findings that the parties were engaged in a joint
venture is unsupported by any documentary evidence. It should be noted that
aside from the self-serving affidavit of Trinidad Lao Ong, there were no other
evidentiary documents, nor written partnership agreements presented. We
have ruled that even the sharing of proceeds for every job of petitioners in the
barber shop does not mean they were not employees of the respondent
company. 10
Petitioner aver that NLRC was wrong when it concluded that petitioners
were independent contractors simply because they supplied their own working
implements, shared in the earnings of the barber shop with the owner and
chose the manner of performing their work. They stressed that as far as the
result of their work was concerned the barber shop owner controlled them.
An independent contractor is one who undertakes "job contracting," i.e., a
person who (a) carries on an independent business and undertakes the contract
work on his own account under his own responsibility according to his own
manner and method, free from the control and direction of his employer or
principal in all matters connected with the performance of the work except as
to the results thereof, and (b) has substantial capital or investment in the form
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 of tools, equipment, machineries, work premises, and other materials which are
necessary in the conduct of the business. 11
Juxtaposing this provision vis-a-vis the facts of this case, we are
convinced that petitioners are not "independent contractors." They did not
carry on an independent business. Neither did they undertake cutting hair and
manicuring nails, on their own as their responsibility, and in their own manner
and method. The services of the petitioners were engaged by the respondent
company to attend to the needs of its customers in its barber shop. More
importantly, the petitioners, individually or collectively, did not have a
substantial capital or investment in the form of tools, equipment, work
premises and other materials which are necessary in the conduct of the
business of the respondent company. What the petitioners owned were only
combs, scissors, razors, nail cutters, nail polishes, the nippers — nothing else.
By no standard can these be considered substantial capital necessary to
operate a barber shop. From the records, it can be gleaned that petitioners
were not given work assignments in any place other than at the work premises
of the New Look Barber Shop owned by the respondent company. Also,
petitioners were required to observe rules and regulations of the respondent
company pertaining, among other things, observance of daily attendance, job
performance, and regularity of job output. The nature of work performed by
were clearly directly related to private respondent's business of operating
barber shops. Respondent company did not dispute that it owned and operated
three (3) barber shops. Hence, petitioners were not independent contractors.

Did an employee-employer relationship exist between petitioners and

private respondent? The following elements must be present for an employer-
employee relationship to exist: (1) the selection and engagement of the
workers; (2) power of dismissal; (3) the payment of wages by whatever means;
and (4) the power to control the worker's conduct, with the latter assuming
primacy in the overall consideration. Records of the case show that the late
Vicente Lao engaged the services of the petitioners to work as barbers and
manicurists in the New Look Barber Shop, then a single proprietorship owned
by him; that in January 1982, his children organized a corporation which they
registered with the Securities and Exchange Commission as Lao Enteng
Company, Inc.; that upon its incorporation, it took over the assets, equipment,
and properties of the New Look Barber Shop and continued the business; that
the respondent company retained the services of all the petitioners and
continuously paid their wages. Clearly, all three elements exist in petitioners'
and private respondent's working arrangements. THaDAE

Private respondent claims it had no control over petitioners. The power to

control refers to the existence of the power and not necessarily to the actual
exercise thereof, nor is it essential for the employer to actually supervise the
performance of duties of the employee. It is enough that the employer has the
right to wield that power. 12 As to the "control test," the following facts
indubitably reveal that respondent company wielded control over the work
performance of petitioners, in that: (1) they worked in the barber shop owned
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 and operated by the respondents; (2) they were required to report daily and
observe definite hours of work; (3) they were not free to accept other
employment elsewhere but devoted their full time working in the New Look
Barber Shop for all the fifteen (15) years they have worked until April 15, 1995;
(4) that some have worked with respondents as early as in the 1960's; (5) that
petitioner Patricia Nas was instructed by the respondents to watch the other six
(6) petitioners in their daily task. Certainly, respondent company was clothed
with the power to dismiss any or all of them for just and valid cause. Petitioners
were unarguably performing work necessary and desirable in the business of
the respondent company.

While it is no longer true that membership to SSS is predicated on the

existence of an employee-employer relationship since the policy is now to
encourage even the self-employed dressmakers, manicurists and jeepney
drivers to become SSS members, we could not agree with private respondents
that petitioners were registered with the Social Security System as their
employees only as an accommodation. As we have earlier mentioned private
respondent showed no proof to their claim that petitioners were the ones who
solely paid all SSS contributions. It is unlikely that respondents would report
certain persons as their workers, pay their SSS premium as well as their wages
if it were not true that they were indeed their employees. 13
Finally, we agree with the labor arbiter that there was sufficient evidence
that the barber shop was closed due to serious business losses and respondent
company closed its barber shop because the building where the barber shop
was located was sold. An employer may adopt policies or changes or
adjustments in its operations to insure profit to itself or protect investment of
its stockholders. In the exercise of such management prerogative, the employer
may merge or consolidate its business with another, or sell or dispose all or
substantially all of its assets and properties which may bring about the
dismissal or termination of its employees in the process. 14
Prescinding from the above, we hold that the seven petitioners are
employees of the private respondent company; as such, they are to be
accorded the benefits provided under the Labor Code, specifically Article 283
which mandates the grant of separation pay in case of closure or cessation of
employer's business which is equivalent to one (1) month pay for every year of
service. 15 Likewise, they are entitled to the protection of minimum wage
statutes. Hence, the separation pay due them may be computed on the basis of
the minimum wage prevailing at the time their services were terminated by the
respondent company. The same is true with respect to the 13th month pay. The
Revised Guidelines on the Implementation of the 13th Month Pay Law states
that "all rank and file employees are now entitled to a 13th month pay
regardless of the amount of basic salary that they receive in a month. Such
employees are entitled to the benefit regardless of their designation or
employment status, and irrespective of the method by which their wages are
paid, provided that they have worked for at least one (1) month during a
calendar year" and so all the seven (7) petitioners who were not paid their 13th
month pay must be paid accordingly. 16
CD Technologies Asia, Inc. © 2021 cdasiaonline.com
 Anent the other claims of the petitioners, (such as the P10,000.00 as
penalty for non-compliance with procedural process; P10,000.00 as moral
damages; refund of P1.00 per day paid to the sweeper; salary differentials for
petitioner Nas; attorney's fees), we find them without basis. HaDEIc

IN VIEW WHEREOF, the petition is GRANTED. The public respondent's

Decision dated October 17, 1996 and Resolution dated March 05, 1997 are SET
ASIDE. Private respondents are hereby ordered to pay, severally and jointly, the
seven (7) petitioners their (1) 13th month pay and (2) separation pay
equivalent to one month pay for every year of service, to be computed at the
then prevailing minimum wage at the time of their actual termination which
was April 15, 1995.

Costs against private respondents.

SO ORDERED.
Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

Footnotes
1. Per Commissioner Alberto R. Quimpo and concurred in by Presiding
Commissioner Bartolome S. Carale and Commissioner Vicente S E. Veloso.
2. Rollo, pp. 5-7.
3. Rollo, pp. 115-119.
4. Id. at 84-85.
5. Id. at 122.

6. Id. at 128-130.
7. Id. at 11.
8. Anino vs. NLRC, 290 SCRA 489, 499-500 (1998).
9. Paz Martin Jo vs. NLRC, G.R. No. 121605, February 02, 2000, p.7.

10. Labor Congress of the Philippines vs. NLRC, 290 SCRA 509, 528 (1998); San
Miguel Jeepney Service vs. NLRC, 265 SCRA 35 (1998).
11. Section 8, Rule VIII, Book III, of the Omnibus Rules Implementing the Labor
Code; Ponce vs. NLRC, 293 SCRA 366, 374-375 (1998).
12. Paz Martin Jo and Cesar Jo vs. NLRC , G.R. No. 121605, February 02, 2000, p. 5.

13. Nagusara vs. NLRC, 290 SCRA 245, 251 (1998).

14. Associated Labor Unions-VIMCONTU vs. NLRC, 204 SCRA 913, 923 (1991).
15. Phil. Tobacco Flue-Curing & Redrying Corp. vs. NLRC, 300 SCRA 37, 55 (1998)
16. See Sec. 1, P.D. 851; Osias Academy vs. DOLE, 192 SCRA 612, 619 (1990);
Dentech Mfg. Corp. vs. NLRC, 172 SCRA 588 (1989).

CD Technologies Asia, Inc. © 2021 cdasiaonline.com