FIRST DIVISION

[G.R. No. 170087. August 31, 2006.]

ANGELINA FRANCISCO , petitioner, vs . NATIONAL LABOR RELATIONS

COMMISSION, KASEI CORPORATION, SEIICHIRO TAKAHASHI,
TIMOTEO ACEDO, DELFIN LIZA, IRENE BALLESTEROS, TRINIDAD
LIZA and RAMON ESCUETA , respondents.

DECISION

YNARES-SANTIAGO , J : p

This petition for review on certiorari under Rule 45 of the Rules of Court seeks to
annul and set aside the Decision and Resolution of the Court of Appeals dated October 29,
2 0 0 4 1 and October 7, 2005, 2 respectively, in CA-G.R. SP No. 78515 dismissing the
complaint for constructive dismissal led by herein petitioner Angelina Francisco. The
appellate court reversed and set aside the Decision of the National Labor Relations
Commission (NLRC) dated April 15, 2003, 3 in NLRC NCR CA No. 032766-02 which
a rmed with modi cation the decision of the Labor Arbiter dated July 31, 2002, 4 in
NLRC-NCR Case No. 30-10-0-489-01, nding that private respondents were liable for
constructive dismissal.
In 1995, petitioner was hired by Kasei Corporation during its incorporation stage.
She was designated as Accountant and Corporate Secretary and was assigned to handle
all the accounting needs of the company. She was also designated as Liaison O cer to
the City of Makati to secure business permits, construction permits and other licenses for
the initial operation of the company. 5
Although she was designated as Corporate Secretary, she was not entrusted with
the corporate documents; neither did she attend any board meeting nor required to do so.
She never prepared any legal document and never represented the company as its
Corporate Secretary. However, on some occasions, she was prevailed upon to sign
documentation for the company. 6
In 1996, petitioner was designated Acting Manager. The corporation also hired
Gerry Nino as accountant in lieu of petitioner. As Acting Manager, petitioner was assigned
to handle recruitment of all employees and perform management administration
functions; represent the company in all dealings with government agencies, especially with
the Bureau of Internal Revenue (BIR), Social Security System (SSS) and in the city
government of Makati; and to administer all other matters pertaining to the operation of
Kasei Restaurant which is owned and operated by Kasei Corporation. 7
For ve years, petitioner performed the duties of Acting Manager. As of December
31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in
the profit of Kasei Corporation. 8
In January 2001, petitioner was replaced by Liza R. Fuentes as Manager. Petitioner
alleged that she was required to sign a prepared resolution for her replacement but she
was assured that she would still be connected with Kasei Corporation. Timoteo Acedo, the
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 designated Treasurer, convened a meeting of all employees of Kasei Corporation and
announced that nothing had changed and that petitioner was still connected with Kasei
Corporation as Technical Assistant to Seiji Kamura and in charge of all BIR matters. 9
Thereafter, Kasei Corporation reduced her salary by P2,500.00 a month beginning
January up to September 2001 for a total reduction of P22,500.00 as of September 2001.
Petitioner was not paid her mid-year bonus allegedly because the company was not
earning well. On October 2001, petitioner did not receive her salary from the company. She
made repeated follow-ups with the company cashier but she was advised that the
company was not earning well. 1 0
On October 15, 2001, petitioner asked for her salary from Acedo and the rest of the
officers but she was informed that she is no longer connected with the company. 1 1
Since she was no longer paid her salary, petitioner did not report for work and led
an action for constructive dismissal before the labor arbiter. EHASaD

Private respondents averred that petitioner is not an employee of Kasei Corporation.

They alleged that petitioner was hired in 1995 as one of its technical consultants on
accounting matters and act concurrently as Corporate Secretary. As technical consultant,
petitioner performed her work at her own discretion without control and supervision of
Kasei Corporation. Petitioner had no daily time record and she came to the o ce any time
she wanted. The company never interfered with her work except that from time to time, the
management would ask her opinion on matters relating to her profession. Petitioner did
not go through the usual procedure of selection of employees, but her services were
engaged through a Board Resolution designating her as technical consultant. The money
received by petitioner from the corporation was her professional fee subject to the 10%
expanded withholding tax on professionals, and that she was not one of those reported to
the BIR or SSS as one of the company's employees. 1 2
Petitioner's designation as technical consultant depended solely upon the will of
management. As such, her consultancy may be terminated any time considering that her
services were only temporary in nature and dependent on the needs of the corporation.
To prove that petitioner was not an employee of the corporation, private
respondents submitted a list of employees for the years 1999 and 2000 duly received by
the BIR showing that petitioner was not among the employees reported to the BIR, as well
as a list of payees subject to expanded withholding tax which included petitioner. SSS
records were also submitted showing that petitioner's latest employer was Seiji
Corporation. 1 3
The Labor Arbiter found that petitioner was illegally dismissed, thus:
WHEREFORE, premises considered, judgment is hereby rendered as
follows:

1. finding complainant an employee of respondent corporation;

2. declaring complainant's dismissal as illegal;

3. ordering respondents to reinstate complainant to her former position

without loss of seniority rights and jointly and severally pay complainant her
money claims in accordance with the following computation:

a. Backwages 10/2001 — 07/2002 275,000.00

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 (27,500 x 10 mos.)
b. Salary Differentials (01/2001 — 09/2001) 22,500.00
c. Housing Allowance (01/2001 — 07/2002) 57,000.00
d. Midyear Bonus 2001 27,500.00
e. 13th Month Pay 27,500.00
f. 10% share in the profits of Kasei
Corp. from 1996-2001 361,175.00
g. Moral and exemplary damages 100,000.00
h. 10% Attorney's fees 87,076.50
P957,742.50

If reinstatement is no longer feasible, respondents are ordered to pay

complainant separation pay with additional backwages that would accrue up to
actual payment of separation pay.
SO ORDERED. 1 4

On April 15, 2003, the NLRC a rmed with modi cation the Decision of the Labor
Arbiter, the dispositive portion of which reads:
PREMISES CONSIDERED, the Decision of July 31, 2002 is hereby
MODIFIED as follows:

1) Respondents are directed to pay complainant separation pay

computed at one month per year of service in addition to full backwages from
October 2001 to July 31, 2002;

2) The awards representing moral and exemplary damages and 10%

share in pro t in the respective accounts of P100,000.00 and P361,175.00 are
deleted;
3) The award of 10% attorney's fees shall be based on salary
differential award only;

4) The awards representing salary differentials, housing allowance,

mid year bonus and 13th month pay are AFFIRMED.
SO ORDERED. 1 5

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

WHEREFORE, the instant petition is hereby GRANTED. The decision of the
National Labor Relations Commissions dated April 15, 2003 is hereby REVERSED
and SET ASIDE and a new one is hereby rendered dismissing the complaint led
by private respondent against Kasei Corporation, et al. for constructive dismissal.
SO ORDERED. 1 6

The appellate court denied petitioner's motion for reconsideration, hence, the
present recourse.
The core issues to be resolved in this case are (1) whether there was an employer-
employee relationship between petitioner and private respondent Kasei Corporation; and if
in the affirmative, (2) whether petitioner was illegally dismissed.
Considering the con icting ndings by the Labor Arbiter and the National Labor
Relations Commission on one hand, and the Court of Appeals on the other, there is a need
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 to reexamine the records to determine which of the propositions espoused by the
contending parties is supported by substantial evidence. 1 7
We held in Sevilla v. Court of Appeals 1 8 that in this jurisdiction, there has been no
uniform test to determine the existence of an employer-employee relation. Generally,
courts have relied on the so-called right of control test where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also
the means to be used in reaching such end. In addition to the standard of right-of-control,
the existing economic conditions prevailing between the parties, like the inclusion of the
employee in the payrolls, can help in determining the existence of an employer-employee
relationship.
However, in certain cases the control test is not su cient to give a complete picture
of the relationship between the parties, owing to the complexity of such a relationship
where several positions have been held by the worker. There are instances when, aside
from the employer's power to control the employee with respect to the means and
methods by which the work is to be accomplished, economic realities of the employment
relations help provide a comprehensive analysis of the true classi cation of the individual,
whether as employee, independent contractor, corporate o cer or some other capacity.
caIEAD

The better approach would therefore be to adopt a two-tiered test involving: (1) the
putative employer's power to control the employee with respect to the means and
methods by which the work is to be accomplished; and (2) the underlying economic
realities of the activity or relationship.

This two-tiered test would provide us with a framework of analysis, which would
take into consideration the totality of circumstances surrounding the true nature of the
relationship between the parties. This is especially appropriate in this case where there is
no written agreement or terms of reference to base the relationship on; and due to the
complexity of the relationship based on the various positions and responsibilities given to
the worker over the period of the latter's employment.
The control test initially found application in the case of Viaña v. Al-Lagadan and
Piga, 1 9 and lately in Leonardo v. Court of Appeals , 2 0 where we held that there is an
employer-employee relationship when the person for whom the services are performed
reserves the right to control not only the end achieved but also the manner and means
used to achieve that end.
I n Sevilla v. Court of Appeals , 2 1 we observed the need to consider the existing
economic conditions prevailing between the parties, in addition to the standard of right-of-
control like the inclusion of the employee in the payrolls, to give a clearer picture in
determining the existence of an employer-employee relationship based on an analysis of
the totality of economic circumstances of the worker.
Thus, the determination of the relationship between employer and employee
depends upon the circumstances of the whole economic activity, 2 2 such as: (1) the extent
to which the services performed are an integral part of the employer's business; (2) the
extent of the worker's investment in equipment and facilities; (3) the nature and degree of
control exercised by the employer; (4) the worker's opportunity for pro t and loss; (5) the
amount of initiative, skill, judgment or foresight required for the success of the claimed
independent enterprise; (6) the permanency and duration of the relationship between the
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 worker and the employer; and (7) the degree of dependency of the worker upon the
employer for his continued employment in that line of business. 2 3
The proper standard of economic dependence is whether the worker is dependent
on the alleged employer for his continued employment in that line of business. 2 4 In the
United States, the touchstone of economic reality in analyzing possible employment
relationships for purposes of the Federal Labor Standards Act is dependency. 2 5 By
analogy, the benchmark of economic reality in analyzing possible employment
relationships for purposes of the Labor Code ought to be the economic dependence of the
worker on his employer.
By applying the control test, there is no doubt that petitioner is an employee of Kasei
Corporation because she was under the direct control and supervision of Seiji Kamura, the
corporation's Technical Consultant. She reported for work regularly and served in various
capacities as Accountant, Liaison O cer, Technical Consultant, Acting Manager and
Corporate Secretary, with substantially the same job functions, that is, rendering
accounting and tax services to the company and performing functions necessary and
desirable for the proper operation of the corporation such as securing business permits
and other licenses over an indefinite period of engagement.
Under the broader economic reality test, the petitioner can likewise be said to be an
employee of respondent corporation because she had served the company for six years
before her dismissal, receiving check vouchers indicating her salaries/wages, bene ts,
13th month pay, bonuses and allowances, as well as deductions and Social Security
contributions from August 1, 1999 to December 18, 2000. 2 6 When petitioner was
designated General Manager, respondent corporation made a report to the SSS signed by
Irene Ballesteros. Petitioner's membership in the SSS as manifested by a copy of the SSS
specimen signature card which was signed by the President of Kasei Corporation and the
inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an
employer-employee relationship between petitioner and respondent corporation. 2 7
It is therefore apparent that petitioner is economically dependent on respondent
corporation for her continued employment in the latter's line of business.
In Domasig v. National Labor Relations Commission , 2 8 we held that in a business
establishment, an identi cation card is provided not only as a security measure but mainly
to identify the holder thereof as a bona de employee of the rm that issues it. Together
with the cash vouchers covering petitioner's salaries for the months stated therein, these
matters constitute substantial evidence adequate to support a conclusion that petitioner
was an employee of private respondent.
We likewise ruled in Flores v. Nuestro 2 9 that a corporation who registers its
workers with the SSS is proof that the latter were the former's employees. The coverage of
Social Security Law is predicated on the existence of an employer-employee relationship.
Furthermore, the a davit of Seiji Kamura dated December 5, 2001 has clearly
established that petitioner never acted as Corporate Secretary and that her designation as
such was only for convenience. The actual nature of petitioner's job was as Kamura's
direct assistant with the duty of acting as Liaison O cer in representing the company to
secure construction permits, license to operate and other requirements imposed by
government agencies. Petitioner was never entrusted with corporate documents of the
company, nor required to attend the meeting of the corporation. She was never privy to the
preparation of any document for the corporation, although once in a while she was
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 required to sign prepared documentation for the company. 3 0
The second a davit of Kamura dated March 7, 2002 which repudiated the
December 5, 2001 a davit has been allegedly withdrawn by Kamura himself from the
records of the case. 3 1 Regardless of this fact, we are convinced that the allegations in the
rst a davit are su cient to establish that petitioner is an employee of Kasei
Corporation.
Granting arguendo, that the second a davit validly repudiated the rst one, courts
do not generally look with favor on any retraction or recanted testimony, for it could have
been secured by considerations other than to tell the truth and would make solemn trials a
mockery and place the investigation of the truth at the mercy of unscrupulous witnesses.
3 2 A recantation does not necessarily cancel an earlier declaration, but like any other
testimony the same is subject to the test of credibility and should be received with
caution. 3 3
Based on the foregoing, there can be no other conclusion that petitioner is an
employee of respondent Kasei Corporation. She was selected and engaged by the
company for compensation, and is economically dependent upon respondent for her
continued employment in that line of business. Her main job function involved accounting
and tax services rendered to respondent corporation on a regular basis over an inde nite
period of engagement. Respondent corporation hired and engaged petitioner for
compensation, with the power to dismiss her for cause. More importantly, respondent
corporation had the power to control petitioner with the means and methods by which the
work is to be accomplished. aHTEIA

The corporation constructively dismissed petitioner when it reduced her salary by

P2,500 a month from January to September 2001. This amounts to an illegal termination
of employment, where the petitioner is entitled to full backwages. Since the position of
petitioner as accountant is one of trust and con dence, and under the principle of strained
relations, petitioner is further entitled to separation pay, in lieu of reinstatement. 3 4
A diminution of pay is prejudicial to the employee and amounts to constructive
dismissal. Constructive dismissal is an involuntary resignation resulting in cessation of
work resorted to when continued employment becomes impossible, unreasonable or
unlikely; when there is a demotion in rank or a diminution in pay; or when a clear
discrimination, insensibility or disdain by an employer becomes unbearable to an
employee. 3 5 In Globe Telecom, Inc. v. Florendo-Flores, 3 6 we ruled that where an employee
ceases to work due to a demotion of rank or a diminution of pay, an unreasonable situation
arises which creates an adverse working environment rendering it impossible for such
employee to continue working for her employer. Hence, her severance from the company
was not of her own making and therefore amounted to an illegal termination of
employment.
In affording full protection to labor, this Court must ensure equal work opportunities
regardless of sex, race or creed. Even as we, in every case, attempt to carefully balance the
fragile relationship between employees and employers, we are mindful of the fact that the
policy of the law is to apply the Labor Code to a greater number of employees. This would
enable employees to avail of the bene ts accorded to them by law, in line with the
constitutional mandate giving maximum aid and protection to labor, promoting their
welfare and rea rming it as a primary social economic force in furtherance of social
justice and national development.

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 WHEREFORE, the petition is GRANTED. The Decision and Resolution of the Court of
Appeals dated October 29, 2004 and October 7, 2005, respectively, in CA-G.R. SP No.
78515 are ANNULLED and SET ASIDE. The Decision of the National Labor Relations
Commission dated April 15, 2003 in NLRC NCR CA No. 032766-02, is REINSTATED. The
case is REMANDED to the Labor Arbiter for the recomputation of petitioner Angelina
Francisco's full backwages from the time she was illegally terminated until the date of
nality of this decision, and separation pay representing one-half month pay for every year
of service, where a fraction of at least six months shall be considered as one whole year.

SO ORDERED.
Panganiban, C.J., Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Footnotes
1. Rollo, pp. 9-22. Penned by Associate Justice Eloy R. Bello, Jr. and concurred in by
Associate Justices Regalado E. Maambong and Lucenito N. Tagle.
2. Id. at 24-25.
3. Id. at 193-198. Penned by Presiding Commissioner Lourdes C. Javier and concurred in by
Commissioner Tito F. Genilo.
4. Id. at 164-173. Penned by Labor Arbiter Eduardo J. Carpio.
5. Id. at 89.
6. Id. at 89-90.
7. Id. at 90.
8. Id.
9. Id. at 91.
10. Id.
11. Id. at 91-92.
12. Id. at 92-93.
13. Id. at 94.
14. Id. at 172-173.
15. Id. at 197-198.
16. Id. at 100.
17. Abante, Jr. v. Lamadrid Bearing & Parts Corporation, G.R. No. 159890, May 28, 2004,
430 SCRA 368, 379.
18. G.R. Nos. L-41182-3, April 15, 1988, 160 SCRA 171, 179-180, citing Visayan Stevedore
Transportation Company v. Court of Industrial Relations, 125 Phil. 817, 820 (1967).
19. 99 Phil. 408 (1956).
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 20. G.R. No. 152459, June 15, 2006.
21. Supra note 18.
22. Rutherford Food Corporation v. McComb, 331 U.S. 722, 727 (1947); 91 L.Ed. 1772, 1777
(1946).

23. See Brock v. Lauritzen, 624 F.Supp. 966 (E.D. Wisc. 1985); Real v. Driscoll Strawberry
Associates, Inc., 603 F.2d 748 (9th Cir. 1979); Goldberg v. Whitaker House Cooperative,
Inc., 366 U.S. 28, 81 S.Ct. 933, 6 L.Ed.2d 100 (1961); Bartels v. Birmingham, 332 U.S. 126,
67 S.Ct. 1547, 91 L.Ed. 1947 (1947).
24. Halferty v. Pulse Drug Company, 821 F.2d 261 (5th Cir. 1987).
25. Weisel v. Singapore Joint Venture, Inc., 602 F.2d. 1185 (5th Cir. 1979).
26. Rollo, pp. 305-321.
27. Id. at 264-265.
28. 330 Phil. 518, 524 (1996).
29. G.R. No. 66890, April 15, 1988, 160 SCRA 568, 571.
30. Rollo, pp. 120-121.
31. Id. at 57.
32. People v. Joya, G.R. No. 79090, October 1, 1993, 227 SCRA 9, 26-27.
33. People v. Davatos, G.R. No. 93322, February 4, 1994, 229 SCRA 647, 651.
34. Globe-Mackay Cable and Radio Corporation v. National Labor Relations Commission,
G.R. No. 82511, March 3, 1992, 206 SCRA 701, 711-712.
35. Leonardo v. National Labor Relations Commission, 389 Phil. 118, 126 (2000).
36. 438 Phil. 756 (2002).

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