Case 38

Ruben Serrano, petitioner,

vs.
National Labor Relations Commission, respondent.

G.R. No. 117040, January 27, 2000

FACTS

Petitioner Ruben Serrano was hired by private respondent Isetann Department Store as a security
checker to apprehend shoplifters and prevent pilferage of merchandise. Initially hired on October 4,
1984 on contractual basis, petitioner eventually became a regular employee on April 4, 1985. In 1988,
he became head of the Security Checkers Section of private respondent. Sometime in 1991, as a cost-
cutting measure, private respondent decided to phase out its entire security section and engage the
services of an independent security agency. The loss of employment prompted petitioner to file a
complaint for illegal dismissal, illegal layoff, unfair labor practice, underpayment of wages, and
nonpayment of salary and overtime pay. The Labor Arbiter (LA) found petitioner to have been illegally
dismissed. He ruled that private respondent failed to establish that it had retrenched its security section
to prevent or minimize losses to its business; that private respondent failed to accord due process to
petitioner; that private respondent failed to use reasonable standards in selecting employees whose
employment would be terminated; that private respondent had not shown that petitioner and other
employees in the security section were so inefficient so as to justify their replacement by a security
agency. Private respondent appealed to the NLRC, which reversed the decision of the LA. The NLRC held
that the phase-out of private respondent’s security section and the hiring of an independent security
agency constituted an exercise by private respondent of a legitimate business decision.

ISSUE

Whether or not the abolition of the Security Checkers Section and the engagement of a security agency
is a valid exercise of a management prerogative. (Yes)

RULING

Yes, the abolition of the Security Checkers Section and the engagement of a security agency is a valid
exercise of a management prerogative.

Article 283 of the Labor Code states in part that the employer may terminate the employment of any
employee due to, among others, the installation of labor-saving devices, redundancy, retrenchment to
prevent losses or the closing or cessation of operation of the establishment or undertaking unless the
closing is for the purpose of circumventing the provisions of this Title (on termination of employment).
In case of termination due to the installation of labor-saving devices or redundancy, the worker affected
thereby shall be entitled to a separation pay equivalent to at least his one (1) month pay or to at least
one (1) month pay for every year of service, whichever is higher.
Further, the Supreme Court held that the management of a company cannot be denied the faculty of
promoting efficiency and attaining economy by a study of what units are essential for its operation. To
it belongs the ultimate determination of whether services should be performed by its personnel or
contracted to outside agencies. While there should be mutual consultation, eventually deference is to
be paid to what management decides. Consequently, absent proof that management acted in a malicious
or arbitrary manner, the Court will not interfere with the exercise of judgment by an employer.

In the case at bar, the Court has only the bare assertion of petitioner that, in abolishing the security
section, private respondent’s real purpose was to avoid payment to the security checkers of the wage
increases provided in the collective bargaining agreement approved in 1990. Such an assertion is not
sufficient basis for concluding that the termination of petitioner’s employment was not a bona fide
decision of management to obtain reasonable return from its investment, which is a right guaranteed
to employers under the Constitution. Indeed, that the phase-out of the security section constituted a
“legitimate business decision” is a factual finding of an administrative agency which must be accorded
respect and even finality by this Court since nothing can be found in the record which fairly detracts
from such finding. Accordingly, the Court held that the termination of petitioner’s services was for an
authorized cause, i.e., redundancy. Hence, pursuant to Article 283 of the Labor Code, petitioner should
be given separation pay at the rate of one month pay for every year of service.

The petition is granted.

 CASE NO. 39

FRANKLIN BAGUIO AND 15 OTHERS, BONIFACIO IGOT AND 6 OTHERS, ROY MAGALLANES AND
4 OTHERS, CLAUDIO BONGO, EDUARDO ANDALES and 4 OTHERS, Petitioners, v. NATIONAL
LABOR RELATIONS COMMISSION (3rd DIVISION), GENERAL MILLING CORPORATION and/or
FELICIANO LUPO, Respondents.
[G.R. Nos. 79004-08. October 4, 1991.]

FACTS:

Private respondent Feliciano LUPO, a building contractor, entered into a contract with GMC, a domestic
corporation engaged in flour and feeds manufacturing, for the construction of an annex building inside
the latter’s plant in Cebu City. In connection with the aforesaid contract, LUPO hired herein petitioners
either as carpenters, masons or laborers.

LUPO terminated petitioners’ services, on different dates. As a result, petitioners filed Complaints
against LUPO and GMC before the NLRC for unpaid wages, COLA differentials, bonus and overtime pay.
Executive Labor Arbiter found LUPO and GMC jointly and severally liable to petitioners. However, the
Third Division NLRC absolved GMC from any liability. It opined that petitioners were only hired by
LUPO as workers in his construction contract with GMC and were never meant to be employed by the
latter. Hence, the Petition for Certiorari.

ISSUE:

Whether or not there is a liability of an employer in job contracting, vis-a-vis his contractor’s employees.
YES

RULING:

The Supreme Court upheld the solidary liability of GMC and LUPO for the latter’s liabilities in favor of
employees whom he had earlier employed and dismissed. Recovery, however, should not be based on
Article 106 of the Labor Code. This provision treats specifically of "labor-only" contracting, which is not
the set-up between GMC and LUPO.

Art. 106. Contractor or subcontractor. — Whenever an employer enters into a contract with another
person for the performance of the former’s work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his employees in accordance
with this Code, the employer shall be jointly and severally liable with his contractor or subcontractor to
such employees to the extent of the work performed under the contract, in the same manner and extent
that he is liable to employees directly employed by him.

In other words, a person is deemed to be engaged in "labor-only" contracting where (1) the person
supplying workers to an employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others; and (2) the workers recruited and placed by
such person are performing activities which are directly related to the principal business of such
employer.

Here, Since the construction of an annex building inside the company plant has no relation whatsoever
with the employer’s business of flour and feeds manufacturing, "labor-only" contracting does not exist.
Article 106 is thus inapplicable. Instead, it is "job contracting," covered by Article 107.

Art. 107. Indirect Employer. — The provisions of the immediately preceding Article shall likewise apply
to any person, partnership, association or corporation which, not being an employer, contracts with an
independent contractor for the performance of any work, task, job or project.

In this case, GMC qualifies as an "indirect employer." It entered into a contract with an independent
contractor, LUPO, for the construction of an annex building, a work not directly related to GMC’s
business of flour and feeds manufacturing. Being an "indirect employer," GMC is solidarily liable with
LUPO for any violation of the Labor Code.

The distinction between Articles 106 and 107 lies in the fact that Article 106 deals with "labor-only"
contracting. Here, by operation of law, the contractor is merely considered as an agent of the employer,
who is deemed "responsible to the workers to the same extent as if the latter were directly employed
by him." On the other hand, Article 107 deals with" job contracting." In the latter situation, while the
contractor himself is the direct employer of the employees, the employer is deemed, by operation of
law, as an indirect employer.

Petition for Certiorari is granted.

 Case 40
AURORA LAND PROJECTS CORP. Doing business under the name "AURORA PLAZA" and
TERESITA T. QUAZON, petitioners,
vs.
NATIONAL LABOR RELATIONS COMMISSION and HONORIO DAGUI, respondents.
G.R. No. 114733 January 2, 1997

FACTS:

Private respondent Honorio Dagui, worked as maintenance and repair man of the Tanjangco
apartments and residential buildings for 38 years. He started in 1953 when he was hired by Doña
Aurora Suntay Tanjangco. He was to perform carpentry, plumbing, electrical and masonry work. Upon
the death of Doña Aurora Tanjangco, her daughter, petitioner Teresita Tanjangco Quazon, took over the
administration of all the Tanjangco properties. One day, Dagui was told by petitioner Teresita that his
work was unsatisfactory and dismissed him. Dagui filed a complaint for illegal dismissal with the Labor
Arbiter who in turn ruled in favor of him for separation and attorneys fees.

Aggrieved, petitioners Aurora Land Projects Corporation and Teresita appealed to the NLRC. The NLRC
affirmed the decision of the Labor Arbiter but lowered the separation pay and deleted the attorney’s
fees. Petitioners thus file the petition for certiorari implicating NLRC with grave abuse of discretion.

ISSUES:
1. Whether or not private respondent Honorio Dagui was an employee of petitioners. (YES)
2. Whether or not he was illegally dismissed. (YES)

RULING:
1. The Court ruled that Dagui was an employee of the petitioners. The Court, consistent with the
Labor Arbiter and NLRC’s ruling, is not convinced that private respondent is only a contractual
employee. To qualify as a contractual one employee, one must have substantial capital
investment. Petitioners showed no proof that private respondent was a contractual employee.
The same ruling based on fact is within the jurisdiction of the Labor Arbiter and NLRC. All the
elements of the four-fold test or “control test” in identifying employer-employee
relationship: (a) the selection and engagement of the employee; (b) the payment of wages; (c)
the power of dismissal; and (d) the employer's power to control the employee's conduct are
present in the instant case.

Dagui was not compensated in terms of profits for his labor or services like an independent
contractor. Rather, he was paid on a daily wage basis at the rate of P180.00. Employees are those who
are compensated for
their labor or services by wages rather than by profits. The fact the private respondent was paid on a
daily basis admits that he is an employee compensated by way of wages and not by profit. The petitioner
had indeed the power of dismissal over private respondent. The mere existence of the power of control
is enough to show its
compliance with the four-fold test. This is the case with petitioner and the same is not negated by the
fact the petitioner does not directly supervise the performance of the private respondent.
Dagui works between 7AM to 4PM within the premises of the petitioner, and thus, naturally has
to receive supervision over his work from the petitioner. There are two ways to determine a regular
employee, and whichever is applied does not negate the fact that private respondent is a regular
employee by definition - “an employment shall be deemed to be regular where the employee has been
engaged to perform activities which are usually necessary or desirable in the usual business or trade of
the employer” and that “any employee who has rendered at least one year of service, whether such
service is continuous or broken, shall be considered a regular employee” (Art. 280, Labor Code).
The mere fact that Dagui rendered service for the Tanjangcos for more than one year, that is, beginning
1953 until 1982, under Doña Aurora; and then from 1982 up to June 8, 1991 under the petitioners, for
a total of twenty-nine (29) and nine (9) years respectively. Owing to private respondent's length of
service, he became a regular employee, by operation of law, one year after he was employed in 1953
and subsequently in 1982.

The petitioners contest that private respondent Dagui is not a regular employee by reason that he
performs a specific job function and only while the same exists, falling as an exception to Art. 280. The
same argument is disproved by petitioners act of not submitting a mandatory “report of termination”
for their alleged project employee, private respondent.
 Case 41
FRANCISCO U. NAGUSARA, MARQUITO L. PAMILARA and DIOSCORO D. CRUZ, petitioners, vs.
THENATIONAL LABOR RELATIONS COMMISSION, LORENZO DY AND OTHERS and ISAYAS
AMURAO, respondents.
G.R. Nos. 117936-37, May 20, 1998

Jesse Cabanacan
FACTS:
Petitioners alleged that they were hired as carpenters by Dynasty Steel Works owned by respondent
Dy. Dynasty was contracted by Solmac Marketing to construct its building.

Subsequently, petitioners were dismissed from work upon the order of respondent Dy.

Dy claimed that petitioners were not his employees but that of respondent Amurao whom he sub-
contracted to provide manpower for his construction project at the Solmac building. Dy also denied that
he terminated the services of petitioners. He alleged that the owner of Solmac building caught
petitioners drinking inside the company premises. Because of this, the owner sought the dismissal or
transfer of petitioners. Heeding the owner’s demand, respondent Amurao transferred petitioners to
another project. Petitioners refused and instead filed a complaint for illegal dismissal against
respondent Dy.

Petitioners filed a complaint against respondent Lorenzo Dy for illegal dismissal.

The Labor Arbiter rendered a decision finding that petitioners were illegally dismissed and ordered
respondent Dy to reinstate them.

Respondent Dy filed with the NLRC a “Motion for Reconsideration, Set Aside Decision and/or
Memorandum of Appeal.” The NLRC set aside the decision and remanded the case to the Labor Arbiter.

Dy impleaded respondent Amurao as co-respondent in accordance with Articles 106, 107 and 109 of
the Labor Code. He alleged that respondent Amurao was the real employer of petitioners because he
was the one who hired them in fulfillment of his obligation to provide manpower for respondent Dy’s
construction project.

The Labor Arbiter held that the termination of petitioners’ services was illegal.

On appeal, the NLRC set aside the decision of the Labor Arbiter, dismissing the complaint on the ground
that there was no employer-employee relationship between petitioners and respondent Dy. It held that
respondent Dy was only an indirect employer of petitioners as they were actually employed by
respondent Amurao whom respondent Dy subcontracted to provide labor for his construction project.
It also declared that petitioners were not illegally dismissed.

ISSUE: Whether or not respondent Amurao was a subcontractor of respondent Dy. (NO)

HELD:
The SC declared that the supposed sub-contract between respondent Dy and respondent Amurao was
merely a subterfuge to avoid respondent Dy’s obligations to petitioners. Records show that respondent
Amurao was not a legitimate job contractor engaged in the business of contracting out services to
clients.
According to jurisprudence, a legitimate job contractor is one who: (1) 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 (2) has
substantial capital or investment in the form of tools, equipment, machineries, work premises, and
other materials which are necessary in the conduct of his business.

Here, respondent Amurao did not satisfy both requirements. It appears, instead, that respondent
Amurao was also an employee of respondent Dy who was tasked to screen and to supervise the workers
at respondent Dy’s construction project at Solmac. It is clear from the foregoing that petitioners were
employees of respondent Dy. Further, records reveal that there existed an employer-employee
relationship between petitioners and respondentDy. The individual Premium Certifications issued by
the SSS that Dynasty Steel Works declared petitioners as its employees for the purpose of paying their
premium. Dynasty paid petitioners’ premium, and the payroll of Dynasty included petitioners.

Neither are petitioners’ project employees as submitted by respondent Amurao. The principal test for
determining whether an employee is a project employee or a regular employee is whether or not the
project employee was assigned to carry out a specific project or undertaking, the duration and scope of
which were specified at the time the employee was engaged for that project. In this case, it does not
appear that respondent Dy informed petitioners at the time of their engagement about the specific
project or undertaking for which they were hired, as well as the duration and scope of such project.
Besides, the records show that petitioners, as carpenters, were performing activities necessary or
desirable in respondent Dy’s business. Petitioners should therefore be considered as regular employees
under Article 280.

Petitioners were illegally dismissed. In termination cases, the employer has the burden of proving that
there was just cause for the employee’s dismissal. In this case, respondent Dy did not present any other
witness to substantiate the statements contained in the affidavits. For dismissal to be legal, it must be
based on just cause which must be supported by clear and convincing evidence. Respondent Dy failed
to adduce clear and convincing evidence to support the legality of petitioners’ dismissal.

Based on the foregoing, the SC sustained the ruling of the Labor Arbiter decision and set aside the
resolution of the NLRC.
 CASE NO. 42

PCI Automation Center vs. NLRC

G.R. No. 115920, January 29, 1996

FACTS:
Philippine Commercial International Bank (PCIB) entered into a Computer Services Agreement with
petitioner PCI Automation Center, Inc. (PCI-AC) to link all existing computer systems within PCIB and
its various branches around the country. PCIB agreed to provide the PCI-AC with encoders and
computer attendants, among others.

PCIB engaged the services of Prime Manpower Resources Development, Inc. (Prime). PCIB and Prime
entered into an External Job Contract. On the other hand, Santelices (respondent) was hired by Prime
and assigned to PCI-AC as a data encoder to work on the project of PCIB. Six years later, Prime decided
to terminate the services of Santelices after it was informed by PCI-AC that his services were no longer
needed.

Santelices filed a complaint for illegal dismissal against Prime and PCI-AC. He prayed for the payment
of his 14th month pay, 13th month pay, separation pay, unpaid service incentive leave, unpaid vacation
leave, termination pay, as well as moral and exemplary damages and attorney's fees.

The Labor Arbiter found the dismissal of Santelices illegal and ordered that he be reinstated to his
former or equivalent position, or payment of separation pay if reinstatement is impractical. PCI-AC was
also ordered to pay in solidum the complainant for back wages, moral damage, exemplary damages and
attorney’s fees.

Prime and PCI-AC appealed to the NLRC

During the pendency of the appeal, Prime paid Santelices his separation pay in lieu of reinstatement.
Santelices waived his right to be reinstated to his former position in Prime and/or PCI-AC. Accordingly,
Prime and PCI-AC executed and filed before the office of the Labor Arbiter a document entitled "Partial
Satisfaction of Judgment and Waiver of Right".

The NLRC affirmed the Decision of the Labor Arbiter, but deleted the award of moral and exemplary
damages and attorney's fees. Hence, the present petition.

ISSUE: WON Prime is a Labor-Only Contractor? (YES)

RULING:
The External Job Contract between Prime and PCIB must be read in conjunction with the Computer
Services Agreement between PCIB and the PCI-AC. Although the parties in the External Job Contract are
only Prime and PCIB, the legal consequences of such contract must also be made to apply to the PCI-AC.

Under the circumstances, PCIB merely acted as a conduit between the PCI-AC and Prime. The project
was under the management and supervision of the PCI-AC and it was PCI-AC which exercised control
over the persons working on the project.
Under the law, any person (hereinafter referred to as the "principal employer") who enters into an
agreement with a job contractor, either for the performance of a specified work or for the supply of
manpower, assumes responsibility over the employees of the latter. However, for the purpose of
determining the extent of the principal employer's liability, the law makes a distinction between
legitimate job contracting and labor-only contracting as provided under Article 106 of the Labor Code.

In legitimate job contracting, no employer-employee relationship exists between the employees of the
job contractor and the principal employer. Even then, the principal employer becomes jointly and
severally liable with the job contractor for the payment of the employees' wages whenever the
contractor fails to pay the same. In such case, the law creates an employer-employee relationship
between the principal employer and the job contractor's employees for a limited purpose, that is, to
ensure that the employees are paid their wages. Other than the payment of wages, the principal
employer is not responsible for any claim made by the employees.

On the other hand, in labor-only contracting, an employer-employee relationship is created by law

between the principal employer and the employees of the labor-only contractor. In this case, the labor-
only contractor is considered merely an agent of the principal employer. The principal employer is
responsible to the employees of the labor-only contractor as if such employees had been directly
employed by the principal employer. The principal employer therefore becomes solidarily liable with
the labor-only contractor for all the rightful claims of the employees.

Thus, in legitimate job contracting, the principal employer is considered only an indirect employer,
while in labor-only contracting, the principal employer is considered the direct employer of the
employees.

Based on the terms of the External Job Contract executed by Prime and PCIB, Prime is a labor-only
contractor. Under the contract, Prime merely acted as a placement agency providing manpower to the
petitioner through PCIB. The service rendered by Prime in favor of the petitioner was not the
performance of a specific job, but the supply of qualified personnel to work as data encoders and
computer attendants in connection with the petitioner's project.

In short, the legitimate job contractor provides services while the labor-only contractor provides only
manpower. The legitimate job contractor undertakes to perform a specific job for the principal
employer while the labor-only contractor merely provides the personnel to work for the principal
employer.

As Prime is a labor-only contractor, the workers it supplied to the PCI-AC, including Santelices, should
be considered employees of the petitioner.

PCI-AC is solidarily liable with Prime for the payment of all the monetary claims of Santelices in
accordance with Article 106 of the Labor Code, as amended.
 Case 43

JAGUAR SECURITY and INVESTIGATION AGENCY, Petitioner, v. RODOLFO A. SALES, JAIME L.

MORON, MELVIN R. TAMAYO, JESUS B. SILVA, JR., DIONISIO C. CARANYAGAN, DANETH
FETALVERO and DELTA MILLING INDUSTRIES, INC., Respondents.

[G.R. NO. 162420 : April 22, 2008]

FACTS:

Petitioner Jaguar Security and Investigation Agency ("Jaguar") is a private corporation engaged in the
business of providing security services to its clients, one of whom is Delta Milling Industries, Inc.
("Delta").

Private respondents Rodolfo Sales, Melvin Tamayo, Dionisio Caranyagan, Jesus Silva, Jr., Jaime
Moron and Daneth Fetalvero were hired as security guards by Jaguar. They were assigned at the
premises of Delta in Libis, Quezon City. Caranyagan and Tamayo were terminated by Jaguar on May
26, 1998 and August 21, 1998, respectively. Allegedly their dismissals were arbitrary and illegal.
Sales, Moron, Fetalvero and Silva remained with Jaguar. All the guard-employees, claim for monetary
benefits such as underpayment, overtime pay, rest day and holiday premium pay, underpaid 13 th month
pay, night shift differential, five days service and incentive leave pay. In addition to these money claims,
Caranyagan and Tamayo argue that they were entitled to separation pay and back wages, for the time
they were illegally dismissed until finality of the decision. Furthermore, all respondents claim for moral
and exemplary damages.

Labor Arbiter rendered a decision in favor of private respondents Sales, et al., which ordered petitioners
to pay the respondents with the following money claims: wage differentials, overtime pay differentials
(4 hours a day), rest day pay, holiday pay, holiday premium pay, 13th month pay differentials, five days
service incentive leave pay per year subject to the exception earlier cited.

On July 1, 1999, petitioner Jaguar filed a partial appeal questioning the failure of public respondent
NLRC to resolve its cross-claim against Delta as the party ultimately liable for payment of the monetary
award to the security guards.

NLRC dismissed the appeal

A Petition for Certiorari with the CA which dismissed the petition for lack of merit.

ISSUE:

Whether or not Jaguar may claim reimbursement from Delta through a cross-claim filed with the labor
court.

RULING:

NO. There is no question as regards the respective liabilities of petitioner and Delta Milling. Under
Articles 106, 107 and 109 of the Labor Code, the joint and several liability of the contractor and the
principal is mandated to assure compliance of the provisions therein including the statutory minimum
wage. The contractor, petitioner in this case, is made liable by virtue of his status as direct
employer. On the other hand, Delta Milling, as principal, is made the indirect employer of the
contractor's employees for purposes of paying the employees their wages should the contractor
be unable to pay them. This joint and several liability facilitates, if not guarantees, payment of the
workers' performance of any work, task, job or project, thus giving the workers ample protection as
mandated by the 1987 Constitution.
The action is within the realm of civil law hence jurisdiction over the case belongs to the regular
courts. While the resolution of the issue involves the application of labor laws, reference to the
labor code was only for the determination of the solidary liability of the petitioner to the
respondent where no employer-employee relation exists.

The jurisdiction of labor courts extends only to cases where an employer-employee relationship exists.

In the present case, there exists no employer-employee relationship between petitioner and Delta
Milling. In its cross-claim, petitioner is not seeking any relief under the Labor Code but merely
reimbursement of the monetary benefits claims awarded and to be paid to the guard employees. There
is no labor dispute involved in the cross-claim against Delta Milling. Rather, the cross-claim involves a
civil dispute between petitioner and Delta Milling. Petitioner's cross-claim is within the realm of
civil law, and jurisdiction over it belongs to the regular courts.

Moreover, the liability of Delta Milling to reimburse petitioner will only arise if and when
petitioner actually pays its employees the adjudged liabilities. Payment, which means not only the
delivery of money but also the performance, in any other manner, of the obligation, is the operative fact
which will entitle either of the solidary debtors to seek reimbursement for the share which corresponds
to each of the debtors. In this case, it appears that petitioner has yet to pay the guard employees.
 Case 44
KAMAYA POINT HOTEL vs. NLRC, FEDERATION OF FREE WORKERS and MEMIA QUIAMBAO
G.R. No. 75289. August 31, 1989

FACTS: Respondent Memia Quiambao with thirty others who are members of private respondent
Federation of Free Workers (FFW) were employed by petitioner as hotel crew. On the basis of the
profitability of the company's business operations, management granted a 14th month pay to its
employees starting in 1979. In January 1982, operations ceased to give way to the hotel's
conversion into a training center for Libyan scholars. However, due to technical and financing
problems, the Libyans pre-terminated the program.

Although petitioner reopened the hotel premises to the public, it was not able to pick-up its lost
patronage. In a couple of months it effected a retrenchment program until finally closed its business.

On April 18, 1983, private respondent Federation of Free Workers (FFW); a legitimate labor
organization, filed with the Ministry of Labor and Employment a complaint against petitioner for
illegal suspension, violation of the CBA and non-payment of the 14th month pay.

ISSUE: Whether or not the employees are entitled to 14th month pay. (NO)

RULING: There is no law that mandates the payment of the 14th month pay. This is emphasized in the
grant of exemption under Presidential Decree 851 (13th Month Pay Law) which states: "Employers
already paying their employees a 13th month pay or its equivalent are not covered by this Decree."
Necessarily then, only the 13th month pay is mandated. Having enjoyed the additional income in the
form of the 13th month pay, private respondents' insistence on the 14th month pay for 1982 is already
an unwarranted expansion of the liberality of the law.

Also contractually, as gleaned from the collective bargaining agreement between management and the
union, there is no stipulation as to such extra remuneration. Evidently, this omission is an
acknowledgment that such benefit is entirely contilagent or dependent on the profitability of the
company's operations.

A 14th month pay is a misnomer because it is basically a bonus and, therefore, gratuitous in
nature. The granting of the 14th month pay is a management prerogative which cannot be forced upon
the employer. It is something given in addition to what is ordinarily received by or strictly due the
recipient. It is a gratuity to which the recipient has no right to make a demand.
 Case 45
Grey vs. Insular Lumber Company
G.R. No. L-535. September 28, 1953
Facts
Plaintiff, a consultant engineer in lumber business, and A. E. Edgcomb, President of the defendant
corporation, entered into a contract of employment the terms of which are contained in two letters.
The substantial contents of the first letter confirmed that plaintiff was to be given a position at a salary
of $10,000 per year, which is to start as soon as the plaintiff arrives at the mill. In addition to this, the
plaintiff is to receive a bonus the same as the other Americans who are also staff of the defendant when
the Insular pays dividends.
The substantial contents of the second letter also confirmed a supplemental letter that in addition to
the $10,000.00 salary and bonus referred to in the first letter, plaintiff was to receive P15,000.00 plus
the bonus at the end of the year, provided that, in the opinion of the President of the Company, plaintiff’s
services have benefited the Company to the extent of $100,000.00.
Pursuant to the terms of the contract of employment contained in the above letters, plaintiff came to
Fabrica, Negros Occidental and assumed his duties as lumber manufacturing expert. On August 3, 1929,
in addition to his original employment, he was designated general superintendent, and on October 1,
1929, he was made general manager to take the place of Alf Welhaven, then he eventually resigned, and
due to some disagreement with the president of the defendant, A. EEdgcomb, he was dismissed on
March 22, 1932. On October 30, 1939, he instituted the present action.
Plaintiff brought this action to recover from defendant certain amounts of money for services rendered
to the latter, among others is for his salary as lumber manufacturing expert, bonus, and expenses
incurred in the discharge of his duties in the amount of P64,372.85.

Issue
Whether or not the plaintiff is entitled to claim the said bonus under dispute. (YES)

Ruling
The contention of the plaintiff regarding the additional bonus of P10,000 should be upheld.
In the first place, this is apparent from the contract of employment embodied in the letters. Thus, in the
supplementary letter, the following stipulation appears: "In addition to the $10,000salary and bonus
referred to in my letter of this date, you are to receive $15,000 plus the bonus at the end of the year,
provided that, in the opinion of the President of the Company, your services have benefited the
Company to the extent of $100,000." In the foregoing stipulation it appears clear that the company
agreed to pay the plaintiff a bonus at the end of every year of service subject only to the condition
that his services should bring to the company a profit of not less than $100,000. This seems to be
the only condition for the granting of the bonus. Indeed, this condition is reasonable enough for, if that
profit is not obtained, or even if obtained but not through his services, the plaintiff would have no right
to the bonus stipulated. It is true that in the first letter, in referring to the payment of bonus, the
following sentence also appears, "you are to receive a bonus the same as the other Americans on our
staff when the insular pays dividend." But, as explained by the plaintiff, that sentence only meant that
the bonus should be computed in the manner the bonus given to other Americans is computed but not
that its payment should be dependent upon the giving of bonus to other American employees.
SC found that explanation reasonable considering the peculiar nature of the contract of employment of
the plaintiff with the company. For one thing, bonus is a voluntary act dependent upon the goodwill of
the employer. Here it ceased to be a unilateral act. It became contractual. Here it was clearly agreed
that a bonus may be given to the plaintiff provided that certain condition is met and if this condition is
met the obligation to pay the bonus cannot be eluded. It does not appear that a similar condition was
imposed upon other American employees, and there being no such showing, it is unfair to place the
plaintiff under a similar predicament more so when the condition imposed refers to the special service
to be rendered by the plaintiff
Considering that the plaintiff has rendered this service and has given to the company the profit expected
of him, it is fair and just that he be given the bonus to which he is entitled under the contract.
 Case 46
LUZON STEVEDORING CORPORATION, petitioner, vs.
THE COURT OF INDUSTRIAL RELATIONS and LUSTEVECO EMPLOYEES ASSOCIATION
CCLU, respondents.
G.R. No. L-17411 December 31, 1965

Facts
The Luzon Stevedoring Corporation (LUZON for short) recognized the Lusteveco Employees
Association-CCLU (hereafter called LEA) as the sole collective bargaining representative of its
employees. In June, 1958 LUZON dismissed eight security guards, all LEA members, for various offenses.
Without previous notice and/or demand LEA declared a strike against LUZON on June 11, 1958.
On December 22, 1958 LUZON suspended 7 security guards all of whom were LEA members and
filed a motion in the Court of Industrial Relations praying to make such suspensions into permanent
dismissals. The 1958 Christmas bonus was reduced from the usual 15 days. On January 2, 1959 LEA
charged LUZON before the Court of Industrial Relations with unfair labor practice allegedly consisting
of dismissal of LEA members, reduction of Christmas bonus, hiring of new security guards to lessen the
working days of union members, formation of a company union, shifting of union-members to other
jobs, non-payment of hospitalization expenses to union members, coercion and oppression to destroy
LEA and hiring of non-union members with overtime privileges. At midnight of January 2, 1959 LEA
went on strike — for the second time. No strike notice was filed with the Conciliation Service previous
to the strike.
The Court of Industrial Relations declared the strike of January 2, 1959 illegal. Among other
things, it declared that the reduction from fifteen (15) to ten (10) days Christmas bonus could not be
unfair labor practice considering the nature of the collective bargaining contracts then existing between
the parties — especially so, all workers similarly situated were affected.
Issue
Whether or not the reduction of the 1958 Christmas bonus is considered as an unfair labor practice
Ruling
No.
As a rule a bonus is an amount granted and paid to an employee for his industry and loyalty
which contributed to the success of the employers business and made possible the realization of profits.
It is an act of generosity for which the employee ought to be thankful and grateful. It is also granted by
an enlightened employer to spur the employee to greater efforts for the success of the business and
realization of bigger profits. From the legal point of view, a bonus is not a demandable and enforceable
obligation. It is so when it is made a part of the wage or salary or compensation. In such a case the latter
would be a fixed amount and the former would be a contingent one dependent upon the realization of
profits. If there be none, there would be no bonus.
Here, there is no showing that the Christmas bonus was made in the collective bargaining
agreement between LEA and LUZON a part of wages and salaries. Therefore, as stated above, the grant
of said bonus is contingent upon the profits realized during the year. The reduced 1958 Christmas bonus
was a necessary consequence of a reduced profit in that year. And there being no clear showing that the
reduction of the bonus was aimed to discriminate against LEA members, the trial court's finding that
such reduction constituted no anti-union activity should not be disturbed.
 Case 47
PHILIPPINE EDUCATION Co., INC., petitioner, vs. COURT OF INDUSTRIAL RELATIONS and UNION
OF PHILIPPINE EDUCATION EMPLOYEES (NLU), respondents.
G.R. No. L-5679, November 28, 1953

Jesse Cabanacan
FACTS:
On August 8, 1950, the Union of the Philippine Education Employees (NLU) filed a petition in the Court
of Industrial Relations for arbitration and adjudication of 17 demands. Three remaining demands (No.
1, No. 6 and No. 13) are involved in the instant proceedings, the rest having been resolved to the
satisfaction of the parties.

Demand No. 1 was for a general increase of 30 per cent in salaries and wages and fixing at P5 the daily
minimum wage and at P150 the minimum for monthly-salaried employees; demand No. 6 was for
maternity leave for two months with full pay; and demand No. 13 was for gratuity equivalent to one
month's salary for every year of service to employees who may be dismissed because of old age,
sickness or physical disability, or due to slack in the business.

The Philippine Education Co., Inc. opposed the demands.

The trial judge granted the following:

Demand No. 1: (1) an increase of Pl.75 a day to all the employees and laborers receiving P4 and P5 daily
respectively; (2) an increase of P20 a month to those receiving from P120 to less than P200 a month,
and (3) an increase of P15 to those receiving from P200a month and up.

Demand No. 6: Maternity Leave – 1 month leave before and 1 month leave after confinement with full
pay.

Demand No. 13: Two months' pay for those who served the Company from 1 year to 5 years; Three
months' pay for those who served from 6 years to 10 years; Four months' pay for those who served
from 11 to 15 years; Five months' pay for those who served from 16 to 20 years, and One month's pay
for those who are under temporary basis.

On petitioner’s motion for reconsideration and new trial, the CIR en banc affirmed the decision of the
trial judge. Petitioner then filed a petition for certiorari with the SC.

ISSUE: Whether or not a new trial should be granted to determine the reasonableness the increase of
wages and privileges. (YES)

HELD:
The SC declared that the question of reasonableness is a question of fact to be considered in the new
trial, same as the reasonableness of the increase in wages.

In its petition for certiorari, the Philippine Education Co., Inc., alleges that when the trial was concluded
on June 20, 1951, its financial position was not as bad as it was on May 23, 1952; that if a new trial were
granted it could prove that its sales during the fiscal year April 1,1951 to March 31, 1952 were
P2,084,591.90 less than the sales of the preceding fiscal year; that the company had to date the same
number of employees that it carried during the most profitable years of its life, and could not continue
on with the same number; that a sharp reduction, not a general increase in wages, was more in line.

This was disputed by the Union, which contends that notwithstanding the import and exchange controls
the Company continued to make gains.
The SC believed that a sufficient showing has been made calling for a new trial. The Company's
allegations, if true, would necessitate the closing of the business and the laying off of all its employees
unless the order were reversed or modified. In the interest of all concerned, it is not prudent to brush
aside the Company's plea for reopening of the case without a thorough investigation and careful
examination of evidence. Only in this manner can the court ascertain with a reasonable degree of
assurance whether, after the decision was handed down, the Company is in a position to continue
operations with the same number of personnel with increased wages and new privileges.

It would not be fair, however, to deprive the employees of the benefits of the lower court's decision
from the date of the submission of the case. For this reason, all or any of the awards included in the
decision sought to be reconsidered and which may be affirmed after the new trial, may be made effective
as of the date of the said original decision, if, in the opinion of the court and in the light of all the
circumstances, retroactivity is justified.

The financial position of the company permitting and a fair return on its investments being taken care
of, the CIR has jurisdiction to allow the demands to which the petitioner excepts. With reference to
demand No. 1, the jurisdiction and authority of the CIR to order a general increase in salaries has been
affirmed in a number of cases.

Independent of any special enactment, the power of the CIR to allow maternity leave was implied in the
power to regulate relations between labor and capital in industry and agriculture under Sections 1, 4
and 20 of CA No. 103.

The power to allow retirement gratuity or pay is conferred on the CIR by Sections 1, 4, 13 and 20 of CA
No. 103. It was upheld by the Supreme Court in Leyte Land Transportation Company vs. Leyte Farmers
and Laborers Union, and applied by the CIR in a number of other cases. The only limitations are that the
award be reasonable and compatible with the employer's right to a reasonable profit on its capital.

Hence, the SC ordered the case remanded to the court below for new trial.
 Case 48
MANILA ELECTRIC COMPANY, Petitioner, v. THE HONORABLE SECRETARY OF LABOR
LEONARDO QUISUMBING AND MERALCO EMPLOYEES AND WORKERS ASSOCIATION (MEWA),
Respondents.
[G.R. No. 127598. January 27, 1999.]

FACTS:
MEWA is the duly recognized labor organization of the rank-and-file employees of MERALCO. On
September 7, 1995, MEWA informed MERALCO of its intention to re-negotiate the terms and conditions
of their existing 1992-1997 Collective Bargaining Agreement (CBA) covering the remaining period of
two years starting from December 1, 1995 to November 30, 1997. MERALCO signified its willingness
to re-negotiate and formed a CBA negotiating panel for the purpose. On November 10, 1995, MEWA
submitted its proposal to MERALCO, which, in turn, presented a counter-proposal. Thereafter, collective
bargaining negotiations proceeded. However, despite the series of meetings between the negotiating
panels of MERALCO and MEWA, the parties failed to arrive at "terms and conditions acceptable to both
of them.
On April 23, 1996, MEWA filed a Notice of Strike with the National Capital Region Branch of the National
Conciliation and Mediation Board (NCMB) of the Department of Labor and Employment (DOLE) on the
grounds of bargaining deadlock and unfair labor practices. The NCMB then conducted a series of
conciliation meetings but the parties failed to reach an amicable settlement. Faced with the imminence
of a strike, MERALCO filed an Urgent Petition with the Department of Labor and Employment praying
that the Secretary assume jurisdiction over the labor dispute and to enjoin the striking employees to go
back to work.
The Labor Secretary granted the petition. MERALCO filed MR alleging that the Sec. of Labor committed
grave abuse of discretion amounting to lack or excess of jurisdiction in: (1) awarding MEWA P1.142B
that would imperil MERALCO’s viability as a public utility; (2) granting wage increase; (3) incorporation
into the CBA of all existing employee benefits; (4) granting certain political demands presented by the
union; and (5) in ordering the CBA to be effect of Dec 1995 instead of Aug 19, 1996 when he resolved
the dispute.

ISSUE: Whether or not the Secretary of Labor acted with grave abuse of discretion. (YES)

RULING:
The Secretary of Labor disregarded evidence on record, particularly with respect to the wage award.
Where he considered MERALCO's evidence at all, he apparently misappreciated this evidence in favor
of claims that do not have evidentiary support. The Secretary apparently acted arbitrarily and even
whimsically in considering several legal points in coming up with the wage award.
While the Supreme Court did not seek to enumerate in this decision the factors that should affect wage
determination, it was emphasized that a collective bargaining dispute such as this one requires
consideration and proper balancing of the interests of the parties to the dispute and of those who might
be affected by the dispute. According to the SC, the best way in approaching this task holistically is to
consider the available objective facts, including, where applicable, factors such as the bargaining history
of the company, the trends and amounts of arbitrated and agreed wage awards and the companies
previous CBAs, and industry trends in general.
As a rule, affordability, or capacity to pay should be considered but cannot be the sole yardstick in
determining the wage award, especially in a public utility like MERALCO. In considering a public utility,
the decision maker must always consider the public interest aspects of the case; MERALCOs income and
the amount of money available for operating expenses - including labor costs – are subject to State
regulation. We must also keep in mind that high operating costs will certainly and eventually be passed
on to the consuming public as MERALCO has bluntly warned in its pleadings.
Discussion on Contracting that is discussed in this case:
It was held in this case that the company can determine in its best business judgment whether it should
contract out the performance of some of its work for as long as the employer is motivated by good faith,
and the contracting out must not have been resorted to circumvent the law or must not have been the
result of malicious or arbitrary action. The Labor Code and its implementing rules also contain specific
rules governing contracting out (Department of Labor Order No. 10, May 30, 1997, Sections 1-25).
Given these realities, the Supreme Court recognizes that a balance already exists in the parties'
relationship with respect to contracting out; MERALCO has its legally defined and protected
management prerogatives while workers are guaranteed their own protection through specific labor
provisions and the recognition of limits to the exercise of management prerogatives.
 Case 49
Maternity Children’s Hospital vs. Secretary of Labor
G.R No. 78909, June 30, 1989
Facts
Petitioner Maternity Children’s Hospital (MCH) is a semi-governmental hospital in Cagayan De Oro. It
is partly subsidized by the PCSO. Aside from salary and living allowances, the employees are given food,
but the amount of which is deducted from their respective salaries.
Ten employees of petitioner in different capacities and positions filed a complaint with the Office of the
Regional Director of Labor and Employment, Region X, for underpayment of their salaries and ECOLAS.
The Labor Standard and Welfare Officers submitted their report confirming that there was
underpayment of wages and ECOLA of all the employees by the petitioner. From this report, Regional
Director issued an order directing payment of 723, 888.58, to all the petitioner’s employees.
Petitioner questioned the jurisdiction of the Regional Director and the all-embracing applicability of the
award involving salary differentials and ECOLAS, in that it covers not only the hospitals employees who
signed the complaints, but also those who are not signatories to the complaint, and those who were no
longer in the service of the hospital at the time the complaint was filed. Hence, this petition for certiorari.
Issue
1. WON the Regional Director had jurisdiction over the case. (YES)
2. WON the Regional Director erred in extending the award to all hospital employees. (YES)
Ruling
1. The Regional Director has jurisdiction in this labor standard case. This is a Labor Standard case, and
is governed by Article 128 (b) of the Labor Code, as amended by E.O. No. 111.
“Labor standards refer to the minimum requirements prescribed by existing laws, rules, and
regulations relating to wages, hours of work, cost of living allowance and other monetary and welfare
benefits, including occupational, safety, and health standards (Section 7, Rule I, Rules on the Disposition of
Labor Standards Cases in the Regional Office, dated September 16, 1987)”.
Under the present rules, a Regional Director exercises both visitorial and enforcement power over
labor standards cases, and is therefore empowered to adjudicate money claims, provided there still
exists an employer-employee relationship, and the findings of the regional office is not contested by the
employer concerned. Even in the absence of E. O. No. 111, Regional Directors already had enforcement
powers over money claims, effective under P.D. No. 850, issued on December 16, 1975, which
transferred labor standards cases from the arbitration system to the enforcement system.
2. The Regional Director correctly applied the award with respect to those employees who signed the
complaint, as well as those who did not sign the complaint, but were still connected with the hospital
at the time it was filed.
The justification for the award to this group of employees who were not signatories to the complaint is
that the visitorial and enforcement powers given to the Secretary of Labor is relevant to, and exercisable
over establishments, not over individual members/employees, because what is sought to be achieved
by its exercise is the observance of, and/ or compliance by such firm/establishment with the labor
standards regulations. Necessarily, in case of an award resulting from a violation of labor legislation by
such establishment, the entire members/employees should benefit therefrom
However, there is no legal justification for the award in favor of those employees who were no longer
connected with the hospital at the time the complaint was filed.

The enforcement power of the Regional Director cannot legally be upheld in cases of separated
employees. Article 129 of the Labor Code in aid of the enforcement power of the Regional Director is
not applicable where the employee seeking to be paid is separated from service. His claim is purely a
money claim that has to be subject of arbitration proceedings and therefore within the original and
exclusive jurisdiction of the Labor Arbiter.