Module 3

Employer-Employee Relationship
Employer-Employee Relationship
Tests to determine Employer-Employee Relationship
Control Test
Concept
Control refers to the active supervision and authority exercised over an individual performing
a job, work, or service. This involves giving orders, directives, or instructions to ensure that
the work is carried out as expected. It also includes determining or dictating how the work
should be done, including the methods, processes, and tools to be used. When a person or
entity has control, they have the power to direct, oversee, and regulate how tasks are
performed rather than just focusing on the final result.

For example, in an office setting, if a manager instructs an employee on what tasks to

complete, how to complete them, what software to use, and even when to take breaks, this
demonstrates control over the employee. In contrast, if a company hires a freelancer to
design a website but only specifies the final requirements without dictating how the
freelancer works, then the company has less control over the process.

In an employment relationship, the employer exercises active supervision and control over
their employees as they perform their job, work, or service. This level of control is a natural
and necessary aspect of the relationship because the employer is responsible and liable for
the actions of their employees while they are carrying out their duties. The employer’s
authority ensures that tasks are completed according to expectations, company standards,
and workplace policies.

However, not all forms of control automatically establish an employer-employee relationship.

Simply being subject to a company’s rules, regulations, or code of ethics does not necessarily
make a worker an employee. What matters is the degree of control exercised over how the
work is done. If the hiring party only enforces general policies but does not dictate the
specific means and methods of performing the work, then the relationship may not fall under
the labor law concept of control that defines an employer-employee relationship.

The distinction between an employer-employee relationship and an independent working

arrangement lies in the degree of control exercised over the means and methods of work.
The key difference is whether the rules imposed merely guide the worker toward achieving
a result or if they dictate how the work must be done. If the hiring party only sets general
guidelines to ensure a desired outcome but allows the worker discretion on how to achieve
it, no employer-employee relationship is created. However, if the hiring party controls both
the outcome and the specific steps, methods, or tools used, this level of supervision
establishes an employment relationship.

From jurisprudence, the first Insular Life case teaches an important lesson: an insurance
agent’s commitment to follow an insurance company’s rules and regulations does not
automatically create an employer-employee relationship. Similarly, even if the company’s
guidelines restrict the agent’s conduct, this does not necessarily mean that the company
exercises the type of control required to establish an employment relationship under labor
law.

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For control to exist in the labor law sense, the rules must go beyond merely ensuring a
desirable outcome and must dictate the specific means or methods the agent must use to
achieve that outcome. If the company fixes the methodology and binds or restricts the agent
to using particular methods, then this constitutes control as defined in jurisprudence.
However, a company setting production quotas or deciding how many agents to hire in
specific territories is merely a management policy decision and does not amount to control
over the agent’s work methods.

This principle was reiterated in Carungcong and later applied in Tongko v. The Manufacturers
Life Insurance Co. (Phils.), G.R. No. 167622, 29 June 2010. In this case, Manulife’s codes of
conduct were found to regulate only the agents’ results and compliance with the Insurance
Code, without dictating how they conducted their sales. Since these rules did not interfere
with the agents’ means and manner of work, they could not be used to establish the labor
law concept of control between Manulife and Tongko.

In cases where an employer-employee relationship is being claimed, the burden of proof falls
on the individual asserting such a relationship. It is necessary to prove the presence of all
essential elements, particularly the employer’s control over the means and methods of
performing the work. In Royal Homes Marketing Corporation v. Alcantara, the claimant failed
to present specific rules, regulations, or codes of ethics that demonstrated the company’s
control over how he solicited sales or interacted with clients. Without clear evidence of
control, the claim of an employment relationship could not be established.

Several factors in the case negated the existence of control and, consequently, an employer-
employee relationship. The claimant was not required to follow definite working hours, was
assigned no tasks other than soliciting sales, and had full discretion over how and when to
perform his duties. He could solicit sales at any time and in any manner he deemed
appropriate, showing that he worked independently and without direct supervision from the
company, except in relation to the expected results of his work.

Additionally, the repeated rehiring of the claimant did not automatically create an
employment relationship. Instead, it only indicated a renewal of his contract based on
satisfactory performance, rather than evidence of continuous employment under labor law.
Similarly, the exclusivity clause in his contract did not establish control in the labor law sense.
While the clause prevented him from selling projects for the company’s competitors, it did
not prohibit him from engaging in other business activities. He was still free to sell different
products or pursue unrelated business ventures, further proving that he was not under the
company’s direct control in the way an employee would be.

In labor jurisprudence, the mere existence of an exclusivity clause in a contract does not
automatically establish an employer-employee relationship. In Consulta v. Court of Appeals
(493 Phil. 842, 848 (2005)), the court clarified that requiring an individual to solicit business
exclusively for a company does not equate to the company exercising control over the means
and methods of performing the work. Control, in the labor law sense, refers to the authority
to dictate how the work is done, not just the outcome.

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Furthermore, the company did not impose a restriction that entirely prevented the
complainant from engaging in other businesses. The limitation applied only to competing
businesses, meaning the complainant remained free to work in other industries or pursue
unrelated ventures. This distinction is crucial because a true employment relationship would
typically involve more comprehensive control over the worker’s activities, including work
schedules, tasks, and methods of accomplishing the job. Since these elements were absent,
the exclusivity clause alone was insufficient to prove an employer-employee relationship.

Viana v. Al-Lagadan, G.R. No. L-8967, May 31, 1956

Petitioner Anastacio Viaña was the owner of a fishing sailboat (a small ship powered by the
wind using sails) called "Magkapatid." On the night of September 3, 1948, the boat sank
(went underwater and was destroyed) in the waters between Bataan (a province in the
Philippines) and Corregidor (a small island in Manila Bay). The reason for the sinking was a
collision (a crash between two objects) with the USS "TINGLES," a ship belonging to the U.S.
Navy (the military force that operates sea vessels for the United States).

During this accident, a crew member of "Magkapatid" named Alejandro Al-Lagadan

disappeared along with the boat. His parents, Alejo Al-Lagadan and Filomena Piga, filed a
claim to receive compensation (payment for loss or injury) under Act No. 3428 (a law related
to work-related injuries or deaths). After proper legal procedures, a Referee (an official who
makes decisions in legal disputes) from the Workmen’s Compensation Commission (a
government body handling worker-related claims) issued a decision on February 23, 1953.
The decision ordered Anastacio Viaña to pay P1,560 as a lump sum (a one-time full payment)
with 6% interest from the date of the accident until fully paid. Additionally, he was required
to pay P16 as costs (fees related to the case).
Viaña appealed (asked for a review of the decision), but on October 22, 1954, the Workmen’s
Compensation Commissioner (a higher official in the commission) affirmed (agreed with and
confirmed) the decision, adding an extra P5.00 fee. Viaña then requested reconsideration (a
second review), but it was denied (not accepted). As a result, he brought the case to the
Supreme Court for review through certiorari (a legal process where a higher court reviews a
lower court’s decision).

Viaña argued that the case should not be covered by Act No. 3428 for two reasons:
1. His business had a gross income (total earnings before expenses) of less than P10,000
in 1947, which he claimed made him exempt from the law.
2. Alejandro Al-Lagadan was supposedly his industrial partner (a person who shares
profits and losses in a business), not his employee (a worker hired and paid for
services).
Because of these arguments, he sought the Supreme Court’s judgment on whether he was
legally responsible for compensation.

The first argument presented by Anastacio Viaña is considered untenable (not acceptable or
justifiable) because he did not raise it earlier in the legal process. Specifically, he did not bring
it up before the Referee's decision was issued on February 23, 1953. Instead, he only
mentioned it later when he requested a review from the Workmen’s Compensation
Commissioner.

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His argument was that Act No. 3428 should not apply to employers whose gross income
(total earnings before expenses) is less than P20,000. However, this kind of claim is
considered a defense (a legal argument used to avoid liability). According to legal rules, such
a defense must be included in the employer’s response to the compensation claim filed by
the employee or their heirs (family members who inherit legal rights). Since Viaña did not
mention this defense in his response at the beginning of the case, he cannot use it now as a
reason to escape liability. This principle was upheld in the case of Rolan v. Perez (63 Phil., 80,
85-86), which set a precedent for such legal procedures.

For the second argument, Viaña disagrees with the findings of the Referee and the
Commissioner. He insists that the deceased crew member, Alejandro Al-Lagadan, was not
his employee but rather his industrial partner (someone who shares profits and losses in a
business instead of receiving wages).
To support his claim, Viaña refers to a common practice among sailboats operating between
Mindoro and Manila. According to this practice, crew members are hired on a partnership
basis, meaning:
• The owner of the vessel (ship) receives half of the earnings after deducting the crew’s
maintenance expenses.
• The other half is divided among the crew members, following a specific system:
o The "patron" (captain of the boat) receives four shares.
o The "piloto" (second-in-command) receives three shares.
o The "timonel" (wheelsman or person steering the boat) gets 1.5 shares.
o The other crew members receive one share each.
Viaña presents this profit-sharing method as evidence that Al-Lagadan was not an employee,
but rather a business partner who earned based on the boat's profits rather than a fixed
salary.

Before making his decision, the Referee (a legal officer handling the case) asked Mr. Manuel
O. Morente, an attorney (a lawyer) from the Workmen’s Compensation Commission, to
investigate how crew members were hired for sailboats (batel)—which are boats of at least
20 tons—that traveled between Manila and Mariveles and were moored (tied or anchored)
at Manila North Harbor.

After conducting his inquiry (formal investigation), Atty. Morente submitted a report
explaining the usual hiring method for crew members of a batel. According to him, the
employment system was based on a contract (a legal agreement) between the owner of the
batel and the patron (the captain or manager of the boat). The common practice followed
was a profit-sharing system, where the earnings from a voyage were first used to cover all
expenses (such as food, maintenance, and fuel). After deducting these expenses, the
remaining amount was divided as follows:
• One-half of the earnings went to the owner of the batel.
• The other half was given to the patron and the crew members, who divided it among
themselves based on a share system, following their agreement.
• The patron received the largest portion (often referred to as the lion’s share, meaning
the biggest and most significant part).

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Additionally, the hiring of crew members was not done by the owner but rather by the patron
himself. In most cases, before the patron signed a contract with the owner, he had already
assembled a crew and was ready to operate the vessel.

In agreeing with the Referee’s conclusion that Alejandro Al-Lagadan was an employee of
Anastacio Viaña, the Workmen’s Compensation Commissioner explained the reasoning
behind this decision.

The Commissioner pointed out that the trial referee had determined that there was an
employer-employee relationship between Viaña and the deceased (Al-Lagadan). The key
factor in this conclusion was the way Al-Lagadan was compensated. The money he received
at the end of each trip was considered a form of wages (payment given to workers for their
services). This interpretation is based on Section 39 of the Compensation Act, which defines
wages as any form of payment that can be measured in money.

In simpler terms, even though Al-Lagadan’s payment was based on a profit-sharing system,
it was still something that could be converted into money, which made it similar to wages.
Because of this, the Commissioner concluded that Alejandro Al-Lagadan was an employee of
Viaña at the time of his death, reinforcing the decision that Viaña was responsible under the
Workmen’s Compensation Act.

The Workmen’s Compensation Commissioner agreed with the trial referee that Alejandro Al-
Lagadan was an employee of Anastacio Viaña and not a partner. To support this conclusion,
several legal cases were cited, demonstrating that receiving a share of profits instead of
wages does not automatically mean a person is a business partner.

For example, previous court rulings determined that officers and crew members of whaling
(hunting whales for their meat and oil) and fishing vessels who received a portion of the
voyage’s earnings instead of a fixed salary were still considered employees rather than
business partners. Similarly, merchant ship captains who received profit-based pay or agreed
to cover certain expenses in exchange for a share of earnings were also not classified as
partners. Other rulings confirmed that steamboat operators working under a profit-sharing
arrangement did not automatically become co-owners of the vessel, and farmers who
farmed under a profit-sharing agreement were not considered business partners either.
Additionally, a fisherman who was paid based on the amount of fish caught was still
considered an employee, not a partner. These cases established the legal principle that
sharing profits instead of receiving wages does not necessarily create a partnership.

Despite these arguments, the Supreme Court disagreed with the Commissioner’s reasoning
that Al-Lagadan was an employee solely because his earnings could be converted into
money. However, the Court also rejected Viaña’s claim that Al-Lagadan was his partner just
because he only shared in profits but not in losses.
To determine whether an employer-employee relationship truly exists, four key elements are
typically examined:
1. Selection and engagement – Whether the employer chose and hired the worker.
2. Payment of wages – Whether the worker was paid for their services.
3. Power of dismissal – Whether the employer had the authority to fire the worker.

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4. Control over conduct – Whether the employer had the right to direct and manage
the worker’s actions (this is the most important element).
In this case, even if it were accepted that Al-Lagadan’s share of earnings was a form of wages,
meaning the second element was present, the records did not provide clear evidence
regarding the third (power of dismissal) and fourth (control over conduct) elements. Because
of this lack of data, the Supreme Court was not convinced that an employer-employee
relationship definitively existed.

The first element in determining an employer-employee relationship is the selection and

engagement of the worker. However, in this case, the available facts are not enough to reach
a definite conclusion.

On one side, Atty. Morente’s report explained that the usual practice for hiring crew
members was through the patron (the captain or manager of the vessel). According to the
report, when a patron entered into a contract with the owner of the vessel, he already had
a crew with him. This suggests that the patron alone was responsible for choosing and hiring
the crew members, and possibly for controlling and dismissing them. However, the report
only described a general practice and did not confirm if the same method was followed in
this specific case. Furthermore, the wording of the report could mean that the crew
members had a direct contract with the patron, not with Viaña, which would mean that the
patron was their employer or business partner, rather than Viaña.

On the other side, Viaña’s own statements contradict this view. In his petition, Viaña clearly
stated that Alejandro Al-Lagadan was his industrial partner. If this was true, it would mean
that they had a partnership agreement rather than an employer-employee relationship. In a
partnership, neither Viaña nor the patron would have had the power to control or dismiss
the crew members, because partners generally have equal standing in a business
arrangement. Additionally, if the patron selected the crew, he might have been acting as
Viaña’s agent (representative) rather than making the decision on his own.
Because of these uncertainties, and considering the importance of setting a legal precedent
(a ruling that can serve as a guideline for future similar cases), the Supreme Court decided
that the case should be sent back (remanded) to the Workmen’s Compensation Commission
for further investigation. The Commission was instructed to gather additional evidence and
clarify the following questions:
1. Who selected and hired the crew of the "Magkapatid"?
2. If the patron hired the crew, did he do so on his own behalf or as a representative of
Viaña?
3. Did Viaña have the right to reject any crew member chosen by the patron?
4. Did Viaña have control over the time, place, and conditions under which the crew
worked?
5. Who had the authority to dismiss crew members?
6.
Since more evidence was needed to make a fair and just decision, the case was officially sent
back to the Workmen’s Compensation Commission for further proceedings. No special ruling
was made regarding legal costs (expenses related to the case).

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South East International Rattan, Inc. v. Coming, G.R. No. 186621, March 12, 2014

The petitioner, South East International Rattan, Inc. (SEIRI), is a domestic corporation (a
company that is legally registered and operates within the country) that manufactures and
exports furniture to different countries. Its main office is located in Paknaan, Mandaue City.
The other petitioner, Estanislao Agbay, is listed in the records as the President and General
Manager of SEIRI, meaning he is responsible for running the company.

On November 3, 2003, the respondent, Jesus J. Coming, filed a complaint against SEIRI. He
claimed that he was a victim of illegal dismissal (being fired without a valid reason), and that
his wages were underpaid (he was not given the correct salary). He also accused the
company of not paying him his holiday pay (extra wages for working on public holidays), 13th
month pay (a mandatory bonus in some countries), and service incentive leave pay
(compensation for unused leave days). In his complaint, Jesus Coming requested that he be
reinstated (allowed to return to work), be paid his back wages (the salary he should have
received during his dismissal), and be given damages (financial compensation for the harm
he suffered) along with attorney’s fees (legal costs).

Jesus Coming stated that he was hired by SEIRI as a Sizing Machine Operator on March 17,
1984. His regular work hours were from 8:00 a.m. to 5:00 p.m. Initially, his salary was based
on a "pakiao" system (a type of payment where a worker is paid based on the amount of
work completed, rather than a fixed wage). However, by June 1984, his salary was changed
to a fixed rate of ₱150.00 per day, which was paid weekly.

In 1990, without any clear reason, his employment was suddenly interrupted. He was told
by the management that he had to stop working but could resume work after two months.
Since Jesus Coming was uneducated (he had little formal schooling), he was persuaded by
both the management and his brother not to file a complaint, as this might lead to SEIRI
refusing to take him back. Out of fear of losing his job permanently, Jesus Coming accepted
the situation and waited for two months. After this period, he returned to work when the
management told him to.

Despite being a long-time employee, with no record of poor performance, Jesus Coming was
suddenly dismissed on January 1, 2002. The company claimed that his termination was due
to financial difficulties and told him that he would only be called back if his services were
needed again. Jesus Coming waited for almost a year, but the petitioners never called him
back. Eventually, he decided to file a complaint with the regional arbitration branch (a
government office that handles labor disputes). However, after filing the case, the
management tried to convince him to withdraw the complaint by using his brother Vicente
to pressure him into dropping the case.

The petitioners (SEIRI and Estanislao Agbay) denied that they had ever hired Jesus Coming
as an employee. They argued that SEIRI was incorporated only in 1986, meaning the
company legally came into existence that year, while Jesus Coming claimed to have started
working in 1984. The petitioners further stated that Jesus Coming actually worked for SEIRI’s
furniture suppliers, not for SEIRI itself. They explained that when SEIRI began its operations
in 1987, it was only involved in buying and exporting furniture, meaning it did not have

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manufacturing employees at that time. Additionally, they pointed out that the company’s
business was suspended from late 1989 to August 1992, making it impossible for Jesus
Coming to have worked continuously for them during that period.

As further proof, the petitioners stressed that Jesus Coming was never listed as an employee
in the company’s Social Security System (SSS) records, which is an important government
registry for employees. To support their claim, Jesus Coming’s brother, Vicente Coming,
signed an affidavit (a sworn written statement) stating that Jesus was not an SEIRI employee.
Moreover, two individuals, Allan Mayol and Faustino Apondar, issued notarized certifications
(officially recognized documents) saying that Jesus worked for them instead of SEIRI.

To counter this, Jesus Coming submitted an affidavit signed by five of his former co-workers,
who all confirmed that he was indeed one of the pioneer employees of SEIRI and had worked
there for almost twenty years. This testimony provided strong evidence to support his claim.
After reviewing the case, Labor Arbiter Ernesto F. Carreon issued a Decision on April 30, 2004,
ruling in favor of Jesus Coming. He declared that Jesus was a regular employee of SEIRI and
that his termination was illegal. As a result, SEIRI was ordered to pay Jesus Coming financial
compensation, which included:
1. Separation pay – ₱114,400.00 (money given to an employee when they are dismissed
or separated from work)
2. Back wages – ₱30,400.00 (salary he should have received while waiting for his case
to be resolved)
3. Wage differential – ₱15,015.00 (the difference between the salary he was paid and
what he should have been paid)
4. 13th month pay – ₱5,958.00 (mandatory bonus given to employees)
5. Holiday pay – ₱4,000.00 (compensation for unpaid holidays)
6. Service incentive leave pay – ₱2,000.00 (compensation for unused leave days)
The total amount awarded to Jesus Coming was ₱171,773.00. However, other claims were
dismissed, and the case against Estanislao Agbay was dropped due to lack of merit
(insufficient evidence to support the case against him). The decision was finalized with an
official ruling:
"SO ORDERED."

After the Labor Arbiter ruled in favor of Jesus Coming, the petitioners (SEIRI and Estanislao
Agbay) appealed the decision to the National Labor Relations Commission (NLRC) in Cebu
City. In their appeal, they submitted additional evidence to support their claim that Jesus
was not their employee. These included:
1. SEIRI’s payrolls and individual pay records – documents listing the names of
employees and their salaries.
2. An affidavit from SEIRI’s Treasurer, Angelina Agbay – a sworn written statement from
the company’s financial officer.
3. A second affidavit from Vicente Coming – another sworn statement from Jesus
Coming’s own brother, further supporting SEIRI’s position.
On July 28, 2005, after reviewing these additional pieces of evidence, the NLRC’s Fourth
Division ruled in favor of SEIRI. It issued a Decision overturning the Labor Arbiter’s ruling and
ordered that Jesus Coming’s complaint be dismissed. This meant that SEIRI was no longer
required to pay him the financial compensation that was previously awarded.

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Jesus Coming then filed a motion for reconsideration, which means he formally requested
the NLRC to review its decision again. However, the NLRC denied his motion, effectively
upholding its decision to dismiss the case.

In response, Jesus Coming brought the case to the Court of Appeals (CA) by filing a petition
for certiorari under Rule 65. A petition for certiorari is a legal remedy used when a party
believes that a lower court or tribunal made a grave error or abused its authority in making
a decision.

On February 21, 2008, the Court of Appeals reversed the NLRC’s decision and ruled in favor
of Jesus Coming once again. The CA found that an employer-employee relationship did exist
between SEIRI and Jesus Coming and that he had been dismissed without just and valid
cause. This meant that his termination was illegal.

As a result, the Court of Appeals reinstated the original decision of the Labor Arbiter but
made some modifications. Specifically, it ordered that back wages should be computed from
the time of illegal termination until the finality of the decision. This meant Jesus Coming
would receive compensation covering the entire period he was unemployed due to his
dismissal. Additionally, the Labor Arbiter was directed to make proper adjustments to the
computations for separation pay, wage differential, 13th-month pay, holiday pay, and service
incentive leave pay to ensure accurate payment.
The decision ended with the official ruling:
"SO ORDERED."

After the Court of Appeals (CA) ruled in favor of Jesus Coming, SEIRI and Estanislao Agbay
were not satisfied with the decision. As a result, they filed a motion for reconsideration,
which means they formally requested the CA to review its ruling again. However, the CA
denied their motion in a Resolution dated February 9, 2009, effectively upholding its previous
decision that Jesus Coming was illegally dismissed.

Since the petitioners still disagreed with the CA’s ruling, they elevated the case to a higher
court by filing a petition before the Supreme Court. In their petition, they raised four key
legal issues for the Court to consider:
1. Employer-Employee Relationship – Did the Court of Appeals correctly determine that
Jesus Coming was an employee of SEIRI, based on the facts and evidence presented?
Did its decision align with existing laws and prior Supreme Court rulings?
2. Evaluation of Evidence – Did the Court of Appeals properly assess the evidence from
both parties in accordance with the law and legal precedents?
3. Illegal Dismissal – Based on the facts and legal principles, was the CA correct in ruling
that SEIRI and Estanislao Agbay were guilty of illegal dismissal?
4. Backwages Computation – Did the CA correctly rule that the back wages owed to
Jesus Coming should be calculated from the time of his illegal dismissal until the
finality of the case, as supported by previous Supreme Court decisions?

By raising these issues, the petitioners were essentially asking the Supreme Court to review
whether the CA’s decision was legally sound and based on proper appreciation of the

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evidence. Now, the final decision on whether SEIRI was truly liable for illegal dismissal, and if
Jesus Coming was entitled to back wages and other benefits, rests with the Supreme Court.

The first issue that needs to be resolved in this case is whether or not there was an employer-
employee relationship between SEIRI and Jesus Coming. This is important because the
petitioners (SEIRI and Estanislao Agbay) deny that they ever employed Coming.

The question of whether an employer-employee relationship exists is mainly a question of

fact (something that requires examining evidence, like documents or testimonies). Normally,
the Supreme Court does not review factual issues, especially in labor cases, because it is not
a trier of facts (a court that examines evidence). Instead, the Supreme Court mainly reviews
errors in the application of the law. However, there are exceptions to this rule. One exception
is when different courts or agencies have conflicting findings. In this case, the NLRC had a
different conclusion from the Labor Arbiter and the Court of Appeals (CA). Because of this,
the Supreme Court must review the evidence and decide for itself whether an employer-
employee relationship existed.
To determine whether a person is an employee, the law follows the four-fold test, which
considers these factors:
1. Selection and engagement of the employee – Who hired the worker?
2. Payment of wages – Who pays the worker?
3. Power of dismissal – Who has the authority to fire the worker?
4. Power to control – Who decides how, when, and where the worker performs the job?
This is called the control test and is the most important factor.

To prove an employer-employee relationship, the evidence presented does not need to be

overwhelming, but it must meet the standard of substantial evidence, meaning it must be
enough for a reasonable person to believe that the claim is true.

To prove that Jesus Coming was not their employee, SEIRI presented several pieces of
evidence, including:
• Employment Reports to the Social Security System (SSS) from 1987 to 2002, which
did not list Coming as an employee.
• Certifications from Mayol and Apondar, stating that Coming worked for them, not
SEIRI.
• Two affidavits (sworn statements) from Vicente Coming, who supported SEIRI’s claim.
• Payroll sheets, individual pay envelopes, and employee earnings records from 1999-
2000, which did not include Coming’s name.
• An affidavit from Angelina Agbay (SEIRI’s Treasurer and HR Officer), stating that:
o SEIRI started as an export trading business in 1986 and stopped operations in
1989 (as confirmed by the Securities and Exchange Commission in 1994).
o When SEIRI resumed business in 1992, it was not fully into manufacturing.
o SEIRI did not hire workers for varnishing and pole sizing because they bought
these materials from suppliers like Faustino Apondar.
o Jesus Coming was never hired by SEIRI.
o Estanislao Agbay, the company’s president, was not responsible for paying
worker salaries.

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Based on this evidence, SEIRI argued that Coming was never their employee and that he
must have worked for their furniture suppliers instead. However, despite their claims, the
Supreme Court still had to review all the evidence and apply the four-fold test to determine
if Coming was indeed an employee.

In his first affidavit (a written statement sworn to be true), Vicente Coming provided details
about his brother Jesus Coming's employment history. He stated that Jesus worked as a
furniture factory worker and was employed in different places over the years.
From 1982 to 1986, Jesus worked for Ben Mayol as a round core maker/splitter (someone
who prepares and splits rattan for furniture-making). After that, both Vicente and Jesus
moved to "Okay Okay Yard," a rattan trading business owned by Amelito Montececillo. Here,
they worked on a "pakiao" basis, meaning they were paid per output rather than receiving a
fixed salary.

However, their stay at Okay Okay Yard was short. In 1989, they transferred to Eleuterio
Agbay's business in Labogon, Cebu. But by 1991, they returned to Okay Okay Yard, which was
now located near the residence of Atty. Vicente de la Serna in Mandaue City. Again, they
worked on a "pakiao" basis, meaning they were only paid for the work they completed. They
stayed there until 1993, when they resigned and joined Dodoy Luna in Labogon, Mandaue
City as classifiers (workers who sort and categorize rattan materials) until 1995.

In 1996, Jesus took a break from work. It was only in 1997 that he started working again. He
replaced Vicente as a classifier in a business called Rattan Traders, owned by Allan Mayol.
However, towards the end of 1997, Jesus left the factory and returned to their hometown in
Sogod, Cebu, where he spent some time resting.

By the end of 1999, Jesus was rehired by Allan Mayol as a sizing machine operator (a worker
who operates a machine that cuts rattan into specific sizes). However, this work was not
regular—it was off-and-on, meaning he was not employed continuously. During this period,
Jesus also did side jobs with Vicente, who was working with Faustino Apondar, a supplier of
rattan furniture for South East (Int’l) Rattan, Inc. (SEIRI). Vicente allowed Jesus to work with
him and even let him collect the payment for his work as part of Vicente's earnings from
Faustino Apondar. Vicente emphasized that Jesus was free to work whenever he wanted,
even as late as 10:00 PM, meaning he had full control over his schedule and was not
obligated to work under any employer's rules.

This affidavit supports SEIRI’s claim that Jesus was never their employee, as his work history
suggests he was mostly working for private individuals or businesses on a "pakiao" basis
rather than being regularly employed.

The Certification dated January 20, 2004, issued by Allan Mayol, confirms that he personally
knows Jesus Coming, the brother of Vicente Coming. Allan stated that Jesus was a rattan
factory worker and was employed in his business as a rattan pole sizing/classifier from 1997
to part of 1998, after which Jesus left on his own will. Later, in late 1999, Allan rehired Jesus
as a sizing machine operator. However, Allan emphasized that Jesus’ employment was not
regular—he only worked when he wanted to and was not bound by a fixed schedule. This

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supports the argument that Jesus was not a regular employee but rather a worker with
flexible employment conditions.

Similarly, Faustino Apondar, another rattan furniture supplier, issued a Certification stating
that he had several rattan furniture workers under him, including Vicente Coming. Faustino
recalled that in 1999, Vicente approached him and asked for a side job for his brother, Jesus,
who was already working with Allan Mayol. Since Vicente vouched for his brother's
trustworthiness, and knowing that the job was only temporary, Faustino allowed Jesus to
work alongside Vicente. However, Jesus' wages were collected together with Vicente’s, as he
was working under his brother. Faustino also pointed out that Jesus only worked after regular
working hours and on an irregular basis, further reinforcing the claim that he was not a
regular employee of SEIRI but instead took side jobs as needed.

On the other hand, Jesus Coming submitted an affidavit signed by Eleoterio Brigoli, Pedro
Brigoli, Napoleon Coming, Efren Coming, and Gil Coming, who all affirmed that Jesus was
their co-worker at SEIRI. This affidavit contradicts the claims of Allan Mayol and Faustino
Apondar, as it supports Jesus' assertion that he was a long-time employee of SEIRI. The
affidavit serves as evidence that Jesus worked directly for SEIRI and not just for independent
furniture suppliers, which is crucial in establishing an employer-employee relationship
between Jesus and SEIRI.

The affidavit signed by Eleoterio Brigoli, Pedro Brigoli, Napoleon Coming, Efren Coming, and
Gil Coming strongly supports Jesus Coming’s claim that he was an employee of South East
Rattan (SEIRI). The signatories, all former employees of SEIRI, stated under oath that they
worked alongside Jesus in the same company and that Estanislao Agbay, the owner of SEIRI,
was the one who directly paid their salaries and had absolute control over their employment.
They also emphasized that Jesus was not employed by any other person and had been
working at SEIRI for almost twenty years, making him one of the pioneer employees of the
company. The affidavit was executed to deny the company’s claims that Jesus was not their
employee and to confirm the truth of his employment status at SEIRI.

In his decision, Labor Arbiter Ernesto F. Carreon found that Jesus Coming’s job as a sizing
machine operator was necessary and essential to SEIRI’s rattan furniture business. This is a
key factor in determining whether an employee is regular—if the job they perform is crucial
to the company’s operations, they are generally considered a regular employee rather than
a temporary or contractual worker.

Labor Arbiter Carreon also ruled that the company’s failure to include Jesus in the
employment reports submitted to the Social Security System (SSS) was not enough proof
that he was not their employee. Employers sometimes omit employees from official records,
which means that the absence of a worker’s name in an SSS report does not automatically
disprove an employment relationship.

Regarding the affidavit of Vicente Coming, who claimed that Jesus was employed by Faustino
Apondar instead of SEIRI, Labor Arbiter Carreon did not give much weight to this statement.
He was not convinced that Faustino Apondar was truly an independent contractor with a
formal contractual relationship with SEIRI. If Apondar was simply a supplier of rattan

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furniture and not an independent contractor, then Jesus could not have been considered his
employee. This further strengthened the finding that Jesus was directly employed by SEIRI,
and that his dismissal was illegal.

The National Labor Relations Commission (NLRC) overturned the Labor Arbiter’s decision,
providing several reasons to support its ruling.

First, the NLRC questioned Jesus Coming’s claim that he had been working continuously from
March 17, 1984, to January 21, 2002. They pointed out that South East (Int’l.) Rattan, Inc.
(SEIRI) was only incorporated on July 18, 1986. This means that Jesus could not have been
working for the company before it legally existed. Additionally, even when the company
started its operations in 1987, it was focused only on buying and exporting rattan furniture—
not manufacturing. Since no manufacturing workers were hired at that time, the NLRC found
it unlikely that Jesus was employed by SEIRI as a factory worker.

Second, the NLRC emphasized the lack of documentary evidence from Jesus to support his
claim that he was a regular employee. He failed to present even a single payslip, salary
voucher, or company payroll record showing that he actually worked at SEIRI. In labor
disputes, documents like payslips and payroll records are strong evidence of employment.
Since Jesus did not submit any of these, his claim became less credible in the eyes of the
NLRC.

Based on these findings, the NLRC decided to give more weight to the Certifications issued
by Allan Mayol and Faustino Apondar, both of whom were suppliers of finished rattan
furniture. These Certifications stated that Jesus worked for them and not for SEIRI. The NLRC
also relied on the affidavit of Vicente Coming, Jesus’ own brother, which provided a detailed
and straightforward account of Jesus’ employment history. Vicente’s statement supported
the idea that Jesus first worked for Allan Mayol and later for Faustino Apondar, making it less
likely that he was ever an employee of SEIRI.

With these points in mind, the NLRC ruled in favor of SEIRI, deciding that Jesus Coming was
not a regular employee of the company and dismissing his complaint.

In this case, substantial evidence supports the finding that Jesus Coming was not an
employee of SEIRI. The National Labor Relations Commission (NLRC) relied on several key
points to arrive at this conclusion:
1. Jesus' name was not listed in SEIRI’s employee reports submitted to the Social
Security System (SSS). The SSS is an important government agency where employers
are required to report their employees for social security benefits. If Jesus was truly
an employee, his name should have appeared in SEIRI’s records.
2. His name was also absent from SEIRI’s payroll records. Employers keep payroll
documents to track salaries and benefits. If Jesus was receiving a salary from SEIRI,
his name should have been on these documents.
3. Certifications from Allan Mayol and Faustino Apondar—both suppliers of finished
rattan products—stated that Jesus had worked for them at different times. These
certifications suggest that Jesus was working for independent suppliers rather than
SEIRI itself.

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4. Jesus’ own brother, Vicente Coming, submitted an affidavit stating that Jesus was
never employed by SEIRI. Vicente explained that their actual employer was Faustino
Apondar, who was merely a supplier for SEIRI. Since Vicente was a close family
member, his testimony carried significant weight.
5.
However, the Court of Appeals (CA) disagreed with the NLRC’s findings and gave more weight
to the testimony of five former SEIRI employees who stated that Jesus was their co-worker.
Among these affiants was Gil Coming, the son of Vicente Coming. Vicente later claimed in a
second affidavit that his son signed the statement without fully understanding it, saying that
a pastor had convinced him to sign the document to help resolve the dispute. Vicente
insisted that his son did not actually know the contents or legal implications of the affidavit.
The CA also questioned the reliability of SEIRI’s payroll records and SSS employment reports.
SEIRI had only submitted payroll records covering January 1, 1999, to December 29, 2000,
while Jesus claimed he worked for eighteen years. The CA found it suspicious that not only
was Jesus’ name missing, but also the names of the five affiants, whom SEIRI admitted were
former employees. This led the CA to suspect that SEIRI may have maintained a separate
payroll for certain employees or deliberately withheld some records.

Ultimately, the NLRC and CA arrived at different conclusions. The NLRC sided with SEIRI,
emphasizing the lack of official employment records and the affidavits supporting SEIRI’s
claim. On the other hand, the CA found SEIRI’s records questionable and gave more weight
to witness testimony, ruling in favor of Jesus Coming.

The control test is one of the most important factors in determining whether an employer-
employee relationship exists. In this case, several facts clearly indicate that SEIRI exercised
control over Jesus Coming’s work. First, he was required to work within the company
premises, meaning he did not have the freedom to work elsewhere. Second, he was obliged
to report daily and usually performed the same job, showing that his tasks were assigned
and monitored by SEIRI. Third, he followed definite working hours from 8:00 AM to 5:00 PM,
which is a characteristic of regular employment. Fourth, SEIRI had control over how he was
paid, initially on a pakiao basis (piece-rate system, where workers are paid based on output)
and later on a daily basis, which suggests a shift towards a more structured employment
arrangement. Fifth, the company enforced rules and regulations, meaning Jesus had to
follow company policies like any other employee. Sixth, Estanislao Agbay (the company
owner) personally paid Jesus’ salary and controlled all aspects of his job, reinforcing that
Jesus was working directly for SEIRI. Finally, Jesus performed tasks that were necessary and
desirable for SEIRI’s business, meaning his job was an integral part of the company’s
operations.

Because of these factors, the Court of Appeals (CA) affirmed the employer-employee
relationship between Jesus and SEIRI. The CA relied on jurisprudence (past legal decisions)
to support its ruling. In Tan v. Lagrama, the Supreme Court ruled that just because a worker
was not reported to the Social Security System (SSS) does not mean that an employer-
employee relationship does not exist. If this were the case, employers could easily avoid labor
laws by simply not reporting their workers to the SSS.

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Similarly, the absence of Jesus’ name in SEIRI’s payroll records does not prove that he was
not an employee. For a payroll to be considered valid proof, it must include a complete and
truthful list of all employees. In this case, the payrolls submitted by SEIRI only covered 1999
and 2000, while Jesus claimed to have worked for SEIRI for 18 years. Since the records do not
account for the entire period, they cannot be used as proof that Jesus was never employed
by the company.

SEIRI also argued that certifications from Allan Mayol and Faustino Apondar showed that
Jesus worked for them in the same years he claimed to be working for SEIRI. However, a
closer look at these certifications does not contradict Jesus’ claim of employment with SEIRI.
Mayol’s certification admitted that Jesus worked for him in 1997, 1998, and 1999, but also
stated that Jesus’ work was not regular and that he worked only if he wanted to. Similarly,
Apondar’s certification stated that Jesus worked for him on a sideline basis, only after regular
working hours, and on an "off and on" basis (meaning inconsistently).

Even if these certifications were true, they do not prove that Jesus was never a full-time
employee of SEIRI. SEIRI tried to argue that Jesus was employed by its suppliers, Mayol and
Apondar, rather than by SEIRI itself. However, SEIRI failed to provide competent proof that
these suppliers were actually independent contractors. Without such proof, the argument
that Jesus was employed elsewhere does not hold weight.

Ultimately, the CA sided with Jesus, ruling that the control test was satisfied and that he was
a regular employee of SEIRI.

SEIRI initially admitted that the five witnesses who supported Jesus Coming’s claim were
indeed former workers of SEIRI. However, they dismissed them as "disgruntled workers"—
meaning former employees who were unhappy with the company—and claimed that they
had an axe to grind (a personal grudge or reason to seek revenge) against SEIRI. SEIRI argued
that these workers only supported Jesus' claim to retaliate against the company for
disciplinary actions taken against them. However, SEIRI failed to provide any proof to support
this accusation, making it a mere allegation without evidence.

After the Court of Appeals (CA) reversed the National Labor Relations Commission (NLRC)’s
ruling, SEIRI changed its argument. In their motion for reconsideration (a request for the
court to review its decision), SEIRI denied that the five witnesses were ever their employees,
despite their earlier admission. SEIRI now claimed that the workers were actually employees
of their suppliers, Allan Mayol and Faustino Apondar, and were merely working in a leased
space within SEIRI’s premises. They further argued that just because the workers were
present in SEIRI’s workplace did not mean they were SEIRI’s employees.

SEIRI also pointed out that, despite being dismissed, none of these five workers ever filed a
complaint with the National Labor Relations Commission (NLRC) against SEIRI. According to
SEIRI, this showed that the workers knew they were not SEIRI’s employees and had no legal
basis to claim otherwise. Instead, SEIRI argued that their true employer was either Mayol or
Apondar.

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Ultimately, this shift in argument raised doubts about SEIRI’s credibility. Their initial
admission that the five workers were their former employees contradicted their later denial,
making it seem like SEIRI was changing its stance to suit its legal defense.

The petitioners (SEIRI) had previously admitted that the five affiants who supported Jesus
Coming’s claim were their former employees. Because of this, they were bound by their
admission, meaning they could not later change their argument and claim otherwise. SEIRI
had also insisted that Jesus was actually employed by their suppliers, Allan Mayol and
Faustino Apondar, but they failed to prove that these two were independent contractors
(businesses that provide services separately from the main company). Since SEIRI did not
provide any evidence to support their claims, they failed to meet the burden of proof
required to back up their defense.

There was also no evidence that the five former SEIRI employees had any bad motives, such
as malice (intention to harm) or bad faith (dishonesty or deceit), when they signed their
affidavit supporting Jesus’ claims. Their statements were treated as credible evidence in favor
of Jesus.

In cases between a worker and an employer, the law follows the principle that any doubts or
unclear evidence should be interpreted in favor of the worker. This is meant to protect
employees, who are often in a weaker position compared to their employers.
Because Jesus was determined to be a regular employee, he had the right to job security
under Article 279 of the Labor Code, meaning he could not be dismissed unless there was a
valid reason. Since SEIRI terminated his employment without just cause, the dismissal was
illegal.

As a result, Jesus was entitled to reinstatement (getting his job back) without losing his
seniority and other job-related benefits. He was also entitled to full back wages (the salary
he would have earned had he not been dismissed), including allowances and other benefits,
from the time he was unfairly dismissed up to the time he was reinstated. If reinstatement
was not possible, he would receive back wages until the court’s final decision, plus separation
pay (compensation given when a worker cannot return to work) equal to one month’s salary
for every year of service.

In conclusion, the petition for review (appeal) filed by SEIRI was denied. The Court of Appeals’
decision in favor of Jesus Coming was upheld, meaning Jesus won the case. SEIRI was also
ordered to pay the legal costs of the case.

Economic Reality Test

The economic reality test is another method used by the Supreme Court to determine
whether an employer-employee relationship exists between two parties, aside from the
commonly used control test. This test focuses on the economic realities within the activity
or between the parties by assessing the totality of circumstances that define their actual
working relationship. It is particularly useful in cases where no written agreement or contract
exists to establish the nature of their relationship. In our jurisdiction, the main consideration
under this test is the worker’s economic dependence on the employer. If the worker relies
on the employer for continued livelihood and financial sustenance, then an employment

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relationship may be inferred, making the worker eligible for the protections granted under
the Labor Code.

The case of Reyes v. Glaucoma Research Foundation, Inc. (G.R. No. 189255, 17 June 2015)
highlights the limitations of the control test in determining an employer-employee
relationship, particularly in situations where a worker holds multiple positions
simultaneously. In this case, the complainant was engaged in consultancy roles with various
organizations while working with the respondent company, which indicated that he was not
wholly economically dependent on the latter. This lack of exclusive reliance on one employer
weakened the claim of an employment relationship under the economic reality test.

The Supreme Court recognized that the control test alone may not always provide a complete
analysis of employment relations, especially in complex cases where a worker performs
duties in different capacities. In response, the Court endorsed a two-tiered test to assess
employment status more accurately. This test considers: (1) the employer’s power to control
the means and methods of the worker’s performance, and (2) the economic realities of the
relationship, particularly the worker’s level of economic dependence on the alleged
employer. By adopting this approach, the Court ensures a more comprehensive evaluation
of whether a person should be classified as an employee, independent contractor, or
corporate officer, ultimately providing clearer guidance in labor disputes.
Reyes v. Glaucoma Research Foundation, Inc., G.R. No. 189255, June 17, 2015

The case before the Court (a place where legal cases are heard and decided) involves a
petition for review on certiorari (a request for a higher court to review and possibly overturn
a lower court’s decision). The petitioner (the person who filed the request) is asking the
Supreme Court to reverse and nullify (cancel) the Decision and Resolution of the Court of
Appeals (CA), which were issued on April 20, 2009, and August 25, 2009, respectively. These
rulings were related to CA-G.R. SP No. 104261, a specific case number assigned by the Court
of Appeals. The CA Decision reversed the ruling of the National Labor Relations Commission
(NLRC) and reinstated (restored) the decision of the Labor Arbiter (LA), while the CA
Resolution rejected the petitioner’s request for reconsideration (a second review of the
case).

The issue arose from a complaint for illegal dismissal (a legal case where an employee claims
to have been unfairly removed from work) that the petitioner filed against the respondents
(the opposing party in the case) before the NLRC, specifically in its National Capital Region
(NCR), Quezon City office. The petitioner claimed that he was hired on August 1, 2003, as an
administrator (a person responsible for managing operations) at the Eye Referral Center
(ERC), which belongs to the respondent corporation. He performed his duties and received
a monthly salary of ₱20,000.00 until the end of January 2005. However, starting February
2005, the respondent suddenly stopped paying his salary without any notice (formal
information). Despite this, the petitioner continued reporting to work.

On April 11, 2005, the petitioner sent a letter to Manuel Agulto (Agulto), the Executive
Director (a high-ranking official managing the organization) of the respondent corporation,
informing him that he had not received his salary since February 2005, as well as his 14th-
month pay for 2004. However, Agulto did not reply. Later, on April 21, 2005, the petitioner

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was informed by the Assistant to the Executive Director and the Assistant Administrative
Officer that he was no longer the Administrator of the ERC. Following this, his office was
padlocked and closed without prior notice. Despite these events, the petitioner still
attempted to continue working. However, on April 29, 2005, the security guard on duty (the
guard assigned to work at that time) did not allow him to enter the ERC premises (the physical
location of the workplace).

This situation led the petitioner to file a case for illegal dismissal, arguing that his removal
from his position was done without due process (fair legal procedure) and that he was not
properly notified or compensated.

The respondents (the opposing party in the case) defended themselves by arguing that the
petitioner was not their employee but rather a consultant or adviser. They claimed that they
hired him based on his representation (statement or claim) that he was an expert in
corporate organizational structure (the way a company is arranged, including its hierarchy
and departments) and management affairs (how an organization is run). His role was to help
them update their organizational setup and create a new employees' manual that suited
their current needs.
According to the respondents, the petitioner later claimed that the Eye Referral Center (ERC)
needed an administrator, so he appointed himself to the position, but only on a trial basis.
However, they insisted that there was no employer-employee relationship between them
because they did not control his working hours—he could come and go as he pleased. They
also had no say in how he performed his work as a consultant. Furthermore, they stated that
his behavior became overbearing (too controlling or arrogant), which caused conflicts with
the employees and company officers. This led to three complaints being filed against him.
Respondents further argued that the petitioner was not dismissed from his position; instead,
he was the one who voluntarily severed ties (ended his connection) with them.
On January 20, 2006, the Labor Arbiter (LA) assigned to the case issued a Decision dismissing
the petitioner's complaint. The LA ruled that the petitioner failed to prove that he was
actually an employee of the respondents. Specifically, he could not show evidence that he
was officially appointed as the administrator of the ERC or that he was receiving a salary for
that role. Additionally, the petitioner did not deny that while working with the respondents,
he was also a consultant for various government agencies, including:
• Manila International Airport Authority (manages airports in Manila)
• Manila Intercontinental Port Authority (oversees ports for shipping and trade)
• Anti-Terrorist Task Force for Aviation and Air Transportation Sector (a security group
dealing with air travel threats)
The LA further noted that the petitioner’s work was neither supervised nor controlled by
ERC’s management, and he did not follow fixed working hours—he reported and left work
as he pleased. Instead of a salary, he was receiving allowances as a consultant, which further
indicated that he was not a regular employee.
However, the case took a turn when the National Labor Relations Commission (NLRC)
reviewed the LA’s decision on appeal (a request for a higher authority to reconsider a ruling).
The NLRC reversed the LA’s decision and ruled in favor of the petitioner. The NLRC declared
that:
1. The petitioner was an employee of the respondents.
2. He was illegally dismissed (removed from his job unfairly and without due process).

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3. The respondents were ordered to reinstate him to his former position with full back
wages (the salary he should have received while he was out of work).

The NLRC found that the LA’s decision was not well-supported by evidence. It also stated that
it was the respondents' responsibility to prove that the petitioner's dismissal was justified
and done with due process (fair legal procedure). Since the respondents failed to provide
sufficient proof, the NLRC ruled against them.
The respondents then filed a motion for reconsideration (a formal request to change the
decision), but the NLRC denied it in its Resolution dated May 30, 2008.

The respondents (the opposing party in the case) then filed a Petition for Certiorari (a legal
request asking a higher court to review a lower court’s decision) with the Court of Appeals
(CA). This petition challenged the ruling of the National Labor Relations Commission (NLRC),
which had previously ruled in favor of the petitioner.

In its Decision, the CA annulled (declared invalid) and set aside (removed the effect of) the
NLRC’s judgment and instead reinstated (restored) the Decision of the Labor Arbiter (LA).
The CA justified its ruling by stating that, based on the control test and the economic reality
test, there was no employer-employee relationship between the petitioner and the
respondents.

The control test is a legal method used to determine whether an employer-employee

relationship exists. It examines whether the employer controls how the worker performs
their job, including their working hours and tasks. The economic reality test looks at whether
a worker is dependent on the employer for their livelihood. If a worker is economically
dependent on the employer, they are likely an employee rather than an independent
contractor. Since the CA found that these tests did not establish an employer-employee
relationship, it ruled in favor of the respondents.

The petitioner (the one who originally filed the case) disagreed with the CA’s decision and
filed a motion for reconsideration (a formal request asking the court to review and change
its ruling). However, the CA denied this request in its Resolution dated August 25, 2009.
Because of this, the petitioner brought the case to the Supreme Court through the present
petition for review on certiorari, arguing that the CA committed errors and abused its
discretion (acted unfairly or beyond its authority). The petition was based on two main
grounds (legal reasons):
1. The Court of Appeals should have dismissed the respondents' Petition for Certiorari
because it did not comply with the 2004 Rules on Notarial Practice.
2. The Court of Appeals was wrong in ruling that there was no employer-employee
relationship between the petitioner and respondents.

Regarding the first ground, the petitioner argued that the respondents' petition for certiorari
should have been dismissed because it was improperly verified (not properly signed and
authenticated). Specifically, the jurat (a section in a notarized document where the notary
confirms that the person signing did so voluntarily) only mentioned the community tax
certificate number as proof of identity. The petitioner claimed that, according to the 2004

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Rules on Notarial Practice (as amended on February 19, 2008), a community tax certificate
is not considered valid proof of identity in legal proceedings.
However, the Court disagreed with the petitioner’s argument.

The Court has already established that competent evidence of identity (valid proof of a
person's identity) is not required when the affiant (the person making a sworn statement) is
personally known to the notary public (a legal official authorized to certify documents). This
means that if the notary public is familiar with the person signing the document, there is no
need for the affiant to present valid identification cards.

This principle was affirmed in the case of Jandoquile v. Revilla, Jr., where the Court ruled that
a notary public does not need to ask for identification if they personally know the affiants.
This is based on the legal definition of a "jurat", which is explained under Section 6, Rule II of
the 2004 Rules on Notarial Practice. A jurat is a notarial act that involves the following steps:
1. The person appears in person before the notary public and presents the document.
2. The notary public either personally knows the affiant or identifies them using valid
evidence of identity.
3. The affiant signs the document in the notary public’s presence.
4. The affiant takes an oath or affirmation before the notary public, confirming the
truthfulness of the document.
Additionally, Section 2(b), Rule IV of the 2004 Rules on Notarial Practice states that a notary
public is prohibited from notarizing a document if:
1. The signatory is not physically present at the time of notarization.
2. The signatory is neither personally known to the notary public nor identified using
competent evidence of identity as required by the Rules.

This means that a notary public must either personally know the affiant or verify their
identity using official identification. However, if the affiant is already known to the notary,
presenting identification is not necessary.

Furthermore, Rule II, Section 6 of the same Rules reinforces the definition of a jurat,
confirming that notarization is valid as long as the affiant is present, recognized by the notary,
signs the document in front of them, and swears to its contents. This clarifies that the
petitioner's argument—stating that a community tax certificate is not valid proof of
identity—is irrelevant if the notary personally knows the affiant.

In legal hermeneutics (the interpretation of laws and legal texts), the word "or" is considered
a disjunctive term, meaning it presents alternatives or choices between two or more things.
This means that when "or" is used in legal language, it separates ideas rather than connecting
them, ensuring that one option does not depend on the other.

Because of this, as previously explained, when an affiant (a person making a sworn

statement) is personally known to a notary public (a legal official who authenticates
documents), they do not need to present additional proof of identity as required under the
2004 Rules on Notarial Practice. This means that if the notary public already knows the
affiant, there is no obligation to provide documents such as an identification card.

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Applying this rule to the present case, it is undisputed (not contested) that the attorney-in-
fact (a person authorized to act on behalf of someone else) of the respondents (the opposing
party in the case) was personally known to the notary public. This attorney-in-fact was the
one who executed (signed and swore to) the verification and certificate against forum
shopping (a required legal document ensuring a party is not filing multiple cases for the same
issue) attached to the respondents' petition filed with the Court of Appeals (CA). Moreover,
both the attorney-in-fact and the notary public worked at the same place of business, and
the notary public was also the legal counsel (lawyer) of the respondents. Because of this,
there was no need to present additional proof of identity, as the notary public personally
knew the affiant.

Furthermore, in the case of Heirs of Amada Zaulda v. Isaac Zaulda, the Supreme Court
emphasized the importance of substantive rights (the actual rights and interests of the
parties in a case) over procedural rules (legal technicalities). The Court stated that even if
there was non-compliance (failure to follow) with the verification requirement, courts should
not be overly strict about technical errors if they do not affect justice. The purpose of
procedural rules is to ensure fairness, not to unfairly block cases on minor technical issues.

Similarly, in Coca-Cola Bottlers v. De la Cruz, the Supreme Court ruled that if a verification
document has only a minor defect (such as a small issue with the proof of identity), the Court
should prioritize justice and overlook the technical flaw. Courts should avoid strict
technicalities that could prevent a case from being fairly decided. The goal of the legal system
is to resolve cases based on their merits (the actual facts and issues), rather than dismissing
them due to minor mistakes in paperwork.

The Supreme Court further explained that while reducing the number of pending cases is
important, it should not come at the expense of justice. If courts dismiss cases too quickly
due to technicalities, they may actually cause more delays and injustices. Instead, courts
should take a balanced approach, allowing cases to be reviewed properly on appeal rather
than blocking them due to minor technical lapses. The law disfavors technicalities that
obstruct justice, and courts have a duty to ensure that justice is served fairly, rather than
giving a false impression of efficiency while actually delaying cases further.

When courts decide cases, their primary goal should be to ensure that a party-litigant (a
person or entity involved in a lawsuit) is given the fullest opportunity to present their case.
The focus should be on determining the truth rather than letting someone lose their life,
freedom, reputation, or property due to technicalities (strict procedural rules that do not
necessarily affect the justice of the case). The rules of procedure (formal legal processes)
exist only as tools to achieve justice and should not be applied so rigidly that they hinder
fairness. Courts must avoid using technicalities to block the pursuit of substantial justice (fair
and rightful resolution of a case based on its real merits).

The Supreme Court emphasizes this principle in the case of Alonso v. Villamor, where it stated
that lawsuits should not be treated like duels, where victory is determined by a quick
technical strike rather than the actual merits of the case. If procedural rules stop serving their
purpose of ensuring fairness and instead become an obstacle to justice, courts should set

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them aside. There are no vested rights (absolute entitlements) in technicalities, meaning
legal battles should be won based on facts and evidence, not procedural loopholes.

Regarding the second issue, the petitioner (the person who filed the case) strongly argues
that based on the evidence presented, he had an employer-employee relationship with the
respondents (the opposing party in the case). However, the Supreme Court disagrees.

In legal proceedings, there is a fundamental rule called the burden of proof, which means
that the party making a claim must prove it with sufficient evidence. If someone asserts a
legal right, they must prove it with competent evidence rather than relying on weaknesses
in the opponent's argument. The burden of proof is determined by considering who would
win the case if no evidence were presented.

In cases of illegal dismissal (when an employee claims they were unfairly fired), it is the
employer’s responsibility to prove that the dismissal was justified. However, before an
employee can even claim illegal dismissal, they must first establish that an employer-
employee relationship existed. Since the petitioner filed a complaint before the Labor Arbiter
(LA) claiming he was an employee, it was his responsibility to provide substantial evidence
proving this relationship.

Determining whether an employer-employee relationship exists is a question of fact,

meaning it depends on the specific details of the case rather than legal theory alone. Several
key factors are considered when determining this relationship:
1. Who has the power to hire the employee? (Who selects and appoints them?)
2. Who pays the employee’s wages? (Who provides their salary or benefits?)
3. Who has the authority to fire the employee? (Who can terminate their
employment?)
4. Who controls how the employee does their job? (Who decides the methods and
outcomes of their work?)

There is no specific type of evidence required to prove an employer-employee relationship.

Courts accept any competent and relevant evidence that demonstrates the relationship.
However, the evidence must be substantial, meaning it should be strong enough that a
reasonable person would find it adequate to support a conclusion. In other words, the
evidence must be convincing and reliable, not just based on assumptions or weak claims.

The Supreme Court generally does not review factual issues in a case because it is not a trier
of facts—meaning it does not re-evaluate evidence or re-examine testimonies like a trial
court does. However, in situations where there is a conflict between the findings of lower
courts or tribunals, such as the Labor Arbiter (LA) and the Court of Appeals (CA) on one side,
and the National Labor Relations Commission (NLRC) on the other, the Court can exercise its
equity jurisdiction. Equity jurisdiction allows the Court to step in and review factual findings
to ensure fairness and justice, especially when there is a significant discrepancy in the
conclusions drawn by different judicial bodies.

To determine whether an employer-employee relationship exists, the Court follows four key
factors:

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1. Manner of selection and engagement – How the worker was chosen and hired.
2. Mode of payment of wages – How and by whom the worker is compensated.
3. Power of dismissal – Whether the employer has the authority to terminate the
worker.
4. Control over the worker’s conduct – Whether the employer dictates how the worker
performs their job.

Among these, the most important is the "control test." This test assesses whether the
employer has the power to control not just the outcome of the work, but also how the work
is done. In other words, an employer-employee relationship exists if the employer not only
dictates what should be accomplished but also directs the specific manner and methods
used to complete the work.

In this case, the petitioner claims that the respondents exercised control over him because
the organizational plans he created had to be approved by the Board of Trustees. However,
the Supreme Court agrees with the CA’s interpretation that this does not prove an employer-
employee relationship. The right to approve or reject a final product is different from the
right to control how the work is performed. If someone commissions a person to do a task,
it is only logical that they have the power to accept or reject the final output. However, this
alone does not establish control over the worker’s actual process. The "control test" requires
an examination of whether the employer dictates the steps and methods used in doing the
work, not just whether they approve the final result.

A well-established rule in labor law states that if a person works freely, at their own
convenience, without being required to follow a fixed schedule or specific conditions, and is
paid based on the outcome of their work rather than the time spent doing it, then no
employer-employee relationship exists. This means that a worker must be under the control
of an employer in terms of time, work process, and supervision for an employment
relationship to be recognized.

In this case, it is clear that the petitioner was never bound by definite working hours. He
never refuted the fact that he reported to work and left whenever he wanted. A strong
example of this was when, from December 1 to 31, 2004, he took a leave of absence without
asking for approval from the officers of the respondent company. Instead of seeking
permission, he simply informed the respondents through a letter that he would be away for
a month and even suggested that they could appoint someone else to take his place during
his absence. This behavior strongly indicates that he was not under the strict supervision or
control of the company, as an employee would normally be. The Supreme Court has
consistently ruled that when a person is not required to follow a company's rules and
regulations, is not bound to work specific hours, and is not obliged to dedicate their time
exclusively to one company, there is no employer-employee relationship.

In addition to the control test, which determines employment status based on whether the
employer controls how the work is done, the economic reality test is also used. This test
looks at the overall economic relationship between the parties—specifically, whether the
worker is financially dependent on the employer. This is especially useful when there is no
written contract to establish the nature of the relationship. The Court of Appeals applied this

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test and noted that the petitioner was not financially dependent on the respondent company
because, during the same period he worked there, he also held consultancy positions with
multiple government agencies, such as the Manila International Airport Authority and the
Anti-Terrorist Task Force for Aviation and Air Transportation Sector. Given this, it is evident
that he was not solely reliant on the respondent company for his livelihood, further proving
that an employer-employee relationship did not exist.

To support his claim that he was an employee of the respondent corporation, the petitioner
pointed to the pay slips he allegedly received. However, he did not dispute the findings of
the Court of Appeals (CA) that these pay slips lacked deductions for Social Security System
(SSS) contributions and withholding tax, which are mandatory deductions for regular
employees. In a typical employer-employee relationship, salaries are subject to these
deductions, so the absence of these in the petitioner’s pay slips weakens his claim. Because
of this, the pay slips alone cannot be considered strong evidence that he was an employee
of the respondent corporation.

Additionally, just because payments made to the petitioner were labeled as "salaries" does
not automatically mean an employer-employee relationship existed. The term salary
generally refers to compensation for services rendered, but its label is not the determining
factor in proving employment. In fact, a cash voucher issued to the petitioner states that he
received ₱20,000.00 as an "allowance" for December 2004. However, in the pay slip, the
same amount was categorized as his salary. This inconsistency shows that the payments
made to him do not necessarily confirm that he was a regular employee.

Further supporting the claim that the petitioner was not an employee but a consultant, two
individuals who worked for the respondent corporation, Roy Oliveres (Medical Records
Custodian) and Aurea Luz Esteva (Administrative Officer), executed affidavits (written
statements made under oath) affirming that the petitioner was a consultant, not an
employee. The petitioner objected to these affidavits, arguing that they were hearsay
(statements made by someone who is not present in court to be questioned). However, the
Supreme Court has ruled that even if the people who made the affidavits were not present
for cross-examination, their statements still hold evidentiary value and should not be
dismissed outright. The Court further emphasized that requiring every affiant to testify in
person would go against the purpose of summary proceedings, which are meant to resolve
labor disputes efficiently without overly technical rules of evidence. Therefore, the affidavits
remained valid as supporting evidence that the petitioner was a consultant rather than an
employee.
Two-Tiered Test
A Two-Tiered Test in Labor Law is a legal framework used by courts or labor tribunals to
determine whether an employer-employee relationship exists between two parties. This test
is crucial in resolving disputes where one party claims to be an employee entitled to labor
benefits, while the other insists there is no such relationship. The test consists of two
essential components:
1. Control Test – This is the primary factor in determining employment relationships. It
examines whether the alleged employer has the right to control not only the result
of the work but also the means and manner by which the work is performed. If the

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employer exercises significant control over how tasks are done, it indicates an
employer-employee relationship.
2. Economic Reality Test – This complements the control test by analyzing whether the
worker is economically dependent on the employer. It considers factors such as the
worker’s investment in tools, opportunity for profit or loss, permanency of the
relationship, and whether the work performed is integral to the employer’s business.
For example, if a company hires a delivery rider and dictates his work schedule, dress code,
and the specific way deliveries should be made, this suggests control. If the rider also relies
on the company for continuous work and has no significant investment in equipment beyond
what the employer provides, the economic reality test further supports that an employer-
employee relationship exists.
This Two-Tiered Test ensures that workers who function as employees receive proper labor
protections, such as minimum wage, social benefits, and security of tenure, while preventing
employers from misclassifying workers as independent contractors to avoid legal obligations.

Francisco v. NLRC, G.R. No. 170087, August 31, 2006

In 1995, the petitioner (the person who brought the case to court) was hired by Kasei
Corporation while the company was still in its incorporation stage (the process of legally
forming a company). She was given the position of Accountant (a person responsible for
financial records) and Corporate Secretary (an officer responsible for maintaining company
records and legal compliance). As an Accountant, she handled all financial matters of the
company. She was also appointed as a Liaison Officer (a person who communicates and
coordinates between different groups) with the City of Makati, where she was responsible
for obtaining necessary business permits, construction permits, and other legal approvals for
the company to operate.

Even though she was given the title of Corporate Secretary, she was not given any important
corporate documents, nor was she required to attend board meetings (official gatherings of
company leaders to make decisions). She also did not prepare any legal documents (official
papers related to laws and regulations) or act as the official Corporate Secretary in any
company matters. However, there were instances where she was asked to sign documents
on behalf of the company.

In 1996, she was reassigned as Acting Manager (a temporary manager performing the duties
of a regular manager). Another person named Gerry Nino was hired as an accountant,
replacing her in that role. As Acting Manager, she was responsible for hiring new employees
and managing the company’s operations. She also represented the company when dealing
with government agencies such as the Bureau of Internal Revenue (BIR) (the agency
responsible for collecting taxes), the Social Security System (SSS) (an agency that provides
social benefits to workers), and the city government of Makati. Additionally, she was in
charge of managing Kasei Restaurant, which was owned by Kasei Corporation.

For five years, she worked as Acting Manager. By December 31, 2000, her salary was
P27,500.00, with an additional P3,000.00 housing allowance (extra money for rent or
housing expenses) and a 10% share in the company's profit (a portion of the company’s
earnings given to her).

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In January 2001, the petitioner was replaced as Manager by Liza R. Fuentes. She claimed that
she was asked to sign a prepared resolution (a formal decision document) regarding her
replacement but was reassured that she would still be connected with Kasei Corporation.
Following this, Timoteo Acedo, the company’s Treasurer (the officer responsible for financial
management), held a meeting with all employees and announced that there were no major
changes. He stated that the petitioner would remain with the company as Technical Assistant
to Seiji Kamura and would continue handling all BIR matters (tax-related responsibilities).

Despite these assurances, the company reduced her salary by P2,500.00 per month from
January to September 2001, totaling P22,500.00 in deductions. Additionally, she was not
given her mid-year bonus because the company claimed it was not earning enough. In
October 2001, she did not receive any salary at all. She repeatedly followed up with the
company cashier (the employee responsible for payroll) but was only told that the company
was struggling financially.

On October 15, 2001, she formally demanded her salary from Acedo and the other officers,
but they told her that she was no longer connected with the company. Since she was not
being paid, she stopped reporting for work and filed a case for constructive dismissal (a
situation where an employee is forced to leave due to unfair treatment) before the labor
arbiter (a legal officer who resolves labor disputes).

On the other hand, Kasei Corporation denied that she was ever an employee. The company
argued that she was actually hired in 1995 as a technical consultant (an independent expert
providing advice) for accounting matters while also acting as Corporate Secretary. They
claimed that as a consultant, she worked at her own discretion (on her own terms) without
the company’s control or supervision. She did not have a daily time record (official log of
working hours) and was free to come to the office whenever she wanted. The management
only sought her opinion occasionally on accounting-related issues.

Additionally, they stated that she was not hired through the usual selection process for
employees but was appointed through a Board Resolution (a formal company decision). The
money she received was a professional fee (payment for services provided by an
independent professional), which was subject to a 10% expanded withholding tax (a tax
deducted from professional income). Furthermore, they argued that she was not listed as an
employee in company records with the BIR or SSS.

The petitioner’s designation as a technical consultant was entirely dependent on the

management’s decision. This meant that her position was temporary (not permanent) and
could be terminated at any time based on the company’s needs. Her role was not
guaranteed, and the company could end her consultancy whenever it deemed necessary.

To support their claim that the petitioner was not an employee, the private respondents (the
company and its representatives) provided evidence to the authorities. They submitted a list
of employees for the years 1999 and 2000, which was officially received by the Bureau of
Internal Revenue (BIR) (the government agency responsible for collecting taxes). This list did
not include the petitioner’s name, meaning she was not officially reported as an employee.

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Instead, her name appeared on a list of payees subject to expanded withholding tax (a tax
deducted from payments to professionals and independent contractors). Additionally, Social
Security System (SSS) records were presented, showing that the petitioner’s most recent
employer was Seiji Corporation, not Kasei Corporation.

Despite this, the Labor Arbiter (a legal officer responsible for resolving labor disputes) ruled
in favor of the petitioner, determining that she was illegally dismissed (fired without valid
reason). The arbiter’s decision included the following points:
1. The petitioner was found to be an employee of Kasei Corporation.
2. Her dismissal was declared illegal.
3. The respondents (the company and its officers) were ordered to reinstate (restore)
her to her former position without losing her seniority rights (her previous rank and
privileges as an employee).
4. If reinstatement was not possible, the company was required to pay her separation
pay (compensation given instead of reinstatement) along with additional back wages
(unpaid salaries from the time of dismissal to the date of payment).

The financial compensation awarded to the petitioner amounted to P957,742.50 and

included:
• Back wages (unpaid salary) from October 2001 to July 2002 amounting to
P275,000.00.
• Salary differentials (the amount deducted from her salary from January to September
2001) totaling P22,500.00.
• Housing allowance (monthly living expense support) for the period of January 2001
to July 2002, totaling P57,000.00.
• Midyear bonus for 2001 amounting to P27,500.00.
• 13th-month pay (a mandatory yearly bonus in the Philippines) of P27,500.00.
• 10% share in Kasei Corporation’s profits from 1996 to 2001, totaling P361,175.00.
• Moral and exemplary damages (compensation for emotional distress and wrongful
termination) amounting to P100,000.00.
• Attorney’s fees (legal expenses) of P87,076.50.

If reinstatement was not possible, the company was required to pay separation pay along
with additional back wages until the actual payment of separation pay was made.
The decision was finalized with the statement: “SO ORDERED.”, meaning it was an official and
legally binding ruling.

On April 15, 2003, the National Labor Relations Commission (NLRC) reviewed the Labor
Arbiter’s decision and affirmed (agreed with) it but with some modifications (changes). The
main points of the modified decision were:
1. Kasei Corporation was ordered to pay separation pay (compensation given instead of
reinstatement) calculated at one month’s salary per year of service, in addition to full
back wages (unpaid salaries) from October 2001 to July 31, 2002.
2. The awards for moral and exemplary damages (compensation for emotional distress
and wrongful dismissal) amounting to P100,000.00 and the 10% share in the
company's profit of P361,175.00 were deleted (removed).

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3. The 10% attorney’s fees (legal fees) would only apply to the salary differential award
(the unpaid salary adjustments).
4. The awards for salary differentials, housing allowance, mid-year bonus, and 13th-
month pay were affirmed (kept as part of the decision).

The decision was finalized with the statement: "SO ORDERED.", meaning it was officially
binding.
However, the case was further appealed to the Court of Appeals, which reversed the NLRC’s
decision. The Court ruled that the petitioner was not constructively dismissed (not forced to
resign due to unfair treatment). As a result, the complaint filed against Kasei Corporation was
dismissed (rejected).

The petitioner then filed a motion for reconsideration (a request for the court to review and
change its ruling), but the Court of Appeals denied (refused) it. Because of this, the petitioner
sought another legal remedy through the present recourse (bringing the case to a higher
court for further review).

The main issues to be resolved in this case are:

1. Was there an employer-employee relationship between the petitioner and Kasei
Corporation?
2. If there was an employer-employee relationship, was the petitioner illegally
dismissed?
Since there were conflicting rulings—with the Labor Arbiter and NLRC ruling in favor of the
petitioner and the Court of Appeals ruling in favor of Kasei Corporation—it became necessary
to reexamine (carefully review) the case records. The goal was to determine which side had
substantial evidence (strong, credible proof) supporting their claims.
In the case of Sevilla v. Court of Appeals, the court recognized that there is no single test to
determine whether a person is an employee or an independent contractor (a person who
provides services but is not part of the company’s workforce). However, the most commonly
used test is the right-of-control test. This test looks at whether the employer has the power
to control not only the final outcome of the work but also the methods and processes used
to achieve that outcome.
Aside from the right-of-control test, other factors can help determine if an employer-
employee relationship exists. For example, if a person is included in the payroll (official salary
records), it is strong evidence that they are an employee rather than an independent
contractor.
However, in complex cases where the worker has held multiple roles (such as the petitioner
in this case), the control test alone may not be enough. In such situations, courts also
consider the economic realities test. This test looks at the financial relationship between the
worker and the company, such as whether the worker depends on the company for their
livelihood, whether they receive employment benefits, and whether their role is essential to
the company’s business. This broader approach helps determine if the person should be
classified as an employee, independent contractor, corporate officer, or another type of
worker.

The better approach to determining whether an employer-employee relationship exists is

through a two-tiered test. This test has two main parts:

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1. Control Test – This examines whether the employer has the power to control how
and by what methods the employee performs their job. It does not only focus on the
final output but also on the processes used to achieve the work.
2. Economic Realities Test – This looks at the financial relationship between the worker
and the employer, considering factors such as how much the worker relies on the
employer for income and job security.

This two-tiered test provides a comprehensive way to analyze the situation, taking into
account all circumstances that define the true nature of the worker’s relationship with the
company. This is especially important in cases like this, where there is no written contract to
define the worker’s status. Since the petitioner held various roles and responsibilities over
time, a simple test would not be enough to fully understand the relationship.
The Control Test was first applied in Viaña v. Al-Lagadan and Piga and later reaffirmed in
Leonardo v. Court of Appeals. In these cases, the courts ruled that a person is considered an
employee if the employer has the right to control not just the final result of the work but also
how the work is performed.

However, in Sevilla v. Court of Appeals, the Supreme Court recognized that the Control Test
alone may not be enough. It emphasized that economic conditions should also be
considered—such as whether the worker is included in the payroll (the company’s list of
employees who receive salaries). This approach ensures that the court gets a complete
understanding of the economic relationship between the worker and employer.
To determine the true employer-employee relationship, courts analyze the entire economic
activity by considering the following factors:
1. Whether the worker’s job is essential to the employer’s business.
2. Whether the worker provides their own equipment and facilities, or if the employer
supplies them.
3. The level of control the employer has over the worker’s job.
4. The worker’s opportunity to make a profit or loss based on their own decisions.
5. The level of skill and independence required for the work.
6. The length of time the worker has been with the employer.
7. How dependent the worker is on the employer for income and job security.

The key factor in economic dependence is whether the worker relies on the employer for
their continued work in the same field. In the United States, the Federal Labor Standards Act
also uses economic dependence as the main test for employment relationships. Similarly,
under the Labor Code, the economic dependence of a worker on an employer should be the
main basis for analyzing employment relationships.

By applying the Control Test, it is evident that the petitioner was an employee of Kasei
Corporation because she worked under the direct supervision and control of Seiji Kamura,
the company’s Technical Consultant. She reported to work regularly and held multiple
positions over time, such as Accountant, Liaison Officer, Technical Consultant, Acting
Manager, and Corporate Secretary. However, despite the changes in her job title, her core
responsibilities remained the same—handling accounting and tax matters and securing
business permits and licenses necessary for the company’s operations. These tasks were

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essential to the business, and she performed them over an indefinite period, further proving
her status as an employee rather than an independent contractor.

Under the Economic Reality Test, the petitioner was clearly financially dependent on Kasei
Corporation. She worked for the company for six years before her dismissal and regularly
received salaries and benefits, as shown in check vouchers indicating her wages, 13th-month
pay, bonuses, and allowances, along with deductions for Social Security System (SSS)
contributions from August 1, 1999, to December 18, 2000. When she was appointed General
Manager, the company itself reported her employment to the SSS, as confirmed by a
document signed by Irene Ballesteros. Furthermore, her SSS membership, including a
specimen signature card signed by Kasei Corporation’s President, and her presence in the
SSS online records, provide further proof that she was an employee of Kasei Corporation.

Since the petitioner was economically dependent on the corporation for her continued
employment, she met the legal standard for being classified as an employee. In the case of
Domasig v. National Labor Relations Commission, the Supreme Court ruled that an
identification card issued by a company serves not only as a security measure but also as
proof that the holder is a legitimate employee. When combined with the cash vouchers
showing the petitioner’s salaries, this evidence strongly supports the conclusion that she was
an employee of Kasei Corporation.

Similarly, in Flores v. Nuestro, the Court held that a company’s registration of a worker with
the SSS is proof of employment because the Social Security Law applies only to employees.
Since Kasei Corporation registered the petitioner with the SSS, this further confirms the
existence of an employer-employee relationship.

Moreover, the affidavit of Seiji Kamura dated December 5, 2001, clarified that the petitioner
never actually performed the duties of a Corporate Secretary. Her designation as such was
only for convenience. Her real job was being Kamura’s direct assistant, specifically handling
Liaison Officer duties—which involved securing construction permits, operating licenses, and
other government requirements. Notably, she was never entrusted with corporate
documents, never required to attend board meetings, and never involved in the preparation
of corporate documents. Although she occasionally signed company paperwork, it was
always pre-prepared for her, further proving that her actual role was different from her
designated title.

The second affidavit of Seiji Kamura, dated March 7, 2002, contradicted his first affidavit from
December 5, 2001. However, Kamura himself allegedly withdrew this second affidavit from
the case records. Regardless of this withdrawal, the first affidavit alone is sufficient to
establish that the petitioner was an employee of Kasei Corporation.

Even if we assume, for the sake of argument (granting arguendo), that the second affidavit
effectively overturned the first one, courts generally do not favor retracted or recanted
testimonies. This is because a person may change their statement for reasons other than
telling the truth, such as pressure, bribery, or intimidation. If courts were to accept every
recantation easily, legal proceedings would become unreliable and could be manipulated by
dishonest witnesses. A recantation does not automatically erase a previous statement;

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instead, like any other testimony, it must undergo credibility evaluation and should be
treated with caution.

From the evidence presented, there is no other conclusion but that the petitioner was an
employee of Kasei Corporation. She was hired and paid by the company, and she was
economically dependent on the corporation for her livelihood. Her main job function
involved accounting and tax services, which she provided regularly over an indefinite period.
The company had the authority to hire, compensate, and dismiss her, and, most importantly,
had control over how she performed her job, which is a defining element of an employer-
employee relationship.

Kasei Corporation constructively dismissed the petitioner when it reduced her salary by
P2,500 per month from January to September 2001. Constructive dismissal happens when
an employer makes working conditions intolerable, forcing the employee to resign
involuntarily. This can occur due to demotion, pay reduction, discrimination, or insensitivity
by the employer. In this case, the salary reduction was a clear violation of labor laws and
amounted to an illegal termination, making the petitioner entitled to full backwages (wages
lost due to illegal dismissal).

Because the petitioner’s role as Accountant was a position of trust and confidence,
reinstating her to the company would be impractical under the principle of strained relations
(a legal doctrine that prevents reinstatement when it could cause further conflict between
employer and employee). Therefore, she is entitled to separation pay instead of
reinstatement.

The Supreme Court, in Globe Telecom, Inc. v. Florendo-Flores, ruled that when an employee
stops working due to a demotion or pay reduction, it creates an unbearable work
environment, which effectively forces the employee to leave. Since this was not the
petitioner’s fault, her departure was not voluntary and, therefore, was considered an illegal
termination.

In ensuring full protection for workers, the Court upholds the right to fair employment and
equal work opportunities, regardless of gender, race, or beliefs. The Labor Code should apply
to as many employees as possible, allowing them to benefit from legal protections. This
aligns with the Constitution’s mandate to safeguard workers’ rights, promote their welfare,
and recognize labor as a key force in social justice and national development.

The Supreme Court granted the petition, overturning the Court of Appeals’ decision from
October 29, 2004, and October 7, 2005. Instead, it reinstated the NLRC’s decision from April
15, 2003, which ruled in favor of the petitioner. The case was remanded (sent back) to the
Labor Arbiter for the recalculation of full backwages from the time of illegal dismissal until
the final resolution of the case, along with separation pay of half a month’s salary per year
of service (with at least six months counted as a full year).

SO ORDERED.

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Ditiangkin v. Lazada, G.R. No. 246892, September 21, 2022

When there is a dispute about whether a worker is a regular employee or an independent

contractor, the burden of proof (responsibility to provide evidence) falls on the employer.
This means that the employer must prove that the worker is not a regular employee but
instead an independent contractor, who is self-employed and not entitled to employee
benefits.

This case involves a Petition for Review, which challenges two Resolutions of the Court of
Appeals dated January 14, 2019, and March 15, 2019. These rulings upheld the decision of
the National Labor Relations Commission (NLRC), which found that there was no employer-
employee relationship between the riders and Lazada E-Services Philippines, Inc.

In February 2016, five individuals, namely Chrisden Cabrera Ditiangkin, Hendrix Masamayor
Molines, Harvey Mosquito Juanio, Joselito Castro Verde, and Brian Anthony Cubacub Nabong
(referred to as riders), were hired by Lazada to pick up items from sellers and deliver them
to Lazada’s warehouse. Each of these riders signed an Independent Contractor Agreement
(a legal document stating that they were not employees but independent contractors).
According to this contract, they were to be paid P1,200 per day as a service fee and were
engaged for a period of one year. Additionally, they used their own motorcycles for
deliveries, which suggests that Lazada did not provide work equipment for them.

However, in January 2017, the riders were suddenly removed from their usual delivery routes
by a dispatcher (a person responsible for assigning delivery tasks). They were also not given
new work schedules, meaning that they could no longer perform their jobs. Despite this, the
riders continued reporting to work for three days, waiting for new assignments, but they
were not given any tasks. Eventually, they discovered that their delivery routes had already
been reassigned to other workers.

This situation raises questions about whether the riders were truly independent contractors
or whether they were actually employees who were terminated unfairly. The main issue in
this case is whether Lazada exercised control over the riders’ work, which is a key factor in
determining an employer-employee relationship.

The riders responded to their removal by filing a complaint before the National Labor
Relations Commission (NLRC) against Lazada, its employees, and officers. Their complaint
included multiple claims, such as illegal dismissal (being fired unfairly), non-payment of
salary, overtime pay, holiday pay, service incentive leave pay (a required benefit for
employees working at least one year), 13th-month pay, separation pay (compensation given
when an employee is dismissed under certain conditions), and illegal deductions (money
taken from their pay without valid reason). They also demanded moral and exemplary
damages (compensation for emotional distress and to punish the employer) and attorney’s
fees (legal costs).

The riders' argument was that they should be considered regular employees of Lazada. They
claimed that Lazada had control over how they performed their work, meaning that the

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company dictated the means (how the job should be done) and methods (the specific
process to follow), which is a key sign of an employer-employee relationship.

On the other hand, Lazada denied that the riders were employees. Instead, the company
insisted that the riders were independent contractors (self-employed workers who provide
services under a contract). Lazada also argued that it is not a common carrier (a company
that transports goods or passengers for the public) but rather an online platform that
connects sellers and buyers. When someone buys an item from Lazada, the company only
arranges for delivery through an independent service provider, meaning that delivery is not
its main business, but just a supporting activity.

Lazada further explained that the sudden decrease in delivery demand after the Christmas
season led to a schedule reorganization in January. According to Lazada, it had to adjust the
assignments to ensure that all riders had fair delivery trips. The company claimed that the
riders misinterpreted these temporary changes as termination.

The Labor Arbiter (a judge who decides labor disputes) dismissed the complaint, ruling that
the riders were not regular employees of Lazada. Since there was no employer-employee
relationship, the NLRC lacked jurisdiction (authority to decide the case). The decision ended
with a clear statement:

“WHEREFORE, the complaint is dismissed for lack of jurisdiction, there being no employer-
employee relationship between the parties.”
This ruling supported Lazada’s claim that the riders were not employees and, therefore, not
entitled to employment benefits or protection under labor laws.

The Labor Arbiter (a judge who resolves labor disputes) focused on the Contract signed by
the riders. The contract clearly stated that "no employer-employee relationship exists
between [Lazada] and the [riders]." Because the contract was explicit (clearly stated) and
clear, the Labor Arbiter ruled that its literal meaning should be followed—meaning that since
the contract says there is no employment relationship, then that should be accepted as fact.
Additionally, the Labor Arbiter considered the level of control that Lazada had over the riders'
work. One key point was that the riders had the freedom to choose how they worked. They
provided their own motorcycles or chose their own mode of transport. They also had control
over which routes they would take and what working hours they followed.

Lazada’s only requirement was that the goods be delivered on time and in good condition.
Even though Lazada set rules and guidelines for deliveries, the Labor Arbiter determined that
this did not amount to control over the riders’ methods and means of working. Since Lazada
was not dictating every step of how the work should be done, it did not meet the standards
of an employer-employee relationship. As a result, the Labor Arbiter ruled that the riders
were not employees of Lazada.

The riders appealed the decision to the National Labor Relations Commission (NLRC), but the
NLRC upheld (agreed with) the Labor Arbiter's ruling. The NLRC also pointed to the contract,
saying that since it clearly stated that the riders were not employees, its terms should be
followed.

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To further support its decision, the NLRC applied the "four-fold test", which is a legal standard
used to determine whether an employer-employee relationship exists. The test looks at four
factors: (1) whether the employer has the power to select and hire the worker, (2) whether
the worker is paid wages, (3) whether the employer has the power to dismiss the worker,
and (4) whether the employer has control over how the work is done. In this case, the NLRC
found that Lazada did not have control over how the riders did their work, reinforcing the
idea that they were independent contractors and not regular employees.

The riders requested a reconsideration (asked the NLRC to review the decision again), but
this was denied. Left with no other choice, they escalated (brought) the case to the Court of
Appeals by filing a Rule 65 petition (a legal remedy used when a government agency or
official is accused of acting without or in excess of their authority). However, the Court of
Appeals immediately dismissed the petition, meaning it did not even proceed with a full
hearing or review of the case.

The Court of Appeals ruled that the riders used the wrong legal remedy when they filed a
Rule 65 certiorari petition (a legal action used when a lower court or agency is accused of
exceeding its authority or making a serious legal error). Instead, the court stated that the
proper remedy should have been a Rule 43 petition, which is the correct legal process for
appealing decisions of quasi-judicial bodies like the National Labor Relations Commission
(NLRC).

The Court of Appeals explained that a Rule 65 petition can only be used to correct errors of
jurisdiction—meaning cases where a government agency acts beyond its legal power or
commits grave abuse of discretion (a severe and unfair misuse of authority). However, the
riders failed to prove that the NLRC committed such an error. The Court of Appeals noted
that the NLRC had carefully examined the evidence before making its decision, meaning
there was no sign of bias or legal overreach. Because the riders could not show any prima
facie (clear and obvious) case of grave abuse of discretion, the Court of Appeals denied their
petition.

After their motion for reconsideration (a request to review the decision again) was also
denied, the riders escalated the case to the Supreme Court by filing a Petition for Review
under Rule 45 (a legal procedure that allows the Supreme Court to review final decisions of
lower courts).

In their petition, the riders argued that Rule 65 was the correct method of appeal, not Rule
43, as the Court of Appeals had concluded. They insisted that the NLRC committed grave
abuse of discretion by wrongly classifying them as independent contractors instead of
regular employees.

The riders further argued that their employment contracts should not be treated like
ordinary contracts, citing the constitutional policy of giving full protection to labor. They
pointed out that under Article 295 of the Labor Code, an employee is considered regular if
their work is necessary and desirable to the employer’s usual business. Since Lazada's main
business involves marketing, providing a platform for sellers, and delivering goods to

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customers, the riders claimed that their delivery work was essential to the company’s
operations, making them regular employees.

To support their claim, the riders applied the "four-fold test", which is used to determine
whether an employer-employee relationship exists. They argued that all four elements were
present:
1. Selection and engagement – Lazada specifically hired them, and they were former
employees of RGSERVE, Inc., the contractor previously hired by Lazada.
2. Payment of wages – Lazada paid them directly and also required them to pay cash
bonds and other deductions.
3. Power of dismissal – Lazada had the authority to fire them.
4. Control over work performance – Lazada dictated how their work should be done,
which is the strongest indicator of an employer-employee relationship.

Because of these factors, the riders insisted that they were regular employees of Lazada, not
independent contractors, and should be entitled to the rights and benefits of regular
employment under the law.

The petitioners (riders) argue that their work was controlled by Lazada, proving that they
were regular employees and not independent contractors. They claim that they were
required to report to work daily within set working hours and follow company rules and
regulations. This contradicts the idea of being independent contractors, who are usually free
to decide their own schedules and methods of work.

The riders highlight their employment contracts, which explicitly state that the method of
their work is under Lazada's instruction and discretion. They explain that their work was
closely monitored using a route sheet, which kept track of their arrival, departure, and
unloading times. Additionally, Lazada imposed penalties on them, such as a P500 fine for lost
parcels, on top of paying for the parcel's value. Even their salary payments were controlled
by Lazada. Another key detail they pointed out was that their incident reports contained the
word "EMPLOYEE", further proving that they were not independent contractors. To support
their claims, the riders submitted evidence such as time cards, advertisements, trip tickets,
company-issued scanners, cellphones, and SIM cards.

The petitioners also argue that they were forced to work 12-hour shifts, six days a week,
which made it impossible for them to take on other jobs. Because of this, they were
economically dependent on Lazada for their livelihood, which is a strong indication of regular
employment.

Another important point raised by the riders is that they did not have the capital or
investment necessary to be independent contractors. They claim that without Lazada
providing essential tools like cellphones, scanners, and uniforms, they would not have been
able to perform their jobs. This contradicts the idea of being independent contractors, who
typically supply their own tools and equipment.

Since they consider themselves regular employees, the riders insist that Lazada illegally
dismissed them and that they are entitled to monetary compensation. They demand full

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backwages (salaries they should have received if not for the illegal dismissal) and separation
pay instead of reinstatement. They also request payment for the three days they reported to
work in January 2017 but were not given any assignments.

Additionally, they claim that Lazada failed to provide mandatory benefits, such as the
thirteenth-month pay, service incentive leave pay, and holiday pay, even though they worked
on holidays. They also challenge illegal salary deductions, arguing that cash bonds were
collected from them without legal basis, as DOLE Labor Advisory No. 11 only allows such
bonds for security agencies. They further argue that Lazada never refunded these
deductions, and that the tax deductions on their salaries were unjustified.

Finally, the riders assert that their dismissal was done in bad faith and was oppressive,
violating good morals and public policy. Because of this, they claim they are entitled to moral
and exemplary damages (compensation for unfair treatment). They also demand attorney's
fees, arguing that Lazada should be held responsible since their wages were unjustly
withheld.

The respondents (Lazada and its representatives) argue that the petitioners (riders) were not
essential to their business because Lazada’s primary role is to provide an online platform
where buyers and sellers can transact. They emphasize that they are not a common carrier
(a business responsible for transporting goods or passengers), which means they do not
directly handle deliveries. Instead, buyers and sellers can arrange deliveries themselves, and
Lazada would still function as a marketplace. This implies that the riders’ services are not a
necessary or desirable part of Lazada’s core operations.

The respondents also argue that the riders do not meet the criteria of the four-fold test,
particularly the control test, which determines if an employer has significant control over an
employee’s work.

First, the riders claimed that they were selected and engaged by RGSERVE, Inc., a company
that previously worked with Lazada. However, the respondents argue that this is irrelevant
because there is no proof that RGSERVE, Inc. and Lazada are connected as affiliates,
branches, or alter-egos (companies that are essentially the same but operate under different
names). Since the riders signed new contracts directly with Lazada, their previous
employment under RGSERVE, Inc. should not affect their current employment status.

Second, the respondents explain that the riders were paid Contract Service Fees rather than
salaries, which means they were compensated as independent contractors, not employees.
They acknowledge that cash bonds and deposits were deducted from the riders but argue
that these deductions were agreed upon in the Contract. The cash bond was supposedly a
fair requirement to ensure financial responsibility, and Lazada could have demanded a full
upfront payment instead of allowing the riders to pay in installments. The respondents also
emphasize that when the riders signed the Contract, they declared they had enough capital
to operate as independent contractors. Additionally, the respondents argue that the Contract
is governed by the Civil Code (laws covering agreements between private individuals), not
the Labor Code (laws protecting employees). Since both parties freely agreed to the
Contract’s terms, Lazada believes it should be honored.

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Third, the respondents claim they had no power to dismiss the riders. They argue that any
termination of the agreement should follow the terms of the Contract. If the riders believed
they were wrongfully removed, they should have gone through arbitration (a legal process
to resolve disputes) or filed a civil case instead of claiming illegal dismissal. The respondents
also point out that they never directly dismissed the riders—instead, the riders assumed they
were dismissed after hearing from a dispatcher (a person who assigns delivery routes) that
they would no longer be given trips.

Lastly, Lazada insists that they did not exercise control over the riders’ work in a way that
would establish an employer-employee relationship. They acknowledge that the Contract
had certain terms and conditions, but these were only meant to protect both parties and
ensure that deliveries were done smoothly. They argue that following company guidelines
does not automatically mean that Lazada had full control over the riders, which is necessary
to prove an employer-employee relationship.

The respondents (Lazada and its representatives) argue that the petitioners (riders) do not
meet the economic dependence test, which determines whether a worker relies solely on a
company for income. They claim that the riders have full discretion over how they perform
their tasks. The riders are free to choose their mode of transportation, the routes they take,
when to take breaks, and when to start their deliveries. The Contract does not require them
to work 12 hours a day for six days a week, contradicting the riders' claim. Because of this
flexibility, the respondents argue that the riders are free to work for other companies,
proving they are not economically dependent on Lazada.

The respondents also argue that various work-related documents do not prove employer
control. They explain that the route sheet (a document listing pickup and delivery locations)
is not a form of control but simply a guide to ensure the correct delivery of parcels. The
penalty for lost parcels is not meant to control the riders’ work but rather serves as a
preventive measure to ensure deliveries are completed properly. The cellphones and SIM
cards provided to the riders were only for coordination purposes and not a sign of control.
As for the manual time cards, Lazada claims they were used only to record working hours for
billing purposes, not to monitor or control the riders’ work schedules. Lastly, the
advertisements showing delivery services do not prove that Lazada employs riders, only that
Lazada incorporates deliveries into its business model.

Since the respondents do not recognize the riders as regular employees, they argue that the
riders are not entitled to backwages (compensation for lost earnings), separation pay (money
given when employees are dismissed), or other benefits. According to their Contract, the
riders are only paid for full workdays, meaning they should not expect to be paid if they are
merely waiting for assignments.

Additionally, the respondents claim that the cash bonds and other deductions should not be
refunded, as the riders voluntarily agreed to these terms in their Contract. While labor laws
generally prohibit salary deductions, the respondents argue that this rule does not apply
here since the riders are independent contractors.

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Finally, the respondents argue that the riders cannot claim moral and exemplary damages
(compensation for harm and wrongdoing) or attorney’s fees because they were never
officially dismissed. Since they were not regular employees, there was no bad faith
(intentional dishonesty) or fraud on Lazada’s part.

In response, the petitioners (riders) maintain that their role as riders is essential to Lazada’s
business because part of Lazada’s operations involves delivering goods to customers. They
argue that this necessity proves they are regular employees rather than independent
contractors.

The petitioners (riders) strongly emphasize that, based on the four-fold test, they should be
classified as employees of Lazada rather than independent contractors. The four-fold test is
a legal method used to determine if an employer-employee relationship exists. One of the
most important factors in this test is control, which means whether the employer has the
power to dictate how a worker does their job. The petitioners highlight that Lazada controls
how they perform their work, as clearly stated in their Contract. Specifically, the Contract
mentions that their services must be done as "instructed by, and within the discretion and
control" of Lazada. This wording, they argue, proves that Lazada has direct authority over
them, much like a traditional employer would.

The petitioners further argue that Lazada's guidelines are not just simple instructions but
strict rules meant to ensure accountability. This means that if a rider does not follow these
rules, there could be consequences. Because of this level of control, the petitioners insist
that they should be considered regular employees rather than independent workers. Since
they are regular employees, they believe that their termination was illegal because they were
dismissed without proper notice, which is a violation of labor laws protecting workers from
sudden job loss.

The case presents several legal questions that need to be resolved by the Court:
1. Did the Court of Appeals make a mistake by dismissing the riders’ petition? The
petitioners originally filed a certiorari petition (a legal request to review a lower
court's decision), but it was dismissed outright. The Court must now decide whether
that dismissal was proper.
2. Are the petitioners regular employees of Lazada? This is the main issue in the case.
To answer this, the Court must determine:
o Are the petitioners independent contractors? If they are, then Lazada is not
required to treat them as regular employees.
o Do the petitioners meet the requirements of the four-fold test? This test will
help establish if Lazada has enough control over their work to classify them
as employees.
o Are the petitioners economically dependent on Lazada? If they rely solely on
Lazada for their income, this would further support their claim of being
employees.
3. Are the petitioners entitled to financial compensation? If the Court decides that the
petitioners were wrongfully terminated, it must determine if they should receive
monetary awards, such as backwages (compensation for lost earnings) and other
benefits they claim were unfairly withheld.

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In the case of St. Martin Funeral Home v. NLRC, the Supreme Court established that decisions
made by the National Labor Relations Commission (NLRC) can be reviewed by the Court of
Appeals through a Rule 65 certiorari petition. This applies when the NLRC has committed
grave abuse of discretion, which means it acted beyond its authority or made a decision so
unreasonable that it amounted to a refusal to perform its legal duty.
Grave abuse of discretion happens when a government body or official makes a decision in
an arbitrary or oppressive manner. This means the decision was based on personal bias,
passion, or hostility rather than on fair judgment and legal principles. For the abuse to be
considered grave, it must be so obvious and severe that it results in a serious violation of
duty or a complete failure to apply the law correctly.

A decision by the NLRC can be considered as committing grave abuse of discretion under the
following circumstances:
1. When it is not supported by substantial evidence—meaning there is not enough
factual basis for the ruling.
2. When it ignores or disregards crucial evidence that is important to resolving the
dispute.
3. When it is necessary to prevent a serious injustice or to correct a major mistake in
the ruling.
4. When the NLRC’s decision contradicts the findings of the Labor Arbiter, which could
indicate an error in how the case was reviewed.
5. When the NLRC’s decision is unfair or unreasonable, making it necessary for the
Court to intervene to reach a just outcome.

In simple terms, the Supreme Court recognizes that not all mistakes made by the NLRC are
automatically grave abuse of discretion. However, when the NLRC fails to consider important
facts, acts unfairly, or reaches a decision that is completely unreasonable, the Court of
Appeals has the authority to review and possibly overturn the ruling through a Rule 65
certiorari petition.

When a case has already been decided by the Court of Appeals, a party who disagrees with
the ruling may bring the case before the Supreme Court through a petition for review under
Rule 45. However, this type of petition is limited to questions of law, which means the
Supreme Court will only review whether the Court of Appeals correctly applied the law and
not whether it made the right decision based on facts.

In labor cases, a Rule 45 petition is even more specific. The Supreme Court will not directly
review the merits of the labor dispute. Instead, it will only determine whether the Court of
Appeals correctly assessed whether the NLRC committed grave abuse of discretion or other
serious legal errors. This means the Supreme Court does not re-evaluate evidence or re-
examine facts but focuses on whether legal procedures were followed properly.

This principle was explained in the case of Fuji Television Network, Inc. v. Espiritu, where the
Supreme Court clarified how it reviews labor-related Rule 45 petitions. The Court referred to
an earlier ruling in Meralco Industrial v. NLRC, which emphasized that the Supreme Court is
not a trier of facts. This means the Supreme Court does not reassess evidence or make new
factual findings. Instead, it assumes that the factual findings made by the NLRC, when

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confirmed by the Court of Appeals, are final and binding—unless those findings are
completely unsupported by evidence or based on a serious misunderstanding of facts.

The case of Career Philippines v. Serna, citing Montoya v. Transmed, further clarified that in
a Rule 45 petition involving a labor case, the Supreme Court's role is to review whether the
Court of Appeals correctly determined the existence of grave abuse of discretion in the
NLRC’s ruling. This is different from a Rule 65 petition, where the court looks at whether the
NLRC acted beyond its authority or committed an extreme error in judgment.

Generally, the Supreme Court does not reassess evidence when reviewing labor cases. It
trusts the findings made by labor tribunals, such as the National Labor Relations Commission
(NLRC) and the Labor Arbiter, as long as these findings are supported by evidence. However,
there are exceptions where the Supreme Court may re-evaluate the facts of the case.
These exceptions include situations where:
1. The Court of Appeals and the trial court (lower court) have contradictory findings—
meaning they arrived at different conclusions based on the same set of facts.
2. The conclusions made by the labor tribunals are based on speculation, guesses, or
assumptions rather than solid evidence.
3. The Court of Appeals misinterpreted the facts in a way that is obviously wrong,
unreasonable, or impossible.
4. There was grave abuse of discretion in how the labor tribunals evaluated the facts—
meaning their decision was so unreasonable that it seemed to ignore proper legal
principles.
5. The Court of Appeals made conclusions that went beyond the actual issues of the
case and made findings that even contradict the statements of both parties.
6. The judgment of the Court of Appeals was based on a misunderstanding of the facts.
7. The Court of Appeals overlooked important facts, and considering those facts would
have led to a different outcome.
8. The findings of fact are inconsistent—meaning different conclusions were made
about the same event or evidence.
9. The conclusions lack a clear basis, and there is no specific evidence cited to support
them.
10. The Court of Appeals stated that there was no evidence, but the record actually
contains evidence that contradicts this claim.

In this particular case, the Court of Appeals dismissed the petition for certiorari (a request
for judicial review) outright by saying that the petitioners should have used Rule 43 instead
of Rule 65. However, this reasoning is incorrect. According to the case of Fuji Television
Network, Inc., decisions made by the NLRC can be elevated to the Court of Appeals through
a Rule 65 petition when there is grave abuse of discretion.

The petitioners argue that grave abuse of discretion occurred because the Labor Arbiter and
NLRC made serious errors in understanding the facts, and their conclusions go against the
evidence on record. After carefully reviewing the case, the Supreme Court finds that there
were indeed errors in how the lower tribunals assessed the facts. Because of this, the Court
can re-examine the factual findings and decide whether the labor tribunals made a mistake
in their ruling.

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The Philippine Constitution recognizes that labor is a primary social and economic force,
meaning that workers play a crucial role in society and the economy. Because of this, the
State (government) ensures that full protection to labor is a fundamental policy, as stated in
Article XIII, Section 3 of the Constitution.

This provision states that the government must protect all workers, whether they work
locally or abroad, and whether they belong to labor unions (organized workers) or not
(unorganized workers). It also guarantees equal employment opportunities so that everyone
has a fair chance at getting a job.

Workers have several rights under this provision:

• The right to self-organization (forming or joining labor unions)
• The right to collective bargaining and negotiations (negotiating wages and working
conditions as a group)
• The right to peaceful protests and strikes, as long as they follow the law
• The right to security of tenure (protection from being unfairly fired)
• The right to humane working conditions (safe and fair work environments)
• The right to a living wage (enough pay to cover basic needs)
• The right to participate in decision-making regarding their rights and benefits

The Constitution also promotes shared responsibility between workers and employers,
meaning both should work together to resolve issues voluntarily through methods like
conciliation (settling disputes through discussion). This is meant to create industrial peace—
a stable and cooperative work environment.
Additionally, the government regulates the relationship between workers and employers,
making sure that:
• Workers receive fair compensation (a just share of the company's earnings)
• Employers earn reasonable profits to allow for business growth and expansion

One important right highlighted in this provision is security of tenure, which means that an
employee cannot be fired without just cause and proper legal procedures. Losing a job can
severely impact a worker's livelihood (ability to support themselves and their family), so the
law protects them from unjust dismissal.

This principle was emphasized in Rivera v. Genesis Transport Service, Inc., where the
Supreme Court ruled that security of tenure is an act of social justice. Since many workers
do not own property and rely entirely on their jobs for survival, they must be protected from
being unfairly dismissed. Under Article 280 of the Labor Code, an employer can only
terminate an employee for a just cause or for legal reasons allowed by the Code. If a worker
is fired without due process (fair legal procedures), it is considered arbitrary (unjust and
unfair) and a violation of their constitutional rights. Therefore, the law ensures that workers
cannot be dismissed without a valid reason and proper procedures.

Our laws reinforce the principle that workers must be protected, and that their employment
status is determined not just by the contract, but by the law itself. This means that even if a
contract states that a worker is an "independent contractor" or "temporary worker," the law

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will still decide if they should actually be considered a regular employee based on the nature
of their work.

Employment contracts are not like ordinary agreements because they affect public interest—
meaning they impact not just the worker and the employer, but society as a whole. This
principle is found in Article 1700 of the Civil Code, which states that the relationship between
employers (capital) and workers (labor) is not merely a private agreement, but one that must
also serve the common good. Because of this, labor contracts must follow labor laws that
govern wages, working conditions, unions, strikes, and other labor rights.

Since labor contracts must follow the law, parties (employers and workers) cannot simply
change their legal rights by signing a contract. Even if a contract has specific terms
(agreements) that classify a worker differently, it must still comply with labor laws. The law
automatically applies to all employment contracts, ensuring that workers cannot be deprived
of their legal rights.

Under Article 295 of the Labor Code, employment is divided into four classifications:
1. Regular employment – A worker is considered a regular employee if their job is
necessary or desirable for the employer's main business, unless they were hired only
for a specific project or for a seasonal job.
2. Project employment – A worker hired for a specific project or task with a clearly
defined end date. Once the project is finished, their employment ends.
3. Seasonal employment – A worker hired for jobs that only exist during certain seasons
(e.g., harvest workers, holiday sales staff). Their employment only lasts for that
season.
4. Casual employment – A worker who does not perform tasks that are necessary for
the employer’s main business. However, if they work for at least one year, whether
continuously or with breaks, they automatically become a regular employee as long
as their job still exists.

The distinction between these classifications depends on the nature of the business and the
connection between the worker's task and the company's main operations. If a worker's role
is directly related to what the company does, they are more likely to be considered a regular
employee. However, project and seasonal employees are generally recognized as temporary
workers, since their jobs have a fixed duration. Meanwhile, casual employees are those
whose work is not usually necessary for the business but may become regular employees if
they work for at least one year in that role.

Ultimately, the nature of the work is more important than the job title given in the contract.
Courts and labor agencies look at whether the work is essential to the business, ensuring
that employers do not avoid labor laws by simply labeling workers as non-regular employees.

Another recognized type of employment classification is fixed-term employment, as

established in Brent School, Inc. v. Zamora. In this type of employment, a worker is hired for
a specific period with a clear end date. What makes fixed-term employment unique is that,
unlike other temporary work classifications, the job may still be necessary or desirable for
the company's business, but the employment is still limited to a set duration.

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Fixed-term employment is legally accepted only in situations where it is essential or where a

specific timeframe is naturally required. This applies to jobs that have a pre-determined
completion, such as projects with a clear end date, or roles where a fixed term is necessary
due to the nature of the work.

In Brent School, Inc. v. Zamora, the court provided examples of valid fixed-term employment:
1. Overseas employment contracts – Workers hired abroad, regardless of their job, are
typically under fixed-term contracts, meaning their employment ends when the
contract expires.
2. Administrative positions in educational institutions – Positions like dean, assistant
dean, or principal are often rotated among faculty members. Since this rotation is
necessary, fixed terms are a natural part of these jobs.
3. Company officials elected for specific periods – High-ranking officials like a president
or vice president of a company may serve only for a fixed term, as determined by
stockholders or the board of directors. Their reappointment is not guaranteed after
their term ends.

Although Article 280 of the Labor Code generally classifies employees as regular if they
perform tasks necessary for the business, Brent School, Inc. v. Zamora clarified that some
jobs require fixed-term arrangements by their very nature. However, for fixed-term
employment to be valid, the contract must not be used to deny workers their rights—
meaning companies cannot abuse fixed-term contracts to avoid giving employees job
security and benefits.

For a fixed-term employment to be considered valid, at least one of two conditions must be
met:
1. The fixed employment period must have been freely and voluntarily agreed upon by
both the employer and the employee. There must be no force, pressure, or coercion
that could have influenced the employee’s decision. In other words, the employee
must have knowingly consented to the arrangement without any unfair
circumstances affecting their choice.
2. The employer and the employee must have negotiated on equal footing, meaning
there was no unfair advantage or moral dominance from either party. This ensures
that the employee was not in a weaker bargaining position, where they had no choice
but to accept a fixed-term contract due to financial need or employer pressure.

These requirements assume that the employee has special skills or is in high demand in the
labor market, allowing them to negotiate better terms with their employer. Since skilled or
highly sought-after employees have more bargaining power, they may not need as much legal
protection as ordinary workers, who have less control over their employment conditions.
However, the burden of proof is on the employer—meaning the employer must prove that
the fixed-term contract was fairly agreed upon and did not exploit the worker’s weaker
position. It is also important to note that fixed-term employment remains an exception,
rather than the general rule, based on the Brent case.

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To determine whether a person is a regular employee instead of a fixed-term worker, courts
use the two-tiered test, which consists of:
1. The four-fold test – This test identifies an employer-employee relationship based on
four key factors:
o Selection and hiring of the worker – Did the employer choose and recruit the
worker?
o Payment of wages – Is the employer the one paying the worker?
o Power to dismiss – Does the employer have the authority to fire the worker?
o Control over work performance – Does the employer direct how the worker
does their job? The control factor is the most important element.
2. The economic dependence test – This test determines whether the worker depends
on the employer for their livelihood. If the worker is financially reliant on the
company and does not have the freedom to work elsewhere, they are more likely to
be classified as a regular employee rather than an independent contractor or a fixed-
term worker.

The control factor under the four-fold test means that the employer has authority not only
over the final output of the work but also over how the work is done. The employer does not
even need to actively exercise control—it is enough that the employer has the right to do so.

The control test is commonly used to determine if a worker is an employee or an

independent contractor (a person who works for a company but is not officially part of it).
However, this Court has clarified that not all rules imposed on a worker indicate control in
the sense of creating an employer-employee relationship.

For example, in Orozco v. Court of Appeals, the Court explained that simply because an
employer sets rules or guidelines for a worker does not automatically mean that the
employer has full control over how the worker does the job. If the rules are only meant to
serve as general guidelines to help achieve the expected work result—without dictating
exactly how the worker should perform the task—then there is no employer-employee
relationship.

To make this clearer, consider two situations:

1. General guidelines – If a company tells a worker, “You need to finish this project
within two weeks,” but does not dictate how the worker should complete it, this does
not mean the worker is an employee. The company is simply setting an expectation
for the outcome.
2. Strict control over the method – If the company tells the worker, “You must use this
exact process, follow these steps, and report every hour,” then the company is
controlling both the result and the means of achieving it, which is an indication of an
employer-employee relationship.

Thus, the key difference is whether the company is only concerned with the final result or if
it also controls the methods used to accomplish the task. If it’s the latter, then the worker is
more likely to be considered an employee rather than an independent contractor.

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However, in some cases, the control test alone is not enough to determine the true nature
of employment. When the situation is unclear, courts apply the economic realities test, which
considers the overall economic relationship between the worker and the employer.

In Francisco v. National Labor Relations Commission, the Court outlined seven factors to
assess whether a worker is truly independent or economically dependent on the employer:
1. How important the worker’s services are to the business – If the worker’s job is a core
function of the company (e.g., a chef in a restaurant), it suggests an employer-
employee relationship.
2. Whether the worker invested in equipment and facilities – If the worker provides
their own tools and workspace, they are more likely to be an independent contractor.
3. How much control the employer exercises – The more control the employer has over
how the work is done, the more likely it is that the worker is an employee.
4. The worker’s opportunity for profit or loss – If the worker profits based on their own
skills and efforts (like a freelancer), they are likely an independent contractor. If their
income is fixed and controlled by the employer, they are likely an employee.
5. The level of skill and judgment required – If the job requires special skills and
independent decision-making, it suggests an independent contractor status.
6. The length of the work relationship – A short-term, project-based job suggests an
independent contractor, while a long-term and continuous job suggests an
employee.
7. How dependent the worker is on the employer for their income – If the worker relies
heavily on the employer and has no other sources of income, they are more likely an
employee.

By considering these factors, the economic realities test provides a more complete picture
of whether a worker should be classified as an employee or an independent contractor.

The proper standard for determining economic dependence is whether a worker relies on
the alleged employer for their continued job in that industry. This means that if a worker’s
main source of income and livelihood depends on a specific employer, they are more likely
to be considered an employee rather than an independent contractor (a person who works
on their own terms without being fully controlled by the employer).

In the United States, labor laws follow a similar standard where dependency is the main
factor in determining an employment relationship under the Federal Labor Standards Act (a
law that protects workers' rights). In the same way, the Labor Code in the Philippines also
focuses on whether the worker is economically dependent on the employer to decide if an
employer-employee relationship exists.

In this case, the respondents (the people or company being sued) argue that the petitioners
(the ones suing) are independent contractors, meaning they are not employees and do not
have the same rights and benefits as regular workers.

An independent contractor is someone who has their own business, takes full responsibility
for their work, and completes a job in their own way, without the employer controlling the

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how—only the end result matters. This means independent contractors have the freedom to
decide how to do their work, as long as they meet the expected outcome.
The law recognizes two types of contractors:
1. Legitimate job contractors – These are contractors who have their own equipment,
tools, and workers and take on jobs that are separate from the main business of the
employer.
2. Independent contractors with unique skills and talent – These are individuals who
provide specialized services (e.g., artists, consultants, or professionals) and are not
controlled by the employer in how they perform their work.

Article 106 of the Labor Code provides rules on job contracting and subcontracting. When a
company hires a contractor to do a job, the contractor is responsible for paying its workers.
However, if the contractor fails to pay wages, the main employer becomes responsible for
ensuring that the workers are paid. This ensures that workers are protected from unfair labor
practices.

The Secretary of Labor and Employment has the power to restrict or ban labor contracting if
it is being used to violate workers’ rights. The government can also differentiate between
legal job contracting and illegal labor-only contracting (where a company hires a contractor
just to avoid giving employees benefits and job security). This rule helps prevent companies
from abusing workers by falsely labeling them as "contractors" instead of employees.

Labor-only contracting happens when a person or company that supplies workers to an

employer does not have enough capital or investment (money or resources like tools,
equipment, machinery, or a workplace). In this case, the workers provided by the contractor
are doing jobs that are directly related to the main business of the employer. Since the
contractor does not have its own substantial business operations, it is treated as merely an
agent (a representative or middleman) of the employer. This means that the main employer
is fully responsible for these workers as if they were directly hired.

For a contractor to be considered legitimate, it must meet several important requirements.

It must have substantial capital (significant financial resources) or investment in the form of
tools, equipment, or facilities. It must also have a separate and independent business that is
not controlled by the employer. Most importantly, it must follow all labor laws and provide
employees with proper rights and benefits as required by law.

According to Section 8 of DOLE Department Order No. 174-2017, contracting or

subcontracting is only allowed if all the following conditions are met:
1. The contractor or subcontractor must have a separate and independent business and
must perform the job on its own responsibility and in its own way.
2. The contractor or subcontractor must have substantial capital or investment,
including tools, equipment, machinery, and management personnel, to handle the
job properly.
3. While working on the project, the contractor or subcontractor must be free from the
control of the employer, except in terms of ensuring that the final output meets the
agreed-upon standards.

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4. The Service Agreement (contract between the employer and contractor) must ensure
that workers receive all rights and benefits provided under labor laws.
In permissible contracting or subcontracting, there is a trilateral relationship, meaning that
three parties are involved:
1. The principal (the main employer or company that needs the work done).
2. The contractor (the company that provides the workers and takes responsibility for
them).
3. The workers (the employees hired by the contractor to do the job for the principal).

This system allows businesses to outsource work legally, as long as the contractor is truly
independent and treats its workers fairly according to labor laws.

There is a second type of independent contractor that includes individuals who have special
skills or talents that make them different from regular employees. These individuals work
without control from the employer in terms of how they perform their job. Some examples
of this type of independent contractor include:
1. A columnist who was hired specifically because of her writing talent, experience, and
feminist perspective.
2. A basketball referee who uses specialized skills and independent judgment to make
calls during a game.
3. A masiador or sentenciador, who is an expert in cockfight gambling and ensures that
the game is fair and follows the rules.

Unlike the trilateral relationship seen in job contracting (where there are three parties: the
principal, the contractor, and the worker), these independent contractors have a direct
relationship with the principal. This is called a bilateral relationship, meaning there are only
two parties involved—the principal and the independent contractor.

Since independent contractors are not employees, their contracts are governed by the Civil
Code, not by labor laws. If there is a dispute about whether a worker is an employee or an
independent contractor, the burden of proof (responsibility to provide evidence) falls on the
employer. The employer must prove that the worker is truly an independent contractor and
not a regular employee.

In this case, the respondents (the company or employer) claim that the petitioners (the
workers) are independent contractors and not employees. They argue that the petitioners
declared having substantial capital when they signed the contract, and they should be bound
by what they agreed upon.

However, the respondents failed to prove that the petitioners are independent contractors.
The petitioners do not meet the requirements for being independent contractors for two
reasons:
1. They were not hired by a contractor or subcontractor. The petitioners mentioned that
they previously worked for RGSERVE, Inc., but the documents show that they were
directly hired by the respondents. Each petitioner signed a contract directly with
Lazada, which also paid them directly. Since there was no contractor or subcontractor

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involved, there was no trilateral relationship that would require the workers to have
substantial capital or investment.
2. Their work did not require special skills or talent. The petitioners were responsible
for picking up and delivering goods from the warehouse to buyers. This kind of work
does not require expertise or a unique ability. Unlike a columnist or referee, delivery
workers do not perform tasks that require independent judgment or specialized skills.

Because of this, the petitioners meet the requirements of both the four-fold test and the
economic dependence test, meaning that they are employees and not independent
contractors.

The four-fold test is used to determine whether an employer-employee relationship exists.

In this case, all four factors of the test are present, proving that the petitioners (workers) are
employees of respondent Lazada and not independent contractors.

First, the petitioners were directly employed by Lazada. This is evident from the contracts
they signed, which clearly show that RGSERVE, Inc. (the petitioners’ former employer) was
not a party to the contract with Lazada. This means that Lazada, and not RGSERVE, was
responsible for hiring them.

Second, the petitioners received their salaries from Lazada. The contract specifies that
Lazada pays each worker ₱1,200.00 per day for their services. The direct payment of wages
is a strong indication of an employer-employee relationship.

Third, Lazada had the power to dismiss the petitioners. The contract allows Lazada to
immediately terminate the agreement if the petitioners breach (violate) any important
provision of the contract. The ability to fire a worker is a key sign of employer control.
Lastly, Lazada had control over how the petitioners performed their work. The contract
specifically states that the petitioners, although labeled as "independent contractors," must
follow Lazada’s instructions when performing their duties as delivery service providers. This
means that even though the contract calls them independent contractors, the actual terms
of their work show that they were under Lazada’s control.

This control is also evident in how the petitioners performed their jobs. Lazada required them
to fill out route sheets, which recorded the arrival, departure, and unloading times of the
items. They also had to submit trip tickets and incident reports. Additionally, if an item was
lost, the petitioners had to pay a penalty of ₱500.00, plus the actual cost of the lost item.
These requirements show that Lazada closely monitored and controlled their work.
Even if we assume that some of these rules were just guidelines, the overall economic
relationship between the petitioners and Lazada confirms the existence of an employer-
employee relationship.

The final proof of employment status is that the services provided by the petitioners were
essential to Lazada’s business. Lazada claims that it is mainly an online platform where buyers
and sellers transact, and that delivery is only incidental (a secondary function) to its business.
However, in reality, delivery is a crucial part of Lazada’s operations. If delivery were
unimportant, Lazada could have left it to the buyers and sellers to arrange, but they chose to

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handle it themselves. This confirms that delivery services are integrated into Lazada’s
business model, further proving that the petitioners were employees.

Lazada is not just an online platform where buyers and sellers connect; it also actively
facilitates the delivery of goods. The delivery service is a crucial part of Lazada’s business
model because it makes transactions smoother and more convenient for both buyers and
sellers. This is further supported by the fact that Lazada has route managers who supervise
the delivery process, ensuring that products move efficiently from sellers to buyers. By taking
charge of deliveries, Lazada is not merely providing an online marketplace—it is directly
involved in the entire process of selling and delivering goods.

The petitioners (delivery riders) also had to invest in their own equipment, such as
motorcycles and other delivery-related tools, to be engaged by Lazada. However, even
though they provided their own vehicles, they had no real control over their work. They could
not control their earnings because they were paid a fixed daily wage instead of being able to
increase their profits based on how much they worked. Additionally, they had no freedom to
work for other companies because Lazada could demand their availability at any time. This
lack of independence is a strong sign that they were employees, not independent
contractors.

A key factor in determining an employer-employee relationship is economic dependence—

whether the worker relies on the employer for their livelihood. In this case, the petitioners
have been economically dependent on Lazada. Initially, they were hired through a third-party
contractor, but later, Lazada directly hired them. This means that their continued
employment and income depended entirely on Lazada, proving that they were not running
an independent business but were instead working under Lazada’s control.

Lazada argues that the petitioners were hired under a fixed-term employment contract (a
contract that lasts for a specific period). However, fixed-term employment only applies in
special cases, such as when an employee has bargaining power due to special skills or unique
expertise. In this case, Lazada did not show that the petitioners had any special qualifications
that would justify a fixed-term contract. The job of delivering goods does not require rare or
exceptional skills—it is a regular and ongoing necessity in Lazada’s operations. Because of
this, the petitioners cannot be classified as fixed-term employees.

Lazada also points out that the contracts signed by the petitioners state that there is no
employer-employee relationship. However, labor laws prioritize the actual nature of the
working relationship over the wording of a contract. This means that even if a contract states
that a worker is an independent contractor, courts will look at the actual work arrangement
to determine if an employer-employee relationship exists. In this case, the contract's wording
does not change the fact that Lazada exercised control over the petitioners, making them
employees.

Since the petitioners have been legally recognized as regular employees, they are entitled to
reinstatement to their positions. This means that Lazada must give them back their jobs and
pay them full back wages (the salaries they should have earned from the time they were
dismissed until they are reinstated). If reinstatement is no longer possible, Lazada must pay

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them separation pay along with their full back wages. Additionally, because the petitioners
were forced to go to court to fight for their rights, they are also entitled to attorney’s fees as
part of their compensation.

Although the court found that Lazada wrongfully classified the petitioners as independent
contractors, it also determined that Lazada did not act with malice, fraud, or bad faith. In
legal terms, malice means deliberately doing something wrong, fraud involves intentionally
deceiving someone for personal gain, and bad faith refers to dishonesty or an unfair refusal
to uphold obligations. In this case, the court found no evidence that Lazada intentionally
sought to harm or exploit the petitioners.

The court referred to the case Rivera v. Genesis Transport Service, Inc., which explained that
moral damages (compensation for emotional distress or suffering) can be awarded if a
dismissal was done with bad faith, malice, fraud, or in an oppressive or unfair manner.
Additionally, exemplary damages (extra compensation meant to punish wrongdoing and set
an example for others) may be given to correct improper actions and discourage similar
behavior in the future. However, because Lazada did not act maliciously or deceitfully, the
court ruled that the petitioners were not entitled to moral or exemplary damages.

The main reason the petitioners were not given work schedules was due to a shortage of
orders, not because Lazada deliberately sought to oppress them. Since the lack of schedules
was not an act of bad faith, the petitioners did not have a legal basis to claim moral or
exemplary damages.

Despite this, the court ruled in favor of the petitioners and granted their Petition for Review,
meaning their case was reconsidered and decided in their favor. The previous resolutions
from the Court of Appeals (dated January 14, 2019, and March 15, 2019) were reversed
(overturned).

As a result, Lazada and its representatives (Allan Ancheta, Richard Delantar, and Jade
Andrade) were ordered to reinstate the petitioners—Chrisden Cabrera Ditiangkin, Hendrix
Masamayor Molines, Harvey Mosquito Juanio, Joselito Castro Verde, and Brian Anthony
Cubacub Nabong—to their former positions. They were also required to pay full back wages
(salaries they should have received during their dismissal), overtime pay, thirteenth-month
pay, return of their cash bond deposits, and any other benefits they would have earned from
the time they were dismissed on January 16, 2017, until they were reinstated.

To ensure that the correct amount of money is paid, the case was remanded (sent back) to
the Labor Arbiter—the official responsible for handling labor disputes—so that the total
monetary benefits due to the petitioners could be computed. Additionally, all monetary
awards would incur an interest rate of 6% per year starting from the date this decision
becomes final until Lazada fully pays the petitioners.

The decision acknowledged that Lazada had misclassified the petitioners, granting them their
rightful employment status and financial compensation, but it also protected Lazada from
further penalties since there was no proof of malicious intent.

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Wahing v. Spouses Dagui, G.R. No. 219755, April 18, 2022

The Court of Appeals (a higher court that reviews decisions made by lower courts) has the
authority to decide on all important aspects of a case, including its substantive issues (key
legal questions that affect the outcome of the case). This authority allows the court to ensure
a just and complete resolution (a fair and thorough decision). However, in this case, even
though the Court of Appeals properly examined the facts, its conclusion that there was no
employer-employee relationship (a formal work relationship where a worker is under the
control of an employer) was incorrect and needed to be reversed.

Richard N. Wahing, Ronald L. Calago, and Pablo P. Mait (referred to collectively as Wahing et
al.) worked as rubber tree tappers (workers who extract latex, a substance used to make
rubber, from rubber trees). Their work was controlled by Amador Daguio and Esing Daguio
(the Daguio Spouses) in both operational (related to how the work was performed) and
economic (related to their income and financial dependence) aspects. This level of control
legally established an employer-employee relationship. Because of this, their dismissal
(removal from their job) was considered illegal (not allowed by law).

The Supreme Court (the highest court in the country) was reviewing a Petition for Review on
Certiorari (a request to re-examine a lower court's decision due to legal errors). The petition
challenged the ruling of the Court of Appeals, which had set aside (ignored or dismissed) the
decision of the National Labor Relations Commission (NLRC) (a government agency that
handles labor disputes). The NLRC had previously ordered further investigation into the case
to gather more evidence (proof to support legal claims). However, instead of focusing on the
procedural issues (legal rules that dictate how a case should be handled), the Court of
Appeals went ahead and decided the case based on its merits (the main legal issues),
concluding that no employer-employee relationship existed and dismissing the illegal
dismissal complaint.

Wahing et al. worked as rubber tree tappers for the Daguio Spouses until they were told to
stop working. Mait was the first to be ordered to "stop tapping the rubber tree" on October
15, 2006. Later, on February 6, 2007, Wahing and Calago were also ordered to stop working
on the Daguio Spouses' trees. This termination of their work led to the legal dispute over
whether they had been illegally dismissed.

After Wahing et al. were told to stop working, they filed a complaint for illegal dismissal
(being unfairly removed from their job). In their complaint, they also requested
reinstatement (being allowed to return to work) or separation pay (compensation if
reinstatement was not possible), along with claims for underpayment of wages (receiving
less than what they were legally entitled to), labor standards benefits (other mandatory
employment benefits), damages (compensation for harm suffered), and attorney’s fees (legal
costs). However, the Labor Arbiter (an official who handles labor disputes) dismissed their
complaint. The Labor Arbiter ruled that the relationship between Wahing et al. and the
Daguio Spouses was not that of employer and employee but rather of landlord and tenant
(a legal relationship where a person rents land to another rather than employing them).

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Dissatisfied with this ruling, Wahing et al. appealed (formally requested a review of the
decision) to the National Labor Relations Commission (NLRC). The NLRC vacated and set
aside (nullified or canceled) the dismissal of their complaint and ordered the Labor Arbiter
to decide the case based on its merits (to examine the core legal issues rather than dismissing
it on technical grounds).

When the Labor Arbiter instructed both parties to submit position papers (written
documents explaining their arguments and evidence), only Wahing et al. complied. The
Daguio Spouses failed to submit theirs despite receiving several notices. As a result, on
September 28, 2010, the Labor Arbiter ruled in favor of Wahing et al., declaring that they
had been illegally dismissed. The Daguio Spouses were ordered to pay a total of P777,090.52
as monetary compensation.

However, the Daguio Spouses appealed the Labor Arbiter’s decision to the NLRC, claiming
they never received the orders to submit their position paper nor a copy of Wahing et al.’s
submission. They also requested a reduction of their appeal bond (a financial guarantee
required for filing an appeal), which was partially granted—they were required to submit an
additional P50,000.00 in cash or surety (a financial guarantee through a third party).

Because of the Daguio Spouses’ appeal, the NLRC issued a Resolution on August 24, 2011,
setting aside the Labor Arbiter’s decision and remanding the case (sending it back for further
proceedings) so the Daguio Spouses could present their evidence. The NLRC directed the
Executive Labor Arbiter to make a final decision on the case based on the merits.

After the August 24, 2011 Resolution, Wahing et al. filed a motion for reconsideration (a
request for the court to review and change its decision), but their request was denied. Since
they were not granted relief, they took their case to a higher court by filing a Petition for
Certiorari (a special legal remedy used when a lower court or agency is believed to have acted
beyond its authority or committed a serious legal error) before the Court of Appeals. In their
petition, they argued two main points: (1) the National Labor Relations Commission (NLRC)
had no jurisdiction (no legal authority) to issue the August 24, 2011 Resolution because the
Daguio Spouses failed to perfect their appeal (did not complete the necessary legal steps to
make their appeal valid); and (2) contrary to what the resolution claimed, the Labor Arbiter
had actually respected the Daguio Spouses' right to due process (the legal right to a fair
hearing) by properly notifying them and giving them enough time to submit their evidence,
which they allegedly ignored.

Instead of addressing these procedural defects (legal technicalities regarding how the case
was handled), the Court of Appeals decided to focus on the merits of the case (the core legal
and factual issues) since the case had already been sent back multiple times and all the
evidence was already included in the official records. The Court of Appeals found that the
Daguio Spouses’ evidence sufficiently disproved (proved wrong) the claim that there was an
employer-employee relationship, while Wahing et al. only relied on procedural technicalities
and self-serving allegations (claims that benefited them but lacked strong supporting
evidence).

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Since Wahing et al. failed to meet their burden of proof (did not provide enough convincing
evidence to support their claim that an employer-employee relationship existed), the Court
of Appeals ruled that they were not illegally dismissed. As a result, in its January 23, 2015
Decision, the Court of Appeals reversed and set aside (canceled) the NLRC’s August 24, 2011
Resolution and dismissed Wahing et al.'s complaint. The dismissal covered not only their
claim for illegal dismissal but also their demands for reinstatement (returning to work),
separation pay (compensation if reinstatement was not possible), underpayment of wages,
holiday pay, rest day pay, leave pay, 13th-month pay, moral and exemplary damages
(compensation for emotional distress and as punishment for wrongdoing), and attorney’s
fees.

After the Court of Appeals' Decision, Wahing et al. filed a motion for reconsideration (a
request to review and change the decision), but once again, their request was denied,
meaning they were not granted any relief.
Since they had exhausted their options at the Court of Appeals, Wahing et al. filed a Petition
for Review on Certiorari before the Supreme Court (the highest court in the country). In this
petition, they argued that the Court of Appeals committed a grave error (a serious legal
mistake) by deciding the case on the merits (based on the key legal and factual issues) even
though these issues were never raised in their Petition for Certiorari (a special legal request
to review a lower court’s ruling).

Wahing et al. also argued that the Daguio Spouses' evidence should not have been
considered by the Court of Appeals. They pointed out that the Daguio Spouses repeatedly
failed to submit their position paper (a written document stating their arguments and
evidence) before the Labor Arbiter, despite receiving multiple notices. Because of this,
Wahing et al. believed that the Daguio Spouses lost their right to present evidence at a later
stage of the case. Additionally, they asserted that the National Labor Relations Commission
(NLRC) had no jurisdiction (no legal authority) to send the case back to the Labor Arbiter for
further reception of the Daguio Spouses' evidence. This was because the Daguio Spouses
failed to submit the required surety bond (a financial guarantee necessary to validate an
appeal). Because of these procedural failures, Wahing et al. argued that the Labor Arbiter’s
ruling in their favor should have been final and should not have been overturned.

On the substantive matters (the main legal issues), Wahing et al. disputed the Court of
Appeals’ finding that they had failed to prove an employer-employee relationship with the
Daguio Spouses. To support their claim, they cited affidavits (written sworn statements) from
their co-workers, which they claimed confirmed that they were employees of the Daguio
Spouses. Wahing et al. also challenged the Court of Appeals' reliance on Lirio v. Genovia (a
previous court case used as a legal reference). According to them, the Court of Appeals'
decision in Lirio involved different legal circumstances, and their own Petition for Certiorari
never questioned the existence of an employer-employee relationship. Because of this, they
argued that it was improper for the Court of Appeals to rule on an issue that was never raised
by either party.

In their Comment (a legal response to the petition), the Daguio Spouses defended the Court
of Appeals' decision to rule on the merits of the case (the core legal and factual issues) rather
than just addressing procedural defects. They claimed that Wahing et al. had themselves

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raised substantive issues in their arguments, particularly regarding: (1) whether the Daguio
Spouses' appeal before the National Labor Relations Commission (NLRC) was filed on time
(its timeliness); (2) whether it was proper for the case to be decided without giving the
Daguio Spouses a chance to present evidence; and (3) whether Wahing et al. were entitled
to payments such as holiday pay, premium pay for holidays, and rest day pay. Additionally,
the Daguio Spouses insisted that the Court of Appeals' decision to resolve the case on the
merits was in line with the right to a speedy disposition of cases (the right to have legal cases
resolved without unnecessary delay).
Regarding the timeliness of their appeal, the Daguio Spouses argued that they complied with
the requirement for posting an appeal bond (a financial guarantee needed to validate an
appeal). They pointed out that the court had partially granted their Motion to Reduce Bond
(a request to lower the required appeal bond amount), and they had followed the court’s
instructions in submitting the required bond.
To defend the Court of Appeals' reliance on Lirio v. Genovia, the Daguio Spouses further
argued that the Court of Appeals had the authority to review the facts and evidence of the
case, especially when determining whether the NLRC committed grave abuse of discretion
(a serious legal error in judgment).
In their Reply (a legal response to the Comment), Wahing et al. maintained that the Daguio
Spouses’ motion to reduce their appeal bond did not meet the legal standards for substantial
compliance (meeting the essential requirements of the law). Wahing et al. claimed that the
Daguio Spouses failed to post at least 10% of the monetary award being appealed, which
was a mandatory requirement. Furthermore, they argued that the Daguio Spouses had no
valid reason for their failure to comply with procedural rules and had wrongfully claimed they
were denied due process (a fair legal proceeding). Wahing et al. pointed out that the Daguio
Spouses either failed or refused to submit their evidence and position paper despite being
notified multiple times.
Lastly, Wahing et al. reiterated (emphasized again) that Lirio v. Genovia did not apply to their
case. They stood by their position that the Court of Appeals should not have ruled on the
merits because these issues were never raised in their Petition for Certiorari.

In their Comment (a formal response to the petition), the Daguio Spouses argued that the
Court of Appeals properly decided the case on the merits (by examining the main legal
issues), claiming that Wahing et al. themselves had raised key issues, including: (1) whether
the Daguio Spouses' appeal before the National Labor Relations Commission (NLRC) was filed
on time; (2) whether it was appropriate to decide the case without giving the Daguio Spouses
another chance to present their evidence; and (3) whether Wahing et al. had a right to
receive holiday pay, premium pay for holidays, rest day pay, and other labor benefits. The
Daguio Spouses also maintained that the Court of Appeals' decision was in line with the right
to a speedy disposition of cases (the legal principle that cases should be resolved efficiently
without unnecessary delays).

Regarding the timeliness of their appeal, the Daguio Spouses argued that they had complied
with the bond requirement when they followed the order that partially granted their Motion
to Reduce Bond (a request to lower the financial amount needed for an appeal). Additionally,
they defended the Court of Appeals' reliance on Lirio v. Genovia, asserting that the Court had
the authority to review the findings of fact (examine the evidence and factual conclusions)

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made by the NLRC to determine whether there had been grave abuse of discretion (a serious
legal mistake by a lower court or agency).

In their Reply (a response to the Comment), Wahing et al. countered that the Daguio
Spouses' motion to reduce their appeal bond did not meet legal standards. They argued that
the Daguio Spouses failed to post the required 10% of the monetary award (a minimum
portion of the financial penalty they were appealing) and that they did not provide a valid
reason for being allowed leniency in following procedural rules. Wahing et al. also insisted
that the Daguio Spouses falsely claimed that they were denied due process when, in reality,
they either failed or refused to submit their evidence and position paper despite receiving
multiple notices. Furthermore, Wahing et al. reiterated that Lirio v. Genovia was not
applicable to their case and that the Court of Appeals improperly ruled on the merits, even
though these issues were never raised in their Petition for Certiorari.

Ultimately, the key legal issue before the Supreme Court was whether the Court of Appeals
committed a grave error by deciding issues that were not raised on appeal by Wahing et al..
A related question was whether Wahing et al. were actually employees of the Daguio
Spouses.

The Supreme Court ruled in favor of Wahing et al., granting the Petition. While it
acknowledged that the Court of Appeals correctly examined the merits of the case, it found
that the Court of Appeals had wrongly concluded that there was no employer-employee
relationship between Wahing et al. and the Daguio Spouses.

The Court of Appeals has the authority to review and decide a case on the merits (by
examining the key legal and factual issues), following the principle of judicial economy (the
efficient resolution of cases to prevent unnecessary delays) and to avoid "dispensing
piecemeal justice" (resolving a case in separate parts instead of addressing all necessary
issues in one decision). This means that, under certain circumstances, the Court of Appeals
can decide on issues that were not explicitly raised in a petition if doing so leads to a fair and
complete resolution of the case.

A relevant example is the case Heirs of Loyola v. Court of Appeals, where the Court of Appeals
decided the case on the merits, even though the petition for certiorari (a legal request to
review a lower court’s decision) only questioned the case's dismissal based on procedural
grounds (issues related to legal rules and technicalities, rather than the actual legal claims).
The petitioners in Heirs of Loyola argued that the Court of Appeals committed grave abuse
of discretion (a serious legal mistake) by ruling on substantive issues because these were not
raised in their petition.

To justify its authority, the Heirs of Loyola case cited Catholic Bishop of Balanga v. Court of
Appeals, which explained the scope of issues the Court of Appeals can validly review. Under
Rule 51, Section 8 of the Rules of Court, the general rule is that a court can only decide on
errors that are explicitly assigned (formally raised as legal issues in an appeal). However, the
provision also allows the Court of Appeals to review unassigned errors (issues not explicitly
raised) if they are closely related to an assigned error or are necessary for a fair and just
decision. This means that if an issue is essential to resolving the case completely and fairly,

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the Court of Appeals has the discretion (the legal freedom to decide) to address it, even if it
was not specifically mentioned in the petition.

Jurisprudence (the body of past court decisions that serve as legal precedents) has
established several exceptions to the general rule that appellate courts can only review
assigned errors (specific legal mistakes pointed out in an appeal). These exceptions are
outlined in Catholic Bishop of Balanga v. Court of Appeals, which explains that while an
appealing party (the person filing an appeal) is legally required to specify the errors in their
brief, there are circumstances where the appellate court can go beyond these assigned errors
to ensure fairness and justice.

The ruling cites Roscoe Pound, a well-known legal scholar, who refers to Ulpian, a Roman
jurist quoted in Justinian's Digest (an ancient legal text), to emphasize that the purpose of an
appeal is not just to correct errors but also to prevent them. Pound explains that allowing a
higher court to review decisions acts as a check on lower courts (courts that originally heard
the case), preventing unfairness and encouraging judges to be more careful and thorough in
making their rulings.

Furthermore, Pound highlights that the right to appeal is not only important to the parties
involved but also to the public because it ensures that justice is fully served. According to
this perspective, when a case is appealed, the reviewing court should examine the entire
controversy (all relevant legal and factual matters in the lower court’s decision), rather than
being limited only to the errors specifically raised. This full-scale review is considered a
matter of right (something a party is entitled to under the law) and is protected under due
process (the legal guarantee that all parties receive fair treatment in court).

Based on the principles previously discussed, the appellate court (a higher court that reviews
decisions made by a lower court) has broad discretion (the authority to make decisions based
on judgment) to overlook procedural technicalities and consider errors that were not
explicitly raised in an appeal. This means that even if a party fails to properly assign errors
(identify specific mistakes in the lower court's ruling), the Court of Appeals still has the power
to review and even reverse a decision if justice demands it.

The Court of Appeals can consider other legal grounds beyond those mentioned in the trial
court’s decision (the ruling made by the first court that heard the case). If a ruling can be
upheld (supported) based on new grounds, then it follows that a ruling can also be
overturned (changed) on new grounds. Over time, courts have recognized several exceptions
to the rule that appeals should only address assigned errors. These exceptions include:
1. Jurisdictional issues – If a case was filed in a court that lacked authority to hear it, the
Court of Appeals can consider this even if it wasn’t raised as an error.
2. Plain or clerical errors – Obvious mistakes, such as typos or calculation errors, can be
corrected even if they weren’t formally challenged.
3. Issues necessary for justice – If considering an unassigned issue is essential for
fairness and a complete resolution, the Court of Appeals can address it.
4. Relevant matters raised in trial – If an issue was already discussed at the trial court
level but was ignored or not emphasized, the appellate court may still consider it.

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5. Closely related errors – If an unassigned error is connected to an assigned error, the
court can review it.
6. Errors affecting dependent issues – If a properly assigned issue depends on another
unassigned issue, both may be examined.

Thus, while the general rule is that the Court of Appeals should only address errors that
parties explicitly raise, it can review the case as a whole when doing so ensures a just
outcome, prevents unnecessary delays, and reduces costs for both the judiciary (the system
of courts) and the parties involved. This approach ensures that justice is served efficiently
and fairly, without being restricted by procedural formalities.

The petitioners argue that the respondents’ appeal before the National Labor Relations
Commission (NLRC) should have been barred (prevented) due to procedural defects,
specifically their alleged failure to post the full appeal bond required by the rules. An appeal
bond is a form of financial guarantee that an employer must deposit when appealing a
decision that requires them to pay monetary awards to employees. This requirement ensures
that employees will still receive their compensation if the appeal is unsuccessful.

However, in Tres Reyes v. Maxim’s Tea House, the Supreme Court clarified that procedural
rules in labor cases should not be applied too strictly. These rules are merely tools to help
achieve justice, and they should not be used in a way that prevents fair resolutions of
disputes. If strict enforcement of rules would cause injustice, then technicalities should be
set aside in favor of substantial justice (ensuring fairness and addressing the real issues of
the case).

Given that this case had already been dragging on for a long time, and the NLRC had ordered
yet another remand (sending the case back) to the Labor Arbiter for further proceedings, the
Court of Appeals decided to resolve the case directly. Instead of allowing further delays, the
Court of Appeals considered the evidence from both parties and made a ruling on the merits
of the case (the actual facts and legal issues, rather than just procedural concerns). This
decision was made in the interest of justice and to avoid unnecessary delays in resolving the
dispute.

The petitioners argue that the respondents’ failure to post a full appeal bond should have
prevented them from appealing the Labor Arbiter’s decision. An appeal bond is a financial
guarantee required from employers who wish to challenge a ruling that orders them to pay
monetary compensation to employees. Without this bond, the decision becomes final and
executory (immediately enforceable). The purpose of this rule is to ensure that employees
will still receive their compensation if the employer loses the appeal and to prevent
employers from using appeals as a way to delay or escape their financial obligations.

However, in Tres Reyes v. Maxim’s Tea House, the Supreme Court ruled that the appeal bond
requirement is procedural, meaning that it can be relaxed in certain cases to serve the
interests of substantial justice (ensuring fairness and addressing the true merits of the case).
Similarly, in Turks Shawarma Company v. Fajaron, the Court emphasized that while the appeal
bond is mandatory, there are special circumstances where it can be reduced. According to
Section 6, Rule VI of the 2005 NLRC Revised Rules of Procedure, a reduction is allowed if:

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1. The employer presents meritorious grounds (valid reasons to justify the reduction).
2. The employer still posts a reasonable amount in relation to the monetary award.
If both conditions are met, the employer's appeal remains valid, and the time limit for filing
an appeal stops running until the issue is resolved.

Here, the petitioners themselves admit that the NLRC granted the respondents' request to
reduce the appeal bond, and the respondents complied by posting an additional Php
50,000.00. This means that they followed the legal requirements, and their appeal was
properly processed.

Therefore, the Court of Appeals acted correctly when it ruled on the case based on the
evidence and arguments presented by both parties. This approach ensured a just and
complete resolution rather than focusing solely on technicalities that could have
unnecessarily delayed justice.

The Supreme Court, after determining that the Court of Appeals properly ruled on the case,
must now resolve the issue of whether an employer-employee relationship existed between
the petitioners (workers) and the respondents (farm owners). Normally, a Rule 45 petition (a
type of appeal to the Supreme Court) only deals with legal issues and does not reassess
factual matters. However, since the lower courts (labor tribunals and Court of Appeals) issued
conflicting rulings regarding the nature of the relationship, the Supreme Court has the
authority to review the facts of the case.

The Court of Appeals ruled that the petitioners were not employees of the respondents.
However, based on the four-fold test, which is used to determine whether an employer-
employee relationship exists, the Supreme Court found otherwise. This test was first
established in Viaña v. Al-Lagadan and later reaffirmed in Consulta v. Court of Appeals. The
four essential elements of an employer-employee relationship are:
1. Power to hire – The employer has the authority to accept or reject workers.
2. Payment of wages – The workers receive regular compensation (salary) for their
labor.
3. Power to dismiss – The employer has the ability to terminate workers under certain
conditions.
4. Power to control – The employer has the right to direct how the worker performs
their job. This is considered the most important factor in determining an employer-
employee relationship.
In their defense, the respondents denied that the petitioners were their employees. They
claimed that the workers were not paid wages but instead received a share of the proceeds
from rubber tapping (the process of extracting latex from rubber trees). They also argued
that they did not control how the workers performed their tasks. Because of this,
respondents insisted that the relationship was not one of employer-employee but rather one
of agricultural tenancy.

To clarify the difference, the Supreme Court referred to De Los Reyes v. Espineli, which
explains the distinction between a farm employer-employee relationship and an agricultural
tenancy relationship. In an employer-employee relationship, the worker provides labor in
exchange for wages, regardless of whether the farm owner makes a profit. In contrast, in an

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agricultural tenancy arrangement, the worker (tenant) is leasing agricultural land from the
owner, meaning they have possession of the land and share in the produce instead of
receiving a fixed salary. In a tenancy relationship, laws on tenancy, leasing, and partnerships
may apply.

Since the petitioners were farm workers who depended on the respondents for their wages
and employment, the Supreme Court ruled that they were employees, not tenants. This
meant that they were entitled to labor protections, such as wages, benefits, and job security,
under labor laws.

The case of De Los Reyes further emphasizes that the four-fold test—which includes hiring,
payment of wages, power to dismiss, and control over work—also applies when determining
if agricultural employment exists. This means that the same factors used to assess regular
employment relationships are also relevant in distinguishing farm workers (employees) from
agricultural tenants.

A key factor in employment relationships is the degree of control the employer exercises
over the worker. In a typical farm employer-employee setup, the farm owner directly controls
how the workers perform their duties. However, in a tenancy relationship, the landowner
does not have the same level of control over the tenant’s work. Instead, the landowner can
suggest or require the use of certain farming methods to improve production, such as using
fertilizers or following specific planting techniques. However, this does not amount to
employer control—rather, it is a right of a partner in a shared agricultural venture.

One major difference between an employee and a tenant is that a farm employer can dismiss
an agricultural worker at will (within legal limits), whereas a landowner cannot simply remove
a tenant. If disputes arise regarding farming practices, they are settled in court, not by the
landowner unilaterally firing the tenant. This distinction is crucial in determining whether
someone is a worker who deserves labor protections or a tenant with land rights and
obligations.

The evidence on record does not support the claim that the respondents were mere farm
laborers who worked independently. A crucial factor in determining an employer-employee
relationship is the control exerted by the employer, which includes setting work hours, giving
specific work instructions, and enforcing rules for how the job should be performed.
However, in this case, the respondents did not follow fixed working hours, and there were
no rules set by the petitioner (the alleged employer) on how they should perform their work.
One key argument raised by the petitioner is that the respondents were acting as guards
rather than farm laborers. However, there is no evidence that they were required to report
for duty at specific times, work in shifts, or follow any guidelines set by the petitioner
regarding their duties as guards. This lack of control and supervision suggests that they were
not employees, as an employer-employee relationship would require the petitioner to have
authority over their work schedules and performance.

On the other hand, the petitioners (those claiming to be employees) provided witness
testimonies from their co-workers that supported their claim that they were indeed hired
farm workers. These witnesses described:

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1. Receiving daily wages for their required work hours.
2. Being under constant supervision by the respondents.
3. Facing the possibility of dismissal if they failed to work for three consecutive days.
Meanwhile, the respondents (the alleged employers) presented testimonies from a former
caretaker, a local rubber merchant, and government officials, who all claimed that the
petitioners were not employees but rather individuals who only shared in the profits from
rubber sales.

Despite these opposing claims, the testimonies from the petitioners' side provided strong
corroboration that they were indeed employees, as they:
• Had set working hours each day.
• Were paid a fixed amount per day rather than a share of profits.
• Worked under strict supervision from the respondents.
• Could be dismissed if they violated work policies.
These factors strongly indicate that an employer-employee relationship existed, as they show
clear control over how, when, and under what conditions the petitioners performed their
work.

In determining control in an employer-employee relationship, the usual standard is to assess

how much authority the employer has over the "means and methods" of an employee’s
work. However, in the case of rubber tapping (the process of collecting sap from rubber
trees), this standard method of evaluation may not be entirely applicable. The Court of
Appeals explained that the work of the petitioners primarily involved collecting rubber lumps
from small containers, known as "bagol", that were attached to tree trunks, and then
transferring them into a larger container. Since this task does not require much technical
supervision or specialized instruction, it is difficult to measure control in the traditional way.
Given this unique nature of work, an alternative approach is needed. The case of Francisco
v. National Labor Relations Commission introduced a two-tiered test to provide a more
complete analysis of whether a worker should be classified as an employee or something
else (such as an independent contractor or corporate officer). This test includes:
1. The employer's power to control how the work is performed, meaning whether the
employer can dictate the means and methods of accomplishing the job.
2. The economic realities of the employment relationship, which looks at factors such
as who benefits more from the work, the level of dependency of the worker on the
employer, and whether the worker is in a subordinate position.
This two-tiered approach allows courts to go beyond just evaluating how much control an
employer has over a worker’s specific tasks and also consider the broader economic
relationship between them. In cases like this, where the nature of work is simple and
repetitive, assessing economic dependence and who holds the financial power in the
relationship becomes crucial in determining whether an employer-employee relationship
truly exists.

The two-tiered test serves as a framework for analyzing the true nature of the relationship
between an employer and a worker. It considers all relevant circumstances rather than
relying on a single factor. This approach is especially useful when there is no written
agreement or formal contract defining the terms of employment. In cases like this, where

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the worker’s role and responsibilities have evolved over time, the test helps clarify whether
the relationship is one of employment or something else, such as independent contracting.
One key part of this test is the "economic reality" test, which examines how dependent the
worker is on the alleged employer. Instead of looking only at control over work, this test
considers the entire economic relationship, including:
1. Whether the worker's tasks are essential to the employer’s business.
2. Whether the worker invested in tools or equipment to perform the job.
3. How much control the employer has over the worker.
4. Whether the worker has the chance to make a profit or suffer a loss based on
performance.
5. The level of skill and decision-making required for the job.
6. The length and stability of the working relationship.
7. Whether the worker is financially dependent on the employer for continued work.
The key factor in this test is economic dependence—meaning, if the worker relies on the
employer for their livelihood, then an employer-employee relationship likely exists. In the
United States, this concept is used under the Federal Labor Standards Act to determine
employment status, and the same principle applies under the Labor Code.

In this case, the petitioners’ testimonies support the argument that they were economically
dependent on the respondents. Their work—tapping rubber and collecting sap—was
essential to the business of running a rubber plantation. Although there was no clear
evidence regarding whether they provided their own tools, the nature of their work—which
required minimal equipment—makes this factor less significant. Based on these
considerations, the economic reality test helps establish that the petitioners were likely
employees rather than independent workers.

The fact that no other plantations were shown to be willing to hire the petitioners does not
weaken the evidence proving that the respondents exercised significant control over them.
Control was evident in three key ways: (1) constant supervision during work hours, which
shows that petitioners could not freely determine how or when they worked; (2) the lack of
opportunity for profit or loss, since they were paid a fixed daily wage rather than earning
based on their productivity or market conditions; and (3) the possibility of dismissal if they
failed to show up for work for multiple consecutive days. These factors strongly indicate that
the petitioners were employees rather than independent workers.

Applying the two-tiered test from Francisco, it becomes clear that the respondents
controlled not just the petitioners’ work schedule and tasks, but also the economic realities
of their employment. The petitioners depended on the respondents for their income,
meaning that an employer-employee relationship was present. This level of control and
dependency aligns with the definition of employment under labor laws.

Additionally, both parties submitted testimonial evidence to support their respective claims.
The respondents’ witnesses, including a former caretaker and some local government
officials, contradicted the petitioners' claims. However, their statements carried no greater
weight than the evidence provided by the petitioners and their co-workers. When the
evidence from both sides is of equal strength and there is uncertainty about the facts, the
law mandates that the decision must favor labor. This principle is rooted in Philippine

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National Bank v. Bulatao, which states that when there is doubt in labor disputes, it must be
resolved in favor of the worker.

This protection for labor is not just a general rule but a fundamental part of Philippine labor
law, as stated in the Labor Code. It is based on the constitutional mandate to recognize labor
as a key economic force and to ensure that workers' rights and welfare are protected. This
aligns with the broader concept of social justice, which aims to balance the inequalities
between workers and employers. The goal of these laws is not just to enforce legal rights,
but also to ensure fairness by reducing the economic gap between laborers and those who
employ them.

The 1987 Constitution, specifically Article XIII, Section 3, guarantees workers the right to
security of tenure, which means that an employee cannot be dismissed without a valid
reason and due process. A person’s employment or job is considered a property right,
meaning it is something valuable that a worker cannot be deprived of arbitrarily (without fair
and just cause). This protection exists because, for many workers, their job is their only
source of income, making it essential for their survival. Therefore, the law ensures that
workers cannot be fired unfairly, and employers must follow proper legal procedures before
terminating employment.

Under Article 280 of the Labor Code, security of tenure means that an employer can only
terminate an employee for a just cause (such as serious misconduct, neglect of duties, or
fraud) or when authorized by law (such as redundancy or business closure). If an employer
fires an employee without a valid reason or without following proper procedures, it is
considered illegal dismissal. Moreover, Article 4 of the Labor Code states that if there is any
doubt in the interpretation of labor laws, the decision must always favor the worker. This
principle is part of social justice, which recognizes that workers are often in a weaker position
compared to employers. Because of this imbalance, the law provides additional protection
to laborers, ensuring that their rights and livelihoods are not unfairly taken away.

In this case, the Court of Appeals was wrong to require the petitioners (workers) to provide
an unreasonably high level of evidence to prove their claim. Since both sides presented
conflicting testimonies, the principle of equipoise (when evidence is equal, labor wins)
should have been applied, favoring the petitioners’ claim of illegal dismissal. The employer-
employee relationship was already established, so when the respondents (employers)
ordered the petitioners to stop working without any valid reason, it amounted to illegal
termination. As a result, the petitioners must be reinstated (allowed to return to work) and
paid back wages from the time of their dismissal until the final decision is made.

However, if reinstatement is no longer possible due to strained relations (meaning the work
relationship is too damaged to continue), then the petitioners should receive separation pay
instead. Additionally, since the workers had to go through litigation (legal proceedings) to
fight for their rights, they are also entitled to attorney’s fees equivalent to 10% of the total
monetary award. On the other hand, moral and exemplary damages (compensation for
emotional distress or to punish wrongful behavior) are not awarded because there was no
proof that the respondents acted with malice, fraud, or bad faith.

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Ultimately, the Supreme Court ruled in favor of the petitioners, reversing the Court of
Appeals' decision and restoring the ruling of the Labor Arbiter, which recognized the
existence of an employer-employee relationship and declared that the petitioners were
illegally dismissed. The ruling ensures that the petitioners receive the compensation and
benefits they are legally entitled to.

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