1

G.R. No. 159577 May 3, 2006

CHARLITO PEARANDA, Petitioner,

vs.
BAGANGA PLYWOOD CORPORATION and HUDSON CHUA, Respondents.

DECISION

PANGANIBAN, CJ:

Managerial employees and members of the managerial staff are exempted from the provisions of the Labor Code on labor standards. Since petitioner belongs to this class of employees, he is not entitled to
overtime pay and premium pay for working on rest days.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the January 27, 20032 and July 4, 20033 Resolutions of the Court of Appeals (CA) in CA-GR SP No. 74358. The earlier Resolution
disposed as follows:

"WHEREFORE, premises considered, the instant petition is hereby DISMISSED."4

The latter Resolution denied reconsideration.

On the other hand, the Decision of the National Labor Relations Commission (NLRC) challenged in the CA disposed as follows:

"WHEREFORE, premises considered, the decision of the Labor Arbiter below awarding overtime pay and premium pay for rest day to complainant is hereby REVERSED and SET ASIDE, and the complaint in the
above-entitled case dismissed for lack of merit.5

The Facts

Sometime in June 1999, Petitioner Charlito Pearanda was hired as an employee of Baganga Plywood Corporation (BPC) to take charge of the operations and maintenance of its steam plant boiler.6 In May
2001, Pearanda filed a Complaint for illegal dismissal with money claims against BPC and its general manager, Hudson Chua, before the NLRC.7

After the parties failed to settle amicably, the labor arbiter8 directed the parties to file their position papers and submit supporting documents.9 Their respective allegations are summarized by the labor arbiter
as follows:

"[Pearanda] through counsel in his position paper alleges that he was employed by respondent [Baganga] on March 15, 1999 with a monthly salary of P5,000.00 as Foreman/Boiler Head/Shift Engineer until he
was illegally terminated on December 19, 2000. Further, [he] alleges that his services [were] terminated without the benefit of due process and valid grounds in accordance with law. Furthermore, he was not
paid his overtime pay, premium pay for working during holidays/rest days, night shift differentials and finally claims for payment of damages and attorneys fees having been forced to litigate the present
complaint.

"Upon the other hand, respondent [BPC] is a domestic corporation duly organized and existing under Philippine laws and is represented herein by its General Manager HUDSON CHUA, [the] individual
respondent. Respondents thru counsel allege that complainants separation from service was done pursuant to Art. 283 of the Labor Code. The respondent [BPC] was on temporary closure due to repair and
general maintenance and it applied for clearance with the Department of Labor and Employment, Regional Office No. XI to shut down and to dismiss employees (par. 2 position paper). And due to the
insistence of herein complainant he was paid his separation benefits (Annexes C and D, ibid). Consequently, when respondent [BPC] partially reopened in January 2001, [Pearanda] failed to reapply. Hence, he
was not terminated from employment much less illegally. He opted to severe employment when he insisted payment of his separation benefits. Furthermore, being a managerial employee he is not entitled to
overtime pay and if ever he rendered services beyond the normal hours of work, [there] was no office order/or authorization for him to do so. Finally, respondents allege that the claim for damages has no legal
and factual basis and that the instant complaint must necessarily fail for lack of merit."10

The labor arbiter ruled that there was no illegal dismissal and that petitioners Complaint was premature because he was still employed by BPC.11 The temporary closure of BPCs plant did not terminate his
employment, hence, he need not reapply when the plant reopened.

According to the labor arbiter, petitioners money claims for illegal dismissal was also weakened by his quitclaim and admission during the clarificatory conference that he accepted separation benefits, sick and
vacation leave conversions and thirteenth month pay.12

Nevertheless, the labor arbiter found petitioner entitled to overtime pay, premium pay for working on rest days, and attorneys fees in the total amount of P21,257.98.13

Ruling of the NLRC

Respondents filed an appeal to the NLRC, which deleted the award of overtime pay and premium pay for working on rest days. According to the Commission, petitioner was not entitled to these awards
because he was a managerial employee.14

Ruling of the Court of Appeals

In its Resolution dated January 27, 2003, the CA dismissed Pearandas Petition for Certiorari. The appellate court held that he failed to: 1) attach copies of the pleadings submitted before the labor arbiter and
NLRC; and 2) explain why the filing and service of the Petition was not done by personal service.15

In its later Resolution dated July 4, 2003, the CA denied reconsideration on the ground that petitioner still failed to submit the pleadings filed before the NLRC.16

Hence this Petition.17

The Issues

Petitioner states the issues in this wise:

"The [NLRC] committed grave abuse of discretion amounting to excess or lack of jurisdiction when it entertained the APPEAL of the respondent[s] despite the lapse of the mandatory period of TEN
DAYS.1avvphil.net
"The [NLRC] committed grave abuse of discretion amounting to an excess or lack of jurisdiction when it rendered the assailed RESOLUTIONS dated May 8, 2002 and AUGUST 16, 2002 REVERSING AND SETTING
ASIDE the FACTUAL AND LEGAL FINDINGS of the [labor arbiter] with respect to the following:

"I. The finding of the [labor arbiter] that [Pearanda] is a regular, common employee entitled to monetary benefits under Art. 82 [of the Labor Code].

"II. The finding that [Pearanda] is entitled to the payment of OVERTIME PAY and OTHER MONETARY BENEFITS."18

The Courts Ruling

The Petition is not meritorious.

Preliminary Issue:

Resolution on the Merits

The CA dismissed Pearandas Petition on purely technical grounds, particularly with regard to the failure to submit supporting documents.

In Atillo v. Bombay,19 the Court held that the crucial issue is whether the documents accompanying the petition before the CA sufficiently supported the allegations therein. Citing this case, Piglas-Kamao v.
NLRC20 stayed the dismissal of an appeal in the exercise of its equity jurisdiction to order the adjudication on the merits.

The Petition filed with the CA shows a prima facie case. Petitioner attached his evidence to challenge the finding that he was a managerial employee.21 In his Motion for Reconsideration, petitioner also
submitted the pleadings before the labor arbiter in an attempt to comply with the CA rules.22 Evidently, the CA could have ruled on the Petition on the basis of these attachments. Petitioner should be deemed
in substantial compliance with the procedural requirements.

Under these extenuating circumstances, the Court does not hesitate to grant liberality in favor of petitioner and to tackle his substantive arguments in the present case. Rules of procedure must be adopted to
help promote, not frustrate, substantial justice.23 The Court frowns upon the practice of dismissing cases purely on procedural grounds.24 Considering that there was substantial compliance,25 a liberal
interpretation of procedural rules in this labor case is more in keeping with the constitutional mandate to secure social justice.26

First Issue:

Timeliness of Appeal

Under the Rules of Procedure of the NLRC, an appeal from the decision of the labor arbiter should be filed within 10 days from receipt thereof.27

Petitioners claim that respondents filed their appeal beyond the required period is not substantiated. In the pleadings before us, petitioner fails to indicate when respondents received the Decision of the labor
arbiter. Neither did the petitioner attach a copy of the challenged appeal. Thus, this Court has no means to determine from the records when the 10-day period commenced and terminated. Since petitioner
utterly failed to support his claim that respondents appeal was filed out of time, we need not belabor that point. The parties alleging have the burden of substantiating their allegations.28

Second Issue:
Nature of Employment

Petitioner claims that he was not a managerial employee, and therefore, entitled to the award granted by the labor arbiter.

Article 82 of the Labor Code exempts managerial employees from the coverage of labor standards. Labor standards provide the working conditions of employees, including entitlement to overtime pay and
premium pay for working on rest days.29 Under this provision, managerial employees are "those whose primary duty consists of the management of the establishment in which they are employed or of a
department or subdivision."30

The Implementing Rules of the Labor Code state that managerial employees are those who meet the following conditions:

"(1) Their primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof;

"(2) They customarily and regularly direct the work of two or more employees therein;

"(3) They have the authority to hire or fire other employees of lower rank; or their suggestions and recommendations as to the hiring and firing and as to the promotion or any other change of status of
other employees are given particular weight."31

The Court disagrees with the NLRCs finding that petitioner was a managerial employee. However, petitioner was a member of the managerial staff, which also takes him out of the coverage of labor standards.
Like managerial employees, officers and members of the managerial staff are not entitled to the provisions of law on labor standards.32 The Implementing Rules of the Labor Code define members of a
managerial staff as those with the following duties and responsibilities:

"(1) The primary duty consists of the performance of work directly related to management policies of the employer;

"(2) Customarily and regularly exercise discretion and independent judgment;

"(3) (i) Regularly and directly assist a proprietor or a managerial employee whose primary duty consists of the management of the establishment in which he is employed or subdivision thereof; or (ii)
execute under general supervision work along specialized or technical lines requiring special training, experience, or knowledge; or (iii) execute under general supervision special assignments and tasks;
and

"(4) who do not devote more than 20 percent of their hours worked in a workweek to activities which are not directly and closely related to the performance of the work described in paragraphs (1),
(2), and (3) above."33

As shift engineer, petitioners duties and responsibilities were as follows:

"1. To supply the required and continuous steam to all consuming units at minimum cost.

"2. To supervise, check and monitor manpower workmanship as well as operation of boiler and accessories.

"3. To evaluate performance of machinery and manpower.

 "4. To follow-up supply of waste and other materials for fuel.

"5. To train new employees for effective and safety while working.

"6. Recommend parts and supplies purchases.

"7. To recommend personnel actions such as: promotion, or disciplinary action.

"8. To check water from the boiler, feedwater and softener, regenerate softener if beyond hardness limit.

"9. Implement Chemical Dosing.

"10. Perform other task as required by the superior from time to time."34

The foregoing enumeration, particularly items 1, 2, 3, 5 and 7 illustrates that petitioner was a member of the managerial staff. His duties and responsibilities conform to the definition of a member of a
managerial staff under the Implementing Rules.

Petitioner supervised the engineering section of the steam plant boiler. His work involved overseeing the operation of the machines and the performance of the workers in the engineering section. This work
necessarily required the use of discretion and independent judgment to ensure the proper functioning of the steam plant boiler. As supervisor, petitioner is deemed a member of the managerial staff.35

Noteworthy, even petitioner admitted that he was a supervisor. In his Position Paper, he stated that he was the foreman responsible for the operation of the boiler.36 The term foreman implies that he was the
representative of management over the workers and the operation of the department.37 Petitioners evidence also showed that he was the supervisor of the steam plant.38 His classification as supervisor is
further evident from the manner his salary was paid. He belonged to the 10% of respondents 354 employees who were paid on a monthly basis; the others were paid only on a daily basis.39

On the basis of the foregoing, the Court finds no justification to award overtime pay and premium pay for rest days to petitioner.

WHEREFORE, the Petition is DENIED. Costs against petitioner.

SO ORDERED.

G.R. No. L-18939 August 31, 1964

NATIONAL WATERWORKS and SEWERAGE AUTHORITY, petitioner,

vs.
NWSA CONSOLIDATED UNIONS, ET AL., respondents.
Govt. Corp. Counsel Simeon M. Gopengco and Asst. Govt. Corp. Counsel Arturo B. Santos for petitioner.
Cipriano Cid and Associates and Israel Bocobo for respondents.
Alfredo M. Montesa for intervenor-respondent.

BAUTISTA ANGELO, J.:

Petitioner National Waterworks & Sewerage Authority is a government-owned and controlled corporation created under Republic Act No. 1383, while respondent NWSA Consolidated Unions are various labor
organizations composed of laborers and employees of the NAWASA. The other respondents are intervenors Jesus Centeno, et al., hereinafter referred to as intervenors.

Acting on a certification of the President of the Philippines, the Court of Industrial Relations conducted a hearing on December 5, 1957 on the controversy then existing between petitioner and respondent
unions which the latter embodied in a "Manifesto" dated December 51, 1957, namely: implementation of the 40-Hour Week Law (Republic Act No. 1880); alleged violations of the collective bargaining
agreement dated December 28, 1956 concerning "distress pay"; minimum wage of P5.25; promotional appointments and filling of vacancies of newly created positions; additional compensation for night work;
wage increases to some laborers and employees; and strike duration pay. In addition, respondent unions raised the issue of whether the 25% additional compensation for Sunday work should be included in
computing the daily wage and whether, in determining the daily wage of a monthly-salaried employee, the salary should be divided by 30 days.

On December 13, 1957, petitioner and respondent unions, conformably to a suggestion of the Court of Industrial Relations, submitted a joint stipulation of facts on the issues concerning the 40-Hour Week Law,
"distress pay," minimum wage of P5.25, filling of vacancies, night compensation, and salary adjustments, reserving the right to present evidence on matters not covered therein. On December 4, 1957,
respondent intervenors filed a petition in intervention on the issue for additional compensation for night work. Later, however, they amended their petition by including a new demand for overtime pay in favor
of Jesus Centeno, Cesar Cabrera, Feliciano Duiguan, Cecilio Remotigue, and other employees receiving P4,200.00 per annum or more.

Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable Court, without prejudice to the parties adducing other evidence to prove their case
not covered by this stipulation of facts. 1wph1.t

On February 5, 1958, petitioner filed a motion to dismiss the claim for overtime pay alleging that respondent Court of Industrial Relations was without jurisdiction to pass upon the same because, as mere
intervenors, the latter cannot raise new issues not litigated in the principal case, the same not being the lis mota therein involved. To this motion the intervenors filed an opposition. Thereafter, respondent
court issued an order allowing the issue to be litigated. Petitioner's motion to reconsider having been denied, it filed its answer to the petition for intervention. Finally, on January 16, 1961, respondent court
rendered its decision stating substantially as follows:

The NAWASA is an agency not performing governmental functions and, therefore, is liable to pay additional compensation for work on Sundays and legal holidays conformably to Commonwealth Act No. 444,
known as the Eight-Hour Labor Law, even if said days should be within the staggered five work days authorized by the President; the intervenors do not fall within the category of "managerial employees" as
contemplated in Republic Act 2377 and so are not exempt from the coverage of the Eight-Hour Labor Law; even those intervenors attached to the General Auditing Office and the Bureau of Public Works come
within the purview of Commonwealth Act No. 444; the computation followed by NAWASA in computing overtime compensation is contrary to Commonwealth Act 444; the undertime of a worker should not be
set-off against the worker in determining whether the latter has rendered service in excess of eight hours for that day; in computing the daily wage of those employed on daily basis, the additional 25%
compensation for Sunday work should be included; the computation used by the NAWASA for monthly salaried employees to wit, dividing the monthly basic pay by 30 is erroneous; the minimum wage
awarded by respondent court way back on November 25, 1950 in Case No. 359-V entitled MWD Workers Union v. Metropolitan Water District, applies even to those who were employed long after the
promulgation of the award and even if their workers are hired only as temporary, emergency and casual workers for a definite period and for a particular project; the authority granted to NAWASA by the
President to stagger the working days of its workers should be limited exclusively to those specified in the authorization and should not be extended to others who are not therein specified; and under the
collective bargaining agreement entered into between the NAWASA and respondent unions on December 28, 1956, as well as under Resolution No. 29, series of 1957 of the Grievance Committee, even those
who work outside the sewerage chambers should be paid 25% additional compensation as "distress pay."
Its motion for reconsideration having been denied, NAWASA filed the present petition for review raising merely questions of law. Succinctly, these questions are:

1. Whether NAWASA is performing governmental functions and, therefore, essentially a service agency of the government;

2. Whether NAWASA is a public utility and, therefore, exempted from paying additional compensation for work on Sundays and legal holidays;

3. Whether the intervenors are "managerial employees" within the meaning of Republic Act 2377 and, therefore, not entitled to the benefits of Commonwealth Act No. 444, as amended;

4. Whether respondent Court of Industrial Relations has jurisdiction to adjudicate overtime pay considering that this issue was not among the demands of respondent union in the principal case but was
merely dragged into the case by the intervenors;

5. Whether those attached to the General Auditing Office and the Bureau of Public Works come within the purview of Commonwealth Act No. 444, as amended;

6. In determining whether one has worked in excess of eight hours, whether the undertime for that day should be set off;

7. In computing the daily wage, whether the additional compensation for Sunday work should be included;

8. What is the correct method to determine the equivalent daily wage of a monthly salaried employee, especially in a firm which is a public utility?;

9. Considering that the payment of night compensation is not by virtue of any statutory provision but emanates only from an award of respondent Court of Industrial Relations, whether the same can
be made retroactive and cover a period prior to the promulgation of the award;

10. Whether the minimum wage fixed and awarded by respondent Court of Industrial Relations in another case (MWD Workers Union v. MWD CIR Case No. 359-V) applies to those employed long after
the promulgation thereof, whether hired as temporary, emergency and casual workers for a definite period and for a specific project;

11. How should the collection bargaining agreement of December 28, 1956 and Resolution No. 29, series of 1957 of the Grievance Committee be interpreted and construed insofar as the stipulations
therein contained relative to "distress pay" is concerned?; and

12. Whether, under the first indorsement of the President of the Philippines dated August 12, 1957, which authorizes herein petitioner to stagger the working days of its employees and laborers, those
whose services are indispensably continuous throughout the year may be staggered in the same manner as the pump, valve, filter and chlorine operators, guards, watchmen, medical services, and
those attached to the recreational facilities.

DISCUSSION OF THE ISSUES

1. Is NAWASA an agency that performs governmental functions and, therefore, essentially a service agency of the government? Petitioner sustains the affirmative because, under Republic Act No. 1383, it is a
public corporation, and such it exist a an agency independent of the Department of Public Works of our government. It also contends that under the same Act the Public Service Commission does not have
control, supervision or jurisdiction over it in the fixing of rates concerning of the operation of the service. It can also incur indebtedness or issue bonds that are exempt from taxation which circumstance implies
that it is essentially a government- function corporation because it enjoys that attribute of sovereignty. Petitioner likewise invokes the opinion of the Secretary of Justice which holds that the NAWASA being
essentially a service agency of the government can be classified as a corporation performing governmental function.
With this contention, we disagree. While under republic Act No. 1383 the NAWASA is considered as a public corporation it does not show that it was so created for the government of a portion of the State. It
should be borne in mind that there are two kinds of public corporation, namely, municipal and non-municipal. A municipal corporation in its strict is the body politic constituted by the inhabitants of a city or
town for the purpose of local government thereof. It is the body politic established by law particularly as an agency of the State to assist in the civil government of the country chiefly to regulate the local and
internal affairs of the city or town that is incorporated (62 C.J.S., p. 61). Non- municipal corporations, on the other hand, are public corporations created as agencies of the State for limited purposes to take
charge merely of some public or state work other than community government (Elliot, Municipal Corporations, 3rd ed., p. 7; McQuillin, Mun. Corp., 3rd ed., Vol. 1, p. 476).

The National Waterworks and Sewerage Authority was not created for purposes of local government. It was created for the "purpose of consolidating and centralizing all waterworks, sewerage and drainage
system in the Philippines under one control and direction and general supervision." The NAWASA therefore, though a public corporation, is not a municipal corporation, because it is not an agency of the State
to regulate or administer the local affairs of the town, city, or district which is incorporated.

Moreover, the NAWASA, by its charter, has personality and power separate and distinct from the government. It is an independent agency of the government although it ids placed, for administrative purposes,
under the Department of Public Works and Communications. It has continuous succession under its corporate name and sue and be sued in court. It has corporate power to exercised by its board of directors; it
has its own assets and liabilities; and it may charge rates for its services.

In Bacani vs. National Coconut Corporation, 53 O.G., 2798, we stated: "To recapitulate, we may mention that the term 'Government of the Republic of the Philippines'... refers only to that government entity
through which the functions of the government are exercised as an attribute of sovereignty, and in this are included those arms through which political authority is made effective whether they be provincial,
municipal or other form of local government. These are what we call municipal corporations. They do not include government entities which are given a corporate personality separate and distinct from the
government and which are governed by the Corporation Law. Their powers, duties and liabilities have to be determined in the light of that law and of their corporate charter."

The same conclusion may be reached by considering the powers, functions and activities of the NAWASA which are enumerated in Section 2, Republic Act No. 1383, among others, as follows:

(e) To construct, maintain and operate mains pipes, water reservoirs, machinery, and other waterworks for the purpose of supplying water to the inhabitants of its zone, both domestic and other
purposes; to purify the source of supply, regulate the control and use, and prevent the waste of water; and to fix water rates and provide for the collection of rents therefor;

(f) To construct, maintain and operate such system of sanitary sewers as may be necessary for the proper sanitation of the cities and towns comprising the Authority and to charge and collect such sums
for construction and rates for this service as may be determined by the Board to be equitable and just;

(g) To acquire, purchase, hold, transfer, sell, lease, rent, mortgage, encumber, and otherwise dispose of real and personal property, including rights and franchises, within the Philippines, as authorized
by the purpose for which the Authority was created and reasonably and necessarily required of the transaction of the lawful business of the same, unless otherwise provided in this Act;

The business of providing water supply and sewerage service, as this Court held, "may for all practical purposes be likened to an industry engaged in by coal companies, gas companies, power plants, ice plants,
and the like" (Metropolitan Water District v. Court of Industrial Relations, et al., L-4488, August 27, 1952). These are but mere ministrant functions of government which are aimed at advancing the general
interest of society. As such they are optional (Bacani v. National Coconut Corporation, supra). And it has been held that "although the state may regulate the service and rates of water plants owned and
operated by municipalities, such property is not employed for governmental purposes and in the ownership operation thereof the municipality acts in its proprietary capacity, free from legislative interference"
(1 McQuillin, p. 683). In Mendoza v. De Leon, 33 Phil., 508, 509, this Court also held:

Municipalities of the Philippine Islands organized under the Municipal Code have both governmental and corporate or business functions. Of the first class are the adoption of regulations against fire
and disease, preservation of the public peace, maintenance of municipal prisons, establishment of primary schools and post-offices, etc. Of the latter class are the establishment of municipal
waterworks for the use of the inhabitants, the construction and maintenance of municipal slaughterhouses, markets, stables, bathing establishments, wharves, ferries, and fisheries. ...
On the strength of the foregoing considerations, our conclusions is that the NAWASA is not an agency performing governmental functions. Rather, it performs proprietary functions, and as such comes within
the coverage of Commonwealth Act No. 444.

2. We agree with petitioner that the NAWASA is a public utility because its primary function is to construct, maintain and operate water reservoirs and waterworks for the purpose of supplying water to the
inhabitants, as well as consolidate and centralize all water supplies and drainage systems in the Philippines. We likewise agree with petitioner that a public utility is exempt from paying additional compensation
for work on Sundays and legal holidays conformably to Section 4 of Commonwealth Act No. 444 which provides that the prohibition, regarding employment of Sundays and holidays unless an additional sum of
25% of the employee's regular remuneration is paid shall not apply to public utilities such as those supplying gas, electricity, power, water or providing means of transportation or communication. In other
words, the employees and laborers of NAWASA can be made to work on Sundays and legal holidays without being required to pay them an additional compensation of 25%.

It is to be noted, however, that in the case at bar it has been stipulated that prior to the enactment of Republic Act No. 1880, providing for the implementation of the 40-Hour Week Law, the Metropolitan
Water District had been paying 25% additional compensation for work on Sundays and legal holidays to its employees and laborers by virtue of Resolution No. 47, series of 1948, of its board of Directors, which
practice was continued by the NAWASA when the latter took over the service. And in the collective bargaining agreement entered into between the NAWASA and respondent unions it was agreed that all
existing benefits enjoyed by the employees and laborers prior to its effectivity shall remain in force and shall form part of the agreement, among which certainly is the 25% additional compensation for work on
Sundays and legal holidays therefore enjoyed by said laborers and employees. It may, therefore, be said that while under Commonwealth Act No. 444 a public utility is not required to pay additional
compensation to its employees and workers for work done on Sundays and legal holidays, there is, however, no prohibition for it to pay such additional compensation if it voluntarily agrees to do so. The
NAWASA committed itself to pay this additional compensation. It must pay not because of compulsion of law but because of contractual obligation.

3. This issue raises the question whether the intervenors are "managerial employees" within the meaning of Republic Act 2377 and as such are not entitled to the benefits of Commonwealth Act No. 444, as
amended. Section 2 of Republic Act 2377 provides:

Sec. 2. This Act shall apply to all persons employed in any industry or occupation, whether public or private with the exception of farm laborers, laborers who prefer to be paid on piece work basis,
managerial employees, outside sales personnel, domestic servants, persons in the personal service of another and members of the family of the employer working for him.

The term "managerial employee" in this Act shall mean either (a) any person whose primary duty consists of the management of the establishment in which he is employed or of a customarily
recognized department or subdivision thereof, or (b) ally officer or member of the managerial staff.

One of the distinguishing characteristics managerial employee may be known as expressed in the explanatory note of Republic Act No. 2377 is that he is not subject to the rigid observance of regular office
hours. The true worth of his service does not depend so much on the time he spends in office but more on the results he accomplishes. In fact, he is free to go out of office anytime.

On the other hand, in the Fair Labor Standards Act of the United States, which was taken into account by the sponsors of the present Act in defining the degree of work of a managerial employee, we find
interesting the following dissertation of the nature of work o a managerial employee:

Decisions have consumed and applied a regulation in substance providing that the term "professional" employee shall mean any employee ... who is engaged in work predominantly intellectual and
varied in character, and requires the consistent exercise of discretion and judgment in its performance and is of such a character that the output produced or the result accomplished cannot be
standardized in relation to a given period of time, and whose hours of work of the same nature as that performed by non-exempt employees do not exceed twenty percent of the hours worked in the
work week by the non-exempt employees, except where such work is necessarily incident to work of a professional nature; and which requires, first, knowledge of an advanced type in a field of science
or learning customarily acquired by a prolonged course or specialized intellectual instruction and study, or, second, predominantly original and creative in character in a recognized field of artistic
endeavor. Stranger v. Vocafilm Corp., C.C.A. N.Y., 151 F. 2d 894, 162 A.L.R. 216; Hofer v. Federal Cartridge Corp., D.C. Minn. 71 F. Supp. 243; Aulen v. Triumph Explosive, D.C. Md., 58 P. Supp. 4." (56
C.J.S., p. 666).
 Under the provisions of the Fair Labor Standards Act 29 U.S.C.A., Section 23 (a) (1), executive employees are exempted from the statutory requirements as to minimum wages and overtime pay. ...

Thus the exemption attaches only where it appears that the employee's primary duty consists of the management of the establishment or of a customarily recognized department or subdivision
thereof, that he customarily and regularly directs the work of other employees therein, that he has the authority to hire or discharge other employees or that his suggestions and recommendations as
to the hiring or discharging and as to the advancement and promotion or any other change of status of other employees are given particular weight, that he customarily and, regularly exercises
discretionary powers, ... . (56 C.J.S., pp. 666-668.)

The term "administrative employee" ordinarily applies only to an employee who is compensated for his services at a salary or fee of not less than a prescribed sum per month, and who regularly and
directly assists an employee employed in a bona fide executive or administrative capacity, where such assistance is nonmanual in nature and requires the exercise of discretion and independent
judgment; or who performs under only general supervision, responsible non-manual office or field work, directly related to management policies or general business operations, along specialized or
technical lines' requiring special training experience, or knowledge, and the exercise of discretion and independent judgment; ... . (56 C.J.S., p. 671.)

The reason underlying each exemption is in reality apparent. Executive, administrative and professional workers are not usually employed at hourly wages nor is it feasible in the case of such employees
to provide a fixed hourly rate of pay nor maximum hours of labor, Helena Glendale Perry Co. v. Walling, C.C.A. Ark. 132 F. 2d 616, 619. (56 C.J.S., p. 664.)

The philosophy behind the exemption of managerial employees from the 8-Hour Labor Law is that such workers are not usually employed for every hour of work but their compensation is determined
considering their special training, experience or knowledge which requires the exercise of discretion and independent judgment, or perform work related to management policies or general business operations
along specialized or technical lines. For these workers it is not feasible to provide a fixed hourly rate of pay or maximum hours of labor.

The intervenors herein are holding position of responsibility. One of them is the Secretary of the Board of Directors. Another is the private secretary of the general manager. Another is a public relations officer,
and many other chiefs of divisions or sections and others are supervisors and overseers. Respondent court, however, after examining carefully their respective functions, duties and responsibilities found that
their primary duties do not bear any direct relation with the management of the NAWASA, nor do they participate in the formulation of its policies nor in the hiring and firing of its employees. The chiefs of
divisions and sections are given ready policies to execute and standard practices to observe for their execution. Hence, it concludes, they have little freedom of action, as their main function is merely to carry
out the company's orders, plans and policies.

To the foregoing comment, we agree. As a matter of fact, they are required to observe working hours and record their time work and are not free to come and go to their offices, nor move about at their own
discretion. They do not, therefore, come within the category of "managerial employees" within the meaning of the law.

4. Petitioner's claim is that the issue of overtime compensation not having been raised in the original case but merely dragged into it by intervenors, respondent court cannot take cognizance thereof under
Section 1, Rule 13, of the Rules of Court.

Intervenors filed a petition for intervention alleging that being employees of petitioner who have worked at night since 1954 without having been fully compensated they desire to intervene insofar as the
payment of their night work is concerned. Petitioner opposed the petition on the ground that this matter was not in the original case since it was not included in the dispute certified by the President of the
Philippines to the Court of Industrial Relations. The opposition was overruled. This is now assigned as error.

There is no dispute that the intervenors were in the employ of petitioner when they intervened and that their claim refers to the 8-Hour Labor Law and since this Court has held time and again that disputes
that call for the application of the 8-Hour Labor Law are within the jurisdiction of the Court of Industrial Relations if they arise while the employer-employee relationship still exists, it is clear that the matter
subject of intervention comes within the jurisdiction of respondent court.1 The fact that the question of overtime payment is not included in the principal casein the sense that it is not one of the items of
dispute certified to by the President is of no moment, for it comes within the sound discretion of the Court of Industrial Relations. Moreover, in labor disputes technicalities of procedure should as much as
possible be avoided not only in the interest of labor but to avoid multiplicity of action. This claim has no merit.

5. It is claimed that some intervenors are occupying positions in the General Auditing Office and in the Bureau of Public Works for they are appointed either by the Auditor General or by the Secretary of Public
Works and, consequently, they are not officers of the NAWASA but of the insular government, and as such are not covered by the Eight-Hour Labor Law.

The status of the GAO employees assigned to, and working in, government-controlled corporations has already been decided by this Court in National Marketing Corporation, et al. v. Court of Industrial
Relations, et al., L-17804, January 31, 1963. In said case, this Court said:

We agree with appellants that members of the auditing force can not be regarded as employees of the PRISCO in matters relating to their compensation. They are appointed and supervised by the
Auditor General, have an independent tenure, and work subject to his orders and instructions, and not to those of the management of appellants. Above all, the nature of their functions and duties, for
the purpose of fiscal control of appellants' operations, imperatively demands, as a matter of policy, that their positions be completely independent from interference or inducement on the part of the
supervised management, in order to assure a maximum of impartiality in the auditing functions. Both independence and impartiality require that the employees in question be utterly free from
apprehension as to their tenure and from expectancy of benefits resulting from any action of the management, since in either case there would be an influence at work that could possibly lead, if not to
positive malfeasance, to, laxity and indifference that would gradually erode and endanger the critical supervision entrusted to these auditing employees.

The inclusion of their items in the PRISCO budget should be viewed as no more than a designation by the national government of the fund or source from which their emoluments are to be drawn, and
does not signify that they are thereby made PRISCO employees.

The GAO employees assigned to the NAWASA are exactly in the same position regarding their status, compensation and right to overtime pay as the rest of the GAO employees assigned to the defunct PRISCO,
and following our ruling in the PRISCO case, we hold that the GAO employees herein are not covered by the 8-Hour Labor Law, but by other pertinent laws on the matter.

The same thing may be said with regard to the employer of the Bureau of Public Works assigned to, and working in, the NAWASA. Their position is the same as that of the GAO employees. Therefore, they are
not also covered by the 8-Hour Labor Law.

The respondent court, therefore, erred in considering them as employees of the NAWASA for the mere reason that they are paid out of its fund and are subject to its administration and supervision.

6. A worker is entitled to overtime pay only for work in actual service beyond eight hours. If a worker should incur in undertime during his regular daily work, should said undertime be deducted in computing
his overtime work? Petitioner sustains the affirmative while respondent unions the negative, and respondent court decided the dispute in favor of the latter. Hence this error.

There is merit in the decision of respondent court that the method used by petitioner in offsetting the overtime with the undertime and at the same time charging said undertime to the accrued leave of the
employee is unfair, for under such method the employee is made to pay twice for his undertime because his leave is reduced to that extent while he was made to pay for it with work beyond the regular
working hours. The proper method should be to deduct the undertime from the accrued leave but pay the employee the overtime to which he is entitled. This method also obviates the irregular schedule that
would result if the overtime should be set off against the undertime for that would place the schedule for working hours dependent on the employee.

7. and 8. How is a daily wage of a weekly employee computed in the light of Republic Act 1880?

According to petitioner, the daily wage should be computed exclusively on the basic wage, without including the automatic increase of 25% corresponding to the Sunday differential. To include said Sunday
differential would be to increase the basic pay which is not contemplated by said Act. Respondent court disagrees with this manner of computation. It holds that Republic Act 1880 requires that the basic
weekly wage and the basic monthly salary should not be diminished notwithstanding the reduction in the number of working days a week. If the automatic increase corresponding to the salary differential
should not be included there would be a diminution of the weekly wage of the laborer concerned. Of course, this should only benefit those who have been working seven days a week and had been regularly
receiving 25% additional compensation for Sunday work before the effectivity of the Act.

It is evident that Republic Act 1880 does not intend to raise the wages of the employees over what they are actually receiving. Rather, its purpose is to limit the working days in a week to five days, or to 40
hours without however permitting any reduction in the weekly or daily wage of the compensation which was previously received. The question then to be determined is: what is meant by weekly or daily wage?
Does the regular wage include differential payments for work on Sundays or at nights, or is it the total amount received by the laborer for whatever nature or concept?

It has been held that for purposes of computing overtime compensation a regular wage includes all payments which the parties have agreed shall be received during the work week, including piece work wages,
differential payments for working at undesirable times, such as at night or on Sundays and holidays, and the cost of board and lodging customarily furnished the employee (Walling v. Yangermah-Reynolds
Hardwook Co., 325 U.S. 419; Walling v. Harischfeger Corp., 325 U.S. 427.) The "regular rate" of pay also ordinarily includes incentive bonus or profit-sharing payments made in addition to the normal basic pay
(56 C.J.S., pp. 704-705), and it was also held that the higher rate for night, Sunday and holiday work is just as much a regular rate as the lower rate for daytime work. The higher rate is merely an inducement to
accept employment at times which are not as desirable from a workman's standpoint (International L. Ass'n v. National Terminals Corp. C.C. Wise, 50 F. Supp. 26, affirmed C.C.A. Carbunao v. National Terminals
Corp. 139 F. 2d 853).

Respondent court, therefore, correctly included such differential pay in computing the weekly wages of those employees and laborers who worked seven days a week and were continuously receiving 25%
Sunday differential for a period of three months immediately preceding the implementation of Republic Act 1880.

The next issue refers to the method of computing the daily rate of a monthly-salaried employee. Petitioner in computing this daily rate divides the monthly basic pay of the employee by 30 in accordance with
Section 254 of the Revised Administrative Code which in part provides that "In making payment for part of a month, the amount to be paid for each day shall be determined by dividing the monthly pay into as
many parts as there are days in the particular month." The respondent court disagrees with this method and holds that the way to determine the daily rate of a monthly employee is to divide the monthly salary
by the actual number of working hours in the month. Thus, according to respondent court, Section 8 (g) of Republic Act No. 1161, as amended by Republic Act 1792, provides that the daily rate of compensation
is the total regular compensation for the customary number of hours worked each day. In other words, according to respondent court, the correct computation shall be (a) the monthly salary divided by the
actual of working hours in a month or (b) the regular monthly compensation divided by the number of working days in a month.

This finding of respondent court should be modified insofar as the employees of the General Auditing Office and of the Bureau of Public Works assigned to work in the NAWASA are concerned for, as already
stated, they are government employees and should be governed by Section 254 of the Revised Administrative Code. This section provides that in making payments for part of a month, the amount to be paid
for each day shall be determined by dividing the monthly pay. Into as many parts as there are days in the particular month. With this modification we find correct the finding of the respondent court on this
issue.

9. The Court of Industrial Relations awarded an additional 25% night compensation to some, workers with retroactive effect, that is, effective even before the presentation of the claim, provided that they had
been given authorization by the general manager to perform night work. It is petitioner's theory that since there is no statute requiring payment of additional compensation for night work but it can only be
granted either by the voluntary act of the employer or by an award of the industrial court under its compulsory arbitration power, such grant should only be prospective in operation, and not retroactive, as
authorized by the court.

It is of common occurrence that a working man who has already rendered night time service takes him a long time before he can muster enough courage to confront his employer with the demand for payment
for it for fear of possible reprisal. It happens that many months or years are allowed to pass by before he could be made to present such claim against his employer, and so it is neither fair nor just that he be
deprived of what is due him simply because of his silence for fear of losing the means of his livelihood. Hence, it is not erroneous for the Court of Industrial Relations to make the payment of such night
compensation retroactive to the date when the work was actually performed.
The power of the Court of Industrial Relations to order the payment of compensation for overtime service prior to the date of the filing of the claim has been recognized by this Court (Luzon Stevedoring Co.,
Inc. v. Luzon Marine Department Union, et al., L-9265, April 29, 1957). The same reasons given therein for the retroactivity of overtime compensation may also be given for the retroactivity of payment of night
compensation, as such reasoning runs along the line already above-stated.

10. The Court of Industrial Relations in its resolution dated November 25, 1950 issued in Case No. 359-V entitled MWD Workers Union, et al. v. Metropolitan Water District, fixed the following rates of minimum
daily wage: P5.25 for those working in Manila and suburbs; P4.50 for those working in Quezon City; and P4.00 for those working in Ipo. Montalban and Balara. It appears that in spite of the notice to terminate
said award filed with the court on December 29, 1953, the Metropolitan Water District continued paying the above wages and the NAWASA which succeeded it adopted the same rates for sometime. In
September, 1955, the NAWASA hired the claimants as temporary workers and it is now contended that said rates cannot apply to these workers.

The Court of Industrial Relations, however, held that the discontinuance of this minimum wage rate was improper and ordered the payment of the difference to said workers from the date the payment of said
rates was discontinued, advancing, among others, the following reasons: that the resolution of November 25, 1950 is applicable not only to those laborers already in the service but also to those who may be
employed thereafter; the notice of determination of said award given on December 29, 1953 is not legally effective because the same was given without hearing and the employer continued paying the
minimum wages even after the notice of termination; and there is no showing that the minimum wages violate Civil Service Law or the principles underlying the WAPCO.

We find no valid reason to disagree with the foregoing finding of the Court of Industrial Relations considering that the award continued to be valid and effective in spite of the notice of termination given by the
employer. No good reason is seen why such award should not apply to those who may be employed after its approval by the court there being nothing therein that may prevent its extension to them.
Moreover, the industrial court can at any time during the effectiveness of an award or reopen any question involved therein under Section 17 of Commonwealth Act No. 103, and such is what said court has
done when it made the award extensive to the new employees, more so when they are similarly situated. To do otherwise would be to foster discrimination.

11. This issue has to do with the meaning of "distress pay." Paragraph 3, Article VIII, of the collective bargaining agreement entered into between the employer and respondent unions, provides:

Because of the peculiar nature of the function of those employees and laborers of the Sewerage Division who actually work in the sewerage chambers, causing "unusual distress" to them, they shall
receive extra compensation equivalent to twenty-five (25%) of their basic wage.

Pursuant to said agreement, a grievance committee was created composed of representatives of management and labor which adopted the following resolution:

Resolution No. 9
Series of 1957

BE IT RESOLVED, That the employees and laborers of the Sewerage Division who actually work in the sewerage chambers causing unusual distress to them, be paid extra compensation equivalent to
25% of their basic wage, as embodied in Article VIII, Paragraph 3 of the Collective Bargaining Agreement; PROVIDED, however, that any employee who may be required to work actually in the sewerage
chambers shall also be paid 25% extra compensation and, PROVIDED FURTHER, that the term "sewerage chambers" shall include pits, trenches, and other excavations that are necessary to tap the
sewer line, and PROVIDED FINALLY that this will not prejudice any laborer or employee who may be included in one way or another in the term "unusual distress" within the purview of Paragraph 3 of
Article VIII, of the Collective Bargaining Agreement.

And in a conference held between management and labor on November 25, 1957, the following was agreed upon: "Distress Management agreed to pay effective October 1, 1956 25% additional compensation
for those who actually work in and outside sewerage chambers in accordance with Resolution No. 9 of the Grievance Committee."
The question that arose in connection with this distress pay is with regard to the meaning of the phrase "who actually work in and outside sewerage chambers." Petitioner contends that the distress pay should
be given only to those who actually work inside the sewerage chambers while the union maintains that such pay should be given to all those whose work have to do with the sewerage chambers, whether
inside or outside. The Court of Industrial Relations sustained the latter view holding that the distress pay should be given to those who actually work in and outside the sewerage chambers effective October 1,
1956. This view is now disputed by petitioner.

The solution of the present issue hinges upon the interpretation of paragraph 3, Article VIII of the collective bargaining agreement, copied above, as explained by Resolution No. 9, and the agreement of
November 25, 1957, also copied above, which stipulation has to be interpreted as a whole pursuant to Article 1374 of the Civil Code. As thus interpreted, we find that those who are entitled to the distress pay
are those employees and laborers who work in the sewerage chambers whether they belong to the sewerage division or not, and by sewerage chambers should be understood to mean as the surroundings
where the work is actually done, not necessarily "inside the sewerage chambers." This is clearly inferred from the conference held in the Department of Labor on November 25, 1957 where it was agreed that
the compensation should be paid to those who work "in and outside" the sewerage chambers in accordance with the terms of Resolution No. 9 of the Grievance Committee. It should be noted that according to
said resolution, sewerage chambers include "pits, trenches, and other excavations that are necessary to tap the sewer lines." And the reason given for this extra compensation is the "unusual distress" that is
caused to the laborers by working in the sewerage chambers in the form and extent above-mentioned.

It is clear then that all the laborers whether of the sewerage division or not assigned to work in and outside the sewerage chambers and suffer in unusual distress because of the nature of their work are
entitled to the extra compensatory. And this conclusion is further bolstered by the findings of the industrial court regarding the main activities of the sewerage division.

Thus, the Court of Industrial Relations found that the sewerage division has three main activities, to wit: (a) cooperation of the sewerage pumping stations; (b) cleaning and maintenance of sewer mains; and (c)
installation and repairs of house sewer connections.

The pump operators and the sewer attendants in the seven pumping stations in Manila, according to the industrial court, suffer unusual distress. The pump operators have to go to the wet pit to see how the
cleaning of the screen protecting the pump is being performed, and go also to the dry pit abutting the wet pit to make repairs in the breakdown of the pumps. Although the operators used to stay near the
motor which is but a few meters from the pump, they unavoidably smell the foul odor emitting from the pit. Thesewerage attendants go down and work in the wet pit containing sewerage materials in order to
clean the screen.

A group assigned to the cleaning and maintenance of the sewer mains which are located in the middle of the streets of Manila is usually composed of a capataz and four sewerage attendants. These attendants
are rotated in going inside the manholes, operation of the window glass, bailing out from the main to the manhole and in supplying the water service as necessity demand. These attendants come into contact
with dirt, stink, and smell, darkness and heat inside and near the sewage pipes. The capataz goes from one manhole to another seeing to it that the work is properly performed and as such also suffers unusual
distress although to a lesser degree.

The group resigned to the third kind of activity is also usually composed of a capataz and four attendants. Their work is to connect sewer pipes from houses to the sewer mains and to do this they excavate the
trench across the street from the proper line to the sewer main and then they install the pipe after tapping the sewer main. In the tapping, the sewer pipe is opened and so the sewerage gets out and fills up
the trench and the men have to wade in and work with the sewerage water. The capataz has to go near the filthy excavations or trenches full of filthy sewerage, matter to aid the attendants in making pipe
connections, especially when these are complicated.

It cannot therefore be gainsaid that all there laborers suffer unusual distress. The wet pits, trenches, manholes, which are full of sewage matters, are filthy sources of germs and different diseases. They emit
foul and filthy odor dangerous to health. Those working in such places and exposed directly to the distress of contamination.

Premises considered, the decision of the Court of Industrial Relations in this respect should be modified in the sense that all employees and laborers, whether or not they belong to the sewerage division, who
actually work in and outside the sewerage chambers, should be paid the distress pay or the extra compensation equivalent to 25% of their basic wage effective October 1, 1956.
12. On August 6, 1957, the NAWASA requested the President of the Philippines for exemption from Executive Order No. 251 which prescribes the office hours to be observed in government and government-
owned or controlled corporations in order that it could stagger the working hours of its employees and laborers. The request is based on the fact that there are essential and indispensable phases in the
operation of the NAWASA that are required to be attended to continuously for twenty-four hours for the entire seven days of the week without interruption some of which being the work performed by pump
operators, valve operators, filter operators, chlorine operators, watchmen and guards, and medical personnel. This request was granted and, accordingly, the NAWASA staggered the work schedule of the
employees and laborers performing the activities above-mentioned. Respondent unions protested against this staggering schedule of work and this protest having been unheeded, they brought the matter to
the Court of Industrial Relations.

In resolving this issue, the industrial court justified the staggering of the work days of those holding positions as pump operators, valve operators, filter operators, chlorine operators, watchmen and guards, and
those in the medical service for the reason that the same was made pursuant to the authority granted by the President who in the valid exercise of the powers conferred upon him by Republic Act No. 1880
could prescribe the working days of employees and laborers in government-owned and controlled corporations depending upon the exigencies of the service. The court, however, stated that the staggering
should not apply to the personnel in the construction, sewerage, maintenance, machineries and shops because they work below 365 days a year and their services are not continuous to require staggering.
From this portion of the decision, the petitioner appeals.

Considering that respondent court found that the workers in question work less than 365 days a year and their services are not continuous to require staggering, we see no reason to disturb this finding. This is
contrary to the very essence of the request that the staggering should be made only with regard to those phases of the operation of the NAWASA that have to be attended to continuously for twenty-four
hours without interruption which certainly cannot apply to the workers mentioned in the last part of the decision of the respondent court on the matter.

RECAPITULATION

In resume, this Court holds:

(1) The NAWASA, though a public corporation, does not perform governmental functions. It performs proprietary functions, and hence, it is covered by Commonwealth Act No. 444;

(2) The NAWASA is a public utility. Although pursuant to Section 4 of Commonwealth Act 444 it is not obliged to pay an additional sum of 25% to its laborers for work done on Sundays and legal
holidays, yet it must pay said additional compensation by virtue of the contractual obligation it assumed under the collective bargaining agreement;

(3) The intervenors are not "managerial employees" as defined in Republic Act No. 2377, hence they are covered by Commonwealth Act No. 444, as amended;

(4) The Court of Industrial Relations has jurisdiction to adjudicate overtime pay in the case at bar there being an employer-employee relationship existing between intervenors and petitioner;

(5) The GAO employees assigned to work in the NAWASA cannot be regarded as employees of the NAWASA on matters relating to compensation. They are employees of the national government and
are not covered by the Eight-Hour Labor Law. The same may be said of the employees of the Bureau of Public Works assigned to work in the NAWASA;

(6) The method used by the NAWASA in off-setting the overtime with the undertime and at the same time charging said undertime to the accrued leave is unfair;

(7) The differential pay for Sundays is a part of the legal wage. Hence, it was correctly included in computing the weekly wages of those employees and laborers who worked seven days a week and
were regularly receiving the 25% salary differential for a period of three months prior to the implementation of Republic Act 1880. This is so even if petitioner is a public utility in view of the contractual
obligation it has assumed on the matter;
 (8) In the computation of the daily wages of employees paid by the month distinction should be made between government employees like the GAO employees and those who are not. The
computation for government employees is governed by Section 254 of the Revised Administrative Code while for others the correct computation is the monthly salary divided by the actual number of
working hours in the month or the regular monthly compensation divided by the number of working days in the month;

(9) The Court of Industrial Relations did not err in ordering the payment of night compensation from the time such services were rendered. The laborer must be compensated for nighttime work as of
the date the same was rendered;

(10) The rates of minimum pay fixed in CIR Case No. 359-V are applicable not only to those who were already in the service as of the date of the decision but also to those who were employed
subsequent to said date;

(11) All the laborers, whether assigned to the sewerage division or not who are actually working inside or outside the sewerage chambers are entitled to distress pay; and

(12) There is no valid reason to disturb the finding of the Court of Industrial Relations that the work of the personnel in the construction, sewerage, maintenance, machineries and shops of petitioner is
not continous as to require staggering.

CONCLUSION

With the modification indicated in the above resume as elaborated in this decision, we hereby affirm the decision of respondent court in all other respects, without pronouncement as to costs.

INTERNATIONAL PHARMACEUTICALS, INC., petitioner, vs. NATIONAL LABOR RELATIONS COMMISSION (NLRC), FOURTH DIVISION, and DR. VIRGINIA CAMACHO QUINTIA, respondents.

DECISION
MENDOZA, J.:

This is a petition for certiorari to set aside the decision of the National Labor Relations Commission which affirmed in toto the decision of the Labor Arbiter, finding petitioner guilty of the illegal dismissal of
private respondent Virginia Camacho Quintia, as well as its resolution denying reconsideration.
Petitioner International Pharmaceuticals, Inc. (IPI) is a corporation engaged in the manufacture, production and sale of pharmaceutical products. In March 1983, it employed private respondent Virginia
Camacho Quintia as Medical Director of its Research and Development department, replacing one Diana Villaraza.[1] The government, in that year, launched a program encouraging the development of herbal
medicine and offering incentives to interested parties. Petitioner decided to venture into the development of herbal medicine, although it is now alleged that this was merely experimental, to find out if it would
be feasible to include herbal medicine in its business.[2] One of the government requirements was the hiring of a pharmacologist. Petitioner avers that it was only for this purpose that private respondent was
hired, hence its contention that private respondent was a project employee.
The contract of employment provided for a term of one year from the date of its execution on March 19, 1983, subject to renewal by mutual consent of the parties at least thirty days before its expiration. It
provided for a monthly compensation of P4,000.00. It was agreed that Quintia could continue teaching at the Cebu Doctors Hospital,[3] where she was, at that time, a full-time member of the faculty.
Quintia claimed that when her contract of employment was about to expire, she was invited by Xavier University in Cagayan de Oro City to be the chairperson of its pharmacology department. However, Pio
Castillo, the president and general manager, prevailed upon her to stay, assuring her of security of tenure. Because of this assurance, she declined the offer of Xavier University.[4] Indeed, after her contract expired
on March 19, 1984, she remained in the employ of petitioner where she not only performed the work of Medical Director of its Research and Development department but also that of company physician. This
continued until her termination on July 12, 1986.
In her complaint, private respondent alleges that the reason for her termination was her taking up the cudgels for the rank and file employees when she felt they were given a raw deal by the officers of their
own Savings and Loan Association. She claimed that sometime in June 1986, while Pio Castillo was in China, the Association declared dividends to its members. Due to complaints of the employees, meetings
were held during which private respondent pointed out the inequality in the imposition of interest rate to the low-salaried employees and led them in the demand for a full disclosure of the associations financial
status. Her participation was resented by the associations officers, all of whom were appointed by management, so that when Castillo arrived, private respondent was summoned to Castillos office where she
was berated for her acts and humiliated in front of some laborers. When she sought permission to explain her side, she was arrogantly turned down and told to leave.[5]
On July 10, 1986, Quintia was replaced as head of the Research and Development department by Paz Wong. Two days later, on July 12, 1986, she received an inter-office memorandum officially terminating
her services allegedly because of the expiration of her contract of employment.
On January 21, 1987,[6] private respondent filed a complaint, charging petitioner with illegal dismissal and praying that petitioner be ordered to reinstate private respondent and to pay her full backwages
and moral damages.[7]
In its position paper, petitioner claimed that private respondent had been hired on a consultancy basis coterminous with the duration of the project involving the development of herbal medicine and that
her employment was terminated upon the abandonment of that project. It explained that Quintias employment, which lasted for more than two years after the original contract expired, was by virtue of an oral
agreement with the same terms as the written contract or, at the very least, by virtue of implied extensions of the said contract which lasted until the company decided that nothing would come out from said
project.[8]
In a decision rendered on December 18, 1990, the Labor Arbiter found private respondent to have been illegally dismissed. He held that private respondent was a regular employee and not a project employee
and so could not be dismissed without just and/or legal causes as provided in the Labor Code. Moreover, he found that petitioner failed to observe due process in terminating Quintias services. For this reason,
the Labor Arbiter ordered the petitioner to reinstate private respondent and to pay her backwages for three years, including 13th month pay and Service Incentive Leave, moral damages and attorneys fees
amounting to P177,099.94. He further ruled that if reinstatement was no longer feasible, petitioner should pay private respondent P6,000 as separation pay.
On appeal, the NLRC affirmed the ruling in a decision dated May 26, 1992. Petitioner moved for reconsideration, but its motion was denied for lack of merit. The NLRC directed the Labor Arbiter to conduct
a hearing to determine whether reinstatement was feasible. Hence, this petition.
We find the petition to be without merit.
First. Art. 280 of the Labor Code provides:

Art. 280. Regular and casual employment. - The provisions of written agreement to the contrary notwithstanding and regardless of the oral agreement of the parties, an employment shall be deemed to be
regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer except where the employment has been fixed for a
specific project or undertaking, the completion or termination of which has been determined at the time of the engagement of the employee or where the work or service to be performed is seasonal in nature
and the employment is for the duration of the season.

An employment shall be deemed to be casual if it is not covered by the preceding paragraph: Provided, That any employee who has rendered at least one year of service, whether such service is continuous or
broken, shall be considered a regular employee with respect to the activity in which he is employed and his employment shall continue while such activity exists.

In Brent School, Inc. v. Zamora,[9] it was held that although work done under a contract is necessary and desirable in relation to the usual business of the employer, a contract for a fixed period may nonetheless
be made so long as it is entered into freely, voluntarily and knowingly by the parties. Applying this ruling to the case at bar, the NLRC held that the written contract between petitioner and private respondent
was valid, but, after its expiration on March 18, 1984, as the petitioner had decided to continue her services, it must respect the security of tenure of the employee in accordance with Art. 280. It said:
To our mind, when complainant was allowed to continue working without the benefit of a contract after the expiration of the one year period provided in their written contract, that act completely changed the
complexion of the relationship between the parties.

The NLRC cited the following facts to justify its ruling: Quintia was continued as Medical Director and even given the additional function of company physician after the expiration of the original contract; she
undertook various civic activities for and in behalf of petitioner, such as conducting free clinics and giving out IPI products; she did work which was necessary and desirable in relation to the trade or business of
petitioner; and her employment lasted for more than (3) three years.
Petitioner contends:

(1) that the NLRCs reliance on Art. 280 is clearly contrary to this Courts decisions;

(2) that private respondents tasks are really not necessary and desirable to the usual business of petitioner;

(3) that there is clearly no legal or factual basis to support respondent NLRCs reliance on the absence of a new written contract as indicating that respondent Quintia became a regular employee.[10]

Petitioners first ground is that the ruling of the NLRC is contrary to the Brent School decision. He contends that Art. 280 should not be so interpreted as to render employment contracts with a fixed term
invalid. But the NLRC precisely upheld the validity of the contract in accordance with the Brent School case. Indeed, the validity of the written contract is not in issue in this case. What is in issue is whether private
respondent did not become a regular employee after the expiration of the written contract on March 18, 1984 on the basis of the facts pointed out by the NLRC, simply because there was in the beginning a
contract of employment with a fixed term.
Petitioner also invokes the ruling in Singer Sewing Machine v. Drilon[11] in which it was stated:

The definition that regular employees are those who perform activities which are desirable and necessary for the business of the employer is not determinative in this case. Any agreement may provide that
one party shall render services for and in behalf of another for a consideration (no matter how necessary for the latters business) even without being hired as an employee.This is precisely true in the case of an
independent contractorship as well as in an agency agreement. The Court agrees with the petitioners argument that Article 280 is not the yardstick for determining the existence of an employment relationship
because it merely distinguishes between two kinds of employees, i.e., regular employees and casual employees, for purposes of determining the right of an employee to certain benefits, to join or form a union,
or to security of tenure. Article 280 does not apply where the existence of an employment relationship is in dispute.

Petitioner argues:

Even assuming arguendo that respondent Quintia was performing tasks which were necessary and desirable to the main business of petitioner, said standard cannot apply since said Article merely distinguishes
between regular and casual employment for the purpose of determining entitlement to benefits under the Labor Code. In this case, respondent Quintias alleged status as regular employee has precisely been
disputed by petitioner. And, as this Honorable Court noted in the foregoing case, an agreement may provide that one party will render services, no matter how necessary for the other partys business, without
being hired as a regular employee, and this is precisely the nature of the contract entered into by the parties in this case.[12]

Clearly, petitioner misapplies the ruling in Singer. Quintias status as an employee is not disputed in this case. Therefore, in determining whether she was a project employee or a regular employee, the
question is whether her work was necessary and desirable to the main business of the employer. It is true that, as held in Singer, parties can enter into an agreement for the rendering of services by one to the
other and that however necessary such services may be to the latters business the contract will not necessarily give rise to an employer-employee relationship if the elements of such relationship are not
present. But that is not the question in this case. Quintia was an employee. The question is whether, given the fact that she was an employee, she was a regular or a project employee, considering that she had
been continued in the service of petitioner for more than two years following the expiration of her written contract.
 Petitioners second point is that private respondents tasks were not really necessary and desirable in respect of the usual business of petitioner, the work done by Quintia being on a temporary basis
only.[13] According to petitioner, Quintias engagement was only for the duration of its herbal medicine development project. In addition, petitioner points out that private respondent was not required to keep
fixed office hours and this arrangement continued even after the expiration of the written contract, thus indicating the temporary nature of her employment.
Petitioners allegations are contrary to the factual findings of both the NLRC and the Labor Arbiter, particularly their findings that she was the head of petitioners Research and Development department; that
in addition, she performed the function of company physician; and that she undertook various civic activities in behalf of petitioner and that this engagement lasted for more than three years (1983 -
1986).[14] Certainly, as the NLRC observed, these facts show complainant working not as consultant but as a regular employee albeit a managerial one.[15] It should be added that Quintia was hired to replace one
Diana Villaraza,[16] which suggests that the position to which she was appointed by petitioner was an existing one, so much so that after the termination of Quintias employment, somebody else (Paz Wong) was
appointed in her place.[17] If private respondents employment was for a particular project which had allegedly been terminated, why would there be a need to replace her?
We are not prepared to throw overboard the findings of both the NLRC and the Labor Arbiter on the matter. These are essentially factual matters which are within the competence of the labor agencies to
determine. Their findings are accorded by this Court respect and finality if, as in this case, they are supported by substantial evidence.[18]
Indeed, the terms of the written employment contract are clear:

. . . That the FIRST PARTY is a manufacturer of medicines and pharmaceutical preparations, while the SECOND PARTY is a Doctor of Medicine and Pharmacologist of long standing;

That the FIRST PARTY desires to hire the SECOND PARTY as Medical Director of its Research and Development department, which the latter accepts, under the following terms and conditions, to wit:

1. That the SECOND PARTY shall perform and/or cause the performance of the following:

a) Microbiological research and testing;

b) Clinical research and testing;

c) Prove and support First Partys claims in its brochures, literature and advertisements;

d) Register with and cause the approval by Food and Drug Administration of all pharmaceutical and medical preparations developed and tested by the First Partys R&D department; and

e) To do and perform such other duties as may, from time to time, be assigned by the First Party consonant to and in accord with the position herein conferred. . . .

There is no mention whatsoever of any project or of any consultancy in the contract. As aptly observed by the Solicitor General, the duties of Quintia as provided for in the contract reject any notion of
consultancy. Clearly, she was hired as Medical Director of the Research and Development department of petitioner company and not as consultant nor for any particular project. The work she performed
was manifestly necessary and desirable to the usual business of petitioner, considering that it is engaged in the manufacture and production of medicinal preparations. Petitioner itself admits that research and
development are part of its business.[19]
We agree with the Labor Arbiter that the fact that she was not required to report at a fixed hour or to keep fixed hours of work does not detract from her status as a regular employee. As petitioner itself
admits, Quintia was a managerial employee[20] and therefore not covered by the Labor Code provisions on hours of work. What this Court said in once case [21] is apropos:

The primary standard, . . . of determining a regular employment is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the
employer. The test is whether the former is usually necessary or desirable in the usual business or trade of the employer. The connection can be determined by considering the nature of the work performed
and its relation to the scheme of the particular business or trade in its entirety. Also, if the employee has been performing the job for at least one year, even if the performance is not continuous or merely
intermittent, the law deems the repeated and continuing need for its performance as sufficient evidence of the necessity if not indispensability of that activity to the business. Hence, the employment is also
considered regular, but only with respect to such activity and while such activity exists.

Neither does the fact that private respondent was teaching full-time at the Cebu Doctors College negate her regular status since this fact does not affect the nature of Quintias work.Whether ones employment
is regular is not determined by the number of hours one works, but by the nature of the work and by the length of time one has been in that particular job.
Considering the foregoing, it is clear that Quintia became a regular employee of petitioner after her contract expired on March 18, 1984 and her services were continued for more than two years in the usual
trade or business of the employer.
Petitioner goes on to state his third point that there is clearly no legal or factual basis to support respondent NLRCs reliance on the absence of a new written contract as indicating that respondent Quintia
became a regular employee.[22] In support, the petitioner again cites the Brent School case[23] where it was recognized that term contracts can be made orally.[24]Hence, it is argued that the mere fact that there
was no subsequent written contract does not mean that the original agreement was abandoned and/or that respondent became a regular employee due to the absence thereof and/or that the parties had
executed a new agreement, in the absence of evidence showing intent to abandon and/or novate the same. It posits that, based on the acts of the parties, an implied renewal was entered into, or, at the very
least, petitioner claims, the absence of a written contract only indicates that the parties impliedly agreed to extend their written contract.
There is absolutely no principle of law to support the proposition urged by petitioner. On the other hand the written contract in this case provided that it was subject to renewal by mutual consent of the
parties at least thirty days before its expiration on March 18, 1984. There is no evidence to show that the parties mutually agreed to renew their contract. On the other hand, to sustain petitioners contention
that there was an implied extension after the expiration of the original contract would make it possible for employers like petitioner to circumvent Art. 280 of the Labor Code and thus prevent an employee from
becoming regular through the simple expedient of making him sign a contract for a term and then extend to him a contract term, after term, after term.
Moreover, assuming that petitioner is correct that there was at least an implied renewal of the written contract containing the same terms and conditions, then Quintias termination should have been
effective in March of 1986 or March of 1987 rather than July of 1986. It should be noted that the fixed term stated in the written contract allegedly renewed is one year.Considering that the said contract was
executed on March 19, 1983, then if there really were implied renewals with the same terms and conditions, private respondents employment should not have been terminated in July of 1986. As discussed
earlier, the decision of the NLRC is based not alone on inference drawn from the expiration of the contract but on facts which, in light of Art. 280, show that private respondents work was in pursuance of the
business of petitioner.
Second. Prescinding from the premise that private respondent was a project employee, petitioner claims that because it had discontinued its herbal medicine project after it had been shown not to be viable,
private respondents employment had to be terminated, too.
We have already shown why this claim has no basis and no merit. Petitioner was unable to prove that it had actually undertaken a project. Private respondents contract will be searched in vain for any
mention of a project. What it states is that Quintias employment was one for a definite period, not for a project as petitioner would have it. A project employment is one where the employment has been fixed
for a specific project/undertaking, the completion or termination of which has been determined at the time of the engagement of the employee.[25] Quintias engagement after the expiration of the written
contract cannot be said to have been pre-determined because, if petitioners other claim is to be believed, it was essentially contingent upon the feasibility of herbal medicine as part of petitioners business and
for as long as the herbal medicine development was being pursued by it.
It follows from the conclusion that private respondent Quintia was a regular employee that she could only be dismissed for just or authorized cause.[26] The records are bereft of any evidence showing the
existence of any of the specified causes in the Labor Code. It may be that an employer is allowed wider discretion in terminating employment in respect of managerial personnel compared to rank-and-file
employees, and that such managerial employees can be separated from the service for loss of confidence.[27] However, a mere allegation of such ground is not sufficient. As this Court has held in Western Shipping
Agency, Inc. v. NLRC:[28]

Loss of confidence is a valid ground for the dismissal of managerial employees . . . But even managerial employees enjoy security of tenure, . . . and, . . . can only be dismissed after cause is shown in an
appropriate proceeding. The loss of confidence must be substantiated by evidence. The burden of proof is on the employer to show grounds justifying the loss of confidence.
Petitioner in this case failed to discharge this burden, as both the Labor Arbiter and the NLRC found.
Moreover, as the labor arbiter found, petitioner failed to accord due process to private respondent in terminating her services. In the case of Aurora Land Projects Corp. v. NLRC it was stated: [29]

The law requires that the employer must furnish the worker sought to be dismissed with two written notices before termination of employee can be legally effected: (1) notice which apprises the employee of
the particular acts or omissions for which his dismissal is sought; and (2) the subsequent notice which informs the employee of the employers decision to dismiss him (Section 13, BP 130; Sections 2-6, Rule XIV,
Book V Rules and Regulations Implementing the Labor Code as amended). Failure to comply with the requirements taints the dismissal with illegality. This procedure is mandatory; in the absence of which, any
judgment reached by management is void and inexistent. (Tingson, Jr. v. NLRC, 185 SCRA 498 [1990]; National Service Corporation v. NLRC, 168 SCRA 122 [1988]; Ruffy v. NLRC, 182 SCRA 365 [1990].

The memoranda dated July 12, 1986 and July 10, 1986, copies of which were furnished the complainant, informing her of the termination of her contract and the appointment of a replacement, without
apprising her of the particular acts or omissions for which her dismissal was sought, do not suffice to satisfy the requirements of notice. Nor was petitioner given the opportunity to be heard.[30] Consequently,
her dismissal from the service was illegal.
Third. Petitioner contends that the reinstatement of private respondent is not feasible because the position which she held was abolished on account of its decision to discontinue its herbal medicine
development project and that, in any event, because the position is a sensitive one which needs an employee in whom the petitioner has full faith and confidence. It is also contended that reinstatement would
be untenable considering the antagonism engendered as a result of this case.[31]
As regards the claim that the position has already been abolished and, therefore, reinstatement is impossible, suffice it to state that the factual findings of the Labor Arbiter belie this. A replacement for
private respondent was appointed two (2) days prior to her termination. If the position had been abolished, there would have been no necessity for a replacement.
But we agree that because of antagonism generated by this case and the private respondents own preference for separation pay, reinstatement would no longer be feasible. It would thus be in the best
interest of the parties to order the payment of separation pay in lieu of reinstatement. Such an amount should not be equivalent to one-half month salary for every year of service only, as ordered by the Labor
Arbiter and affirmed by the NLRC but, in accordance with our decisions,[32] it must be equivalent to one month salary for every year of service.
Private respondent should be given separation pay and backwages in accordance with the Labor Code. The backwages, however, are to be computed only for three years from July 12, 1986, the date of her
dismissal, without deduction or qualification, considering that the dismissal was made before the effectivity on March 21, 1989, of R.A. No. 6715, which provides for the payment of full backwages to employees
who are illegally dismissed.[33]
WHEREFORE, the petition is DISMISSED. The decision of the National Labor Relations Commission is MODIFIED by ordering petitioner to pay private respondent separation pay equivalent to one month salary
for every year of service. In all other respects, the decision of the NLRC is AFFIRMED.
SO ORDERED.
 McLeod v. NLRC

DECISION

CARPIO, J.:

The Case

This is a petition for review[1] to set aside the Decision[2] dated 15 June 2000 and the Resolution[3] dated 27 December 2000 of the Court of Appeals in CA-G.R. SP No. 55130.The Court of Appeals affirmed with
modification the 29 December 1998 Decision[4] of the National Labor Relations Commission (NLRC) in NLRC NCR 02-00949-95.

The Facts

The facts, as summarized by the Labor Arbiter and adopted by the NLRC and the Court of Appeals, are as follows:

On February 2, 1995, John F. McLeod filed a complaint for retirement benefits, vacation and sick leave benefits, non-payment of unused airline tickets, holiday pay, underpayment of
salary and 13th month pay, moral and exemplary damages, attorneys fees plus interest against Filipinas Synthetic Corporation (Filsyn), Far Eastern Textile Mills, Inc., Sta. Rosa Textiles, Inc., Patricio
Lim and Eric Hu.

In his Position Paper, complainant alleged that he is an expert in textile manufacturing process; that as early as 1956 he was hired as the Assistant Spinning Manager of Universal Textiles,
Inc. (UTEX); that he was promoted to Senior Manager and worked for UTEX till 1980 under its President, respondent Patricio Lim; that in 1978 Patricio Lim formed Peggy Mills, Inc. with respondent
Filsyn having controlling interest; that complainant was absorbed by Peggy Mills as its Vice President and Plant Manager of the plant at Sta. Rosa, Laguna; that at the time ofhis retirement
complainant was receiving P60,000.00 monthly with vacation and sick leave benefits; 13th month pay, holiday pay and two round trip business class tickets on a Manila-London-Manila itinerary
every three years which is convertible to cas[h] if unused; that in January 1986, respondents failed to pay vacation and leave credits and requested complainant to wait as it was short of funds
but the same remain unpaid at present; that complainant is entitled to such benefit as per CBA provision (Annex A); that respondents likewise failed to pay complainants holiday pay up to the
present; that complainant is entitled to such benefits as per CBA provision (Annex B); that in 1989 the plant union staged a strike and in 1993 was found guilty of staging an illegal strike; that from
1989 to 1992 complainant was entitled to 4 round trip business class plane tickets on a Manila-London-Manila itinerary but this benefit not (sic) its monetary equivalent was not given; that on
August 1990 the respondents reduced complainants monthly salary of P60,000.00 by P9,900.00 till November 1993 or a period of 39 months; that in 1991 Filsyn sold Peggy Mills, Inc. to Far Eastern
Textile Mills, Inc. as per agreement (Annex D) and this was renamed as Sta. Rosa Textile with Patricio Lim as Chairman and President; that complainant worked for Sta. Rosa until November 30
that from time to time the owners of Far Eastern consulted with complainant on technical aspects of reoperation of the plant as per correspondence (Annexes D-1 and D-2); that when complainant
reached and applied retirement age at the end of 1993, he was only given a reduced 13th month pay of P44,183.63, leaving a balance of P15,816.87; that thereafter the owners of Far Eastern
Textiles decided for cessation of operations of Sta. Rosa Textiles; that on two occasions, complainant wrote letters (Annexes E-1 to E-2) to Patricio Lim requesting for his retirement and other
benefits; that in the last quarter of 1994 respondents offered complainant compromise settlement of only P300,000.00 which complainant rejected; that again complainant wrote a letter (Annex
F) reiterating his demand for full payment of all benefits and to no avail, hence this complaint; and that he is entitled to all his money claims pursuant to law.

On the other hand, respondents in their Position Paper alleged that complainant was the former Vice-President and Plant Manager of Peggy Mills, Inc.; that he was hired in June 1980 and
Peggy Mills closed operations due to irreversible losses at the end of July 1992 but the corporation still exists at present; that its assets were acquired by Sta. Rosa Textile Corporation which was
established in April 1992 but still remains non-operational at present; that complainant was hired as consultant by Sta. Rosa Textile in November 1992 but he resigned on November 30, 1993;
that Filsyn and Far Eastern Textiles are separate legal entities and have no employer relationship with complainant; that respondent Patricio Lim is the President and Board Chairman of Sta. Rosa
Textile Corporation; that respondent Eric Hu is a Taiwanese and is Director of Sta. Rosa Textiles, Inc.; that complainant has no cause of action against Filsyn, Far Eastern TextileLtd., Sta. Rosa Textile
Corporation and Eric Hu; that Sta. Rosa only acquired the assets and not the liabilities of Peggy Mills, Inc.; that Patricio Lim was only impleaded as Board Chairman of Sta. Rosa Textile and not as
private individual; that while complainant was Vice President and Plant Manager of Peggy Mills, the union staged a strike up to July 1992 resulting in closure of operations due to irreversible losses
as per Notice (Annex 1); that complainant was relied upon to settle the labor problem but due to his lack of attention and absence the strike continuedresulting in closure of the company; and
losses to Sta. Rosa which acquired its assets as per their financial statements (Annexes 2 and 3); that the attendance records of complainant from April 1992 to November 1993 (Annexes 4 and 5)
show that he was either absent or worked at most two hours a day; that Sta. Rosa and Peggy Mills are interposing counterclaims for damages in the total amount of P36,757.00 against
complainant; that complainants monthly salary at Peggy Mills was P50,495.00 and not P60,000.00; that Peggy Mills, does not have a retirement program; that whatever amount complainant is
entitled should be offset with the counterclaims; that complainant worked only for 12 years from 1980 to 1992; that complainant was only hired as aconsultant and not an employee by Sta. Rosa
Textile; that complainants attendance record of absence and two hours daily work during the period of the strike wipes out any vacation/sick leave he may have accumulated; that there is no
basis for complainants claim of two (2) business class airline tickets; that complainants pay already included the holiday pay; that he is entitled to holiday pay as consultant by Sta. Rosa; that he
has waived this benefit in his 12 years of work with Peggy Mills; that he is not entitled to 13th month pay as consultant; and that he is not entitled to moral and exemplary damages and attorneys
fees.

In his Reply, complainant alleged that all respondents being one and the same entities are solidarily liable for all salaries and benefits and complainant is entitled to; that all respondents
have the same address at 12/F B.A. Lepanto Building, Makati City; that their counsel holds office in the same address; that all respondents have the same offices and key personnel such as Patricio
Lim and Eric Hu; that respondents Position Paper is verified by Marialen C. Corpuz who knows all the corporate officers of all respondents; that the veil of corporate fiction may be pierced if it is
used as a shield to perpetuate fraud and confuse legitimate issues; that complainant never accepted the change in his position from Vice-President and Plant Manger to consultantand it is
incumbent upon respondents to prove that he was only a consultant; that the Deed of Dation in Payment with Lease (Annex C) proves that Sta. Rosa took over the assets of Peggy Mills as early
as June 15, 1992 and not 1995 as alleged by respondents; that complainant never resigned from his job but applied for retirement as per letters (Annexes E-1, E-2 and F); that documents G, H and
I show that Eric Hu is a top official of Peggy Mills that the closure of Peggy Mills cannot be the fault of complainant; that the strike was staged on the issue of CBA negotiations which is not part of
the usual duties and responsibilities as Plant Manager; that complainant is a British national and is prohibited by law in engaging in union activities; that as per Resolution (Annex 3) of the NLRC
in the proper case, complainant testified in favor of management; that the alleged attendance record of complainant was lifted from the logbook of a security agency and is hearsay evidence;
that in the other attendance record it shows that complainant was reporting daily and even on Saturdays; that his limited hours was due to the strike and cessation of operations; that as plant
manager complainant was on call 24 hours a day; that respondents must pay complainant the unpaid portion of his salaries and his retirement benefits that cash voucher No. 17015 (Annex K)
shows that complainant drew the monthly salary of P60,000.00 which was reduced to P50,495.00 in August 1990 and therefore without the consent of complainant; that complainant was assured
that he will be paid the deduction as soon as the company improved its financial standing but this assurance was never fulfilled; that Patricio Lim promised complainant his retirement pay as per
the latters letters (Annexes E-1, E-2 and F); that the law itself provides for retirement benefits; that Patricio Lim by way of Memorandum (Annex M) approved vacation and sick leave benefits of
22 days per year effective 1986; that Peggy Mills required monthly paid employees to sign an acknowledgement that their monthly compensation includes holiday pay; that complainant was not
made to sign this undertaking precisely because he is entitled to holiday pay over and above his monthly pay; that the company paid for complainants two (2) round trip tickets to London in 1983
and 1986 as reflected in the complainants passport (Annex N); that respondents claim that complainant is not entitled to 13thmonth pay but paid in 1993 and all the past 13 years; that complainant
is entitled to moral and exemplary damages and attorneys fees; that all doubts must be resolved in favor of complainant; and that complainant reserved the right to file perjury cases against
those concerned.
 In their Reply, respondents alleged that except for Peggy Mills, the other respondents are not proper persons in interest due to the lack of employer-employee relationship between them
and complainant; that undersigned counsel does not represent Peggy Mills, Inc.

In a separate Position Paper, respondent Peggy Mills alleged that complainant was hired on February 10, 1991 as per Board Minutes (Annex A); that on August 19, 1987, the
workersstaged an illegal strike causing cessation of operations on July 21, 1992; that respondent filed a Notice of Closure with the DOLE (Annex B); that all employees were given separation pay
except for complainant whose task was extended to December 31, 1992 to wind up the affairs of the company as per vouchers (Annexes C and C-1); that respondent offered complainant his
retirement benefits under RA 7641 but complainant refused; that the regular salaries of complainant from closure up to December 31, 1992 have offset whatever vacation and sick leaves he
accumulated; that his claim for unused plane tickets from 1989 to 1992 has no policy basis, the companys formula of employees monthly rate x 314 days over 12 months already included holiday
pay; that complainants unpaid portion of the 13th month pay in 1993 has no basis because he was only an employee up to December 31, 1992; that the 13th month pay was based on his last salary;
and that complainant is not entitled to damages.[5]

On 3 April 1998, the Labor Arbiter rendered his decision with the following dispositive portion:

WHEREFORE, premises considered, We hold all respondents as jointly and solidarily liable for complainants money claims as adjudicated above and computed below as follows:

Retirement Benefits (one month salary

for every year of service)
6/80 - 11/30/93 = 14 years
P60,000 x 14.0 mos. P840,000.00

Vacation and Sick Leave (3 yrs.)

P2,000.00 x 22 days x 3 yrs. 132,000.00

Underpayment of Salaries (3 yrs.)

P60,000 - P50,495 = P9,505
P 9,505 x 36.0 mos. ... 342,180.00

Holiday Pay (3 yrs.)

P2,000 x 30 days . 60,000.00

Underpayment of 13th month pay (1993) ... 15,816.87

Moral Damages .. 3,000,000.00
Exemplary Damages .. 1,000,000.00

10% Attorneys Fees . 138,999.68

TOTAL P5,528,996.55
 Unused Airline Tickets (3 yrs.)
(To be converted in Peso upon payment)
$2,450.00 x 3.0 [yrs.].. $7,350.00

SO ORDERED.[6]

Filipinas Synthetic Fiber Corporation (Filsyn), Far Eastern Textile Mills, Inc. (FETMI), Sta. Rosa Textiles, Inc. (SRTI), Patricio L. Lim (Patricio), and Eric Hu appealed to the NLRC. The NLRC rendered its decision on 29
December 1998, thus:

WHEREFORE, the Decision dated 3 April 1998 is hereby REVERSED and SET ASIDE and a new one is entered ORDERING respondent Peggy Mills, Inc. to pay complainant his retirement pay equivalent
to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495.00 a month.

All other claims are DISMISSED for lack of merit.

SO ORDERED.[7]

John F. McLeod (McLeod) filed a motion for reconsideration which the NLRC denied in its Resolution of 30 June 1999.[8] McLeod thus filed a petition for certiorari before the Court of Appeals assailing the decision
and resolution of the NLRC.[9]

The Ruling of the Court of Appeals

On 15 June 2000, the Court of Appeals rendered judgment as follows:

WHEREFORE, the decision dated December 29, 1998 of the NLRC is hereby AFFIRMED with the MODIFICATION that respondent Patricio Lim is jointly and solidarily liable with Peggy Mills, Inc., to
pay the following amounts to petitioner John F. McLeod:

1. retirement pay equivalent to 22.5 days for every year of service for his twelve (12) years of service from 1980 to 1992 based on a salary rate of P50,495, a month;

2. moral damages in the amount of one hundred thousand (P100,000.00) Pesos;

3. exemplary damages in the amount of fifty thousand (P50,000.00) Pesos; and

4. attorneys fees equivalent to 10% of the total award.

No costs is awarded.
 SO ORDERED.[10]

The Court of Appeals rejected McLeods theory that all respondent corporations are the same corporate entity which should be held solidarily liable for the payment of his monetary claims.

The Court of Appeals ruled that the fact that (1) all respondent corporations have the same address; (2) all were represented by the same counsel, Atty. Isidro S. Escano; (3) Atty. Escano holds office at respondent
corporations address; and (4) all respondent corporations have common officers and key personnel, would not justify the application of the doctrine of piercing the veil of corporate fiction.

The Court of Appeals held that there should be clear and convincing evidence that SRTI, FETMI, and Filsyn were being used as alter ego, adjunct or business conduit for the sole benefit of Peggy Mills, Inc. (PMI),
otherwise, said corporations should be treated as distinct and separate from each other.

The Court of Appeals pointed out that the Articles of Incorporation of PMI show that it has six incorporators, namely, Patricio, Jose Yulo, Jr., Carlos Palanca, Jr., Cesar R. Concio, Jr., E. A. Picasso, and Walter
Euyang. On the other hand, the Articles of Incorporation of Filsyn show that it has 10 incorporators, namely, Jesus Y. Yujuico, Carlos Palanca, Jr., Patricio, Ang Beng Uh, Ramon A. Yulo, Honorio Poblador, Jr.,
Cipriano Azada, Manuel Tomacruz, Ismael Maningas, and Benigno Zialcita, Jr.

The Court of Appeals pointed out that PMI and Filsyn have only two interlocking incorporators and directors, namely, Patricio and Carlos Palanca, Jr.

Reiterating the ruling of this Court in Laguio v. NLRC,[11] the Court of Appeals held that mere substantial identity of the incorporators of two corporations does not necessarily imply fraud, nor warrant the piercing
of the veil of corporate fiction.

The Court of Appeals also pointed out that when SRTI and PMI executed the Dation in Payment with Lease, it was clear that SRTI did not assume the liabilities PMI incurred before the execution of the contract.

The Court of Appeals held that McLeod failed to substantiate his claim that all respondent corporations should be treated as one corporate
entity. The Court of Appeals thus upheld the NLRCs finding that no employer-employee relationship existed between McLeod and respondent corporations except PMI.

The Court of Appeals ruled that Eric Hu, as an officer of PMI, should be exonerated from any liability, there being no proof of malice or bad faith on his part. The Court of Appeals, however, ruled that McLeod
was entitled to recover from PMI and Patricio, the companys Chairman and President.

The Court of Appeals pointed out that Patricio deliberately and maliciously evaded PMIs financial obligation to McLeod. The Court of Appeals stated that, on several occasions, despite his approval, Patricio
refused and ignored to pay McLeods retirement benefits. The Court of Appeals stated that the delay lasted for one year prompting McLeod to initiate legal action. The Court of Appeals stated that although PMI
offered to pay McLeod his retirement benefits, this offer for P300,000 was still below the floor limits provided by law. The Court of Appeals held that an employee could demand payment of retirement benefits
as a matter of right.

The Court of Appeals stated that considering that PMI was no longer in operation, its officer should be held liable for acting on behalf of the corporation.

The Court of Appeals also ruled that since PMI did not have a retirement program providing for retirement benefits of its employees, Article 287 of the Labor Code must be followed. The Court of Appeals thus
upheld the NLRCs finding that McLeod was entitled to retirement pay equivalent to 22.5 days for every year of service from 1980 to 1992 based on a salary rate of P50,495 a month.
The Court of Appeals held that McLeod was not entitled to payment of vacation, sick leave and holiday pay because as Vice President and Plant Manager, McLeod is a managerial employee who, under Article 82
of the Labor Code, is not entitled to these benefits.

The Court of Appeals stated that for McLeod to be entitled to payment of service incentive leave and holidays, there must be an agreement to that effect between him and his employer.

Moreover, the Court of Appeals rejected McLeods argument that since PMI paid for his two round-trip tickets Manila-London in 1983 and 1986, he was also entitled to unused airline tickets. The Court of Appeals
stated that the fact that PMI granted McLeod free transport to and from Manila and London for the year 1983 and 1986 does not ipso factocharacterize it as regular that would establish a prevailing company
policy.

The Court of Appeals also denied McLeods claims for underpayment of salaries and his 13th month pay for the year 1994. The Court of Appeals upheld the NLRCs ruling that it could be deduced from McLeods
own narration of facts that he agreed to the reduction of his compensation from P60,000 to P50,495 in August 1990 to November 1993.

The Court of Appeals found the award of moral damages for P50,000 in order because of the stubborn refusal of PMI and Patricio to respect McLeods valid claims.

The Court of Appeals also ruled that attorneys fees equivalent to 10% of the total award should be given to McLeod under Article 2208, paragraph 2 of the Civil Code.[12]

Hence, this petition.

The Issues

McLeod submits the following issues for our consideration:

1. Whether the challenged Decision and Resolution of the 14th Division of the Court of Appeals promulgated on 15 June 2000 and 27 December 2000, respectively, in CA-G.R. SP No. 55130 are
in accord with law and jurisprudence;

2. Whether an employer-employee relationship exists between the private respondents and the petitioner for purposes of determining employer liability to the petitioner;

3. Whether the private respondents may avoid their financial obligations to the petitioner by invoking the veil of corporate fiction;

4. Whether petitioner is entitled to the relief he seeks against the private respondents;

5. Whether the ruling of [this] Court in Special Police and Watchman Association (PLUM) Federation v. National Labor Relations Commission cited by the Office of the Solicitor General is
applicable to the case of petitioner; and

6. Whether the appeal taken by the private respondents from the Decision of the labor arbiter meets the mandatory requirements recited in the Labor Code of the Philippines, as amended.[13]
 The Courts Ruling

The petition must fail.

McLeod asserts that the Court of Appeals should not have upheld the NLRCs findings that he was a managerial employee of PMI from 20 June 1980 to 31 December 1992, and then a consultant of SRTI up to 30
November 1993. McLeod asserts that if only for this brazen assumption, the Court of Appeals should not have sustained the NLRCs ruling that his cause of action was only against PMI.

These assertions do not deserve serious consideration.

Records disclose that McLeod was an employee only of PMI.[14] PMI hired McLeod as its acting Vice President and General Manager on 20 June 1980.[15] PMI confirmed McLeods appointment as Vice President/Plant
Manager in the Special Meeting of its Board of Directors on 10 February 1981.[16] McLeod himself testified during the hearing before the Labor Arbiter that his regular employment was with PMI.[17]

When PMIs rank-and-file employees staged a strike on 19 August 1989 to July 1992, PMI incurred serious business losses.[18] This prompted PMI to stop permanently plant operations and to send a notice of
closure to the Department of Labor and Employment on 21 July 1992.[19]

PMI informed its employees, including McLeod, of the closure.[20] PMI paid its employees, including managerial employees, except McLeod, their unpaid wages, sick leave, vacation leave, prorated
13th month pay, and separation pay. Under the compromise agreement between PMI and its employees, the employer-employee relationship between them ended on 25 November 1992.[21]

Records also disclose that PMI extended McLeods service up to 31 December 1992 to wind up some affairs of the company.[22] McLeod testified on cross-examinationthat he received his last salary from
PMI in December 1992.[23]

It is thus clear that McLeod was a managerial employee of PMI from 20 June 1980 to 31 December 1992.

However, McLeod claims that after FETMI purchased PMI in January 1993, he continued to work at the same plant with the same responsibilities until 30 November 1993.McLeod claims that FETMI
merely renamed PMI as SRTI. McLeod asserts that it was for this reason that when he reached the retirement age in 1993, he asked all the respondents for the payment of his benefits.[24]

These assertions deserve scant consideration.

What took place between PMI and SRTI was dation in payment with lease. Pertinent portions of the contract that PMI and SRTI executed on 15 June 1992 read:

WHEREAS, PMI is indebted to the Development Bank of the Philippines (DBP) and as security for such debts (the Obligations) has mortgaged its real properties covered by TCT Nos. T-38647, T-
37136, and T-37135, together with all machineries and improvements found thereat, a complete listing of which is hereto attached as Annex A (the Assets);

WHEREAS, by virtue of an inter-governmental agency arrangement, DBP transferred the Obligations, including the Assets, to the Asset Privatization Trust (APT) and the latter has received payment
for the Obligations from PMI, under APTs Direct Debt Buy-Out (DDBO) program thereby causing APT to completely discharge and cancel the mortgage in the Assets and to release the titles of the
Assets back to PMI;

WHEREAS, PMI obtained cash advances from SRTC in the total amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00) (the Advances) to enable PMI to consummate the DDBO with
APT, with SRTC subrogating APT as PMIs creditor thereby;
 WHEREAS, in payment to SRTC for PMIs liability, PMI has agreed to transfer all its rights, title and interests in the Assets by way of a dation in payment to SRTC, provided that simultaneous
with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder;

xxxx

NOW THEREFORE, for and in consideration of the foregoing premises, and of the terms and conditions hereinafter set forth, the parties hereby agree as follows:

1. CESSION. In consideration of the amount of TWO HUNDRED TEN MILLION PESOS (P210,000,000.00), PMI hereby cedes, conveys and transfers to SRTC all of its rights, title and interest in and to
the Assets by way of a dation in payment.[25] (Emphasis supplied)

As a rule, a corporation that purchases the assets of another will not be liable for the debts of the selling corporation, provided the former acted in good faith and paid adequate consideration for such assets,
except when any of the following circumstances is present: (1) where the purchaser expressly or impliedly agrees to assume the debts, (2) where the transaction amounts to a consolidation or merger of the
corporations, (3) where the purchasing corporation is merely a continuation of the selling corporation, and (4) where the selling corporation fraudulently enters into the transaction to escape liability for those
debts.[26]

None of the foregoing exceptions is present in this case.

Here, PMI transferred its assets to SRTI to settle its obligation to SRTI in the sum of P210,000,000. We are not convinced that PMI fraudulently transferred these assets to escape its liability for any of its debts. PMI
had already paid its employees, except McLeod, their money claims.

There was also no merger or consolidation of PMI and SRTI.

Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their
rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations.

Merger, on the other hand, is a union whereby one corporation absorbs one or more existing corporations, and the absorbing corporation survives and continues the combined business.

The parties to a merger or consolidation are called constituent corporations. In consolidation, all the constituents are dissolved and absorbed by the new consolidated enterprise.In merger, all constituents, except
the surviving corporation, are dissolved. In both cases, however, there is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights
and franchises and their stockholders usually become its stockholders.

The surviving or consolidated corporation assumes automatically the liabilities of the dissolved corporations, regardless of whether the creditors have consented or not to such merger or consolidation.[27]

In the present case, there is no showing that the subject dation in payment involved any corporate merger or consolidation. Neither is there any showing of those indicative factors that SRTI is a mere
instrumentality of PMI.
Moreover, SRTI did not expressly or impliedly agree to assume any of PMIs debts. Pertinent portions of the subject Deed of Dation in Payment with Lease provide, thus:

2. WARRANTIES AND REPRESENTATIONS. PMI hereby warrants and represents the following:

xxxx

(e) PMI shall warrant that it will hold SRTC or its assigns, free and harmless from any liability for claims of PMIs creditors, laborers, and workers and for physical injury or injury to property arising from
PMIs custody, possession, care, repairs, maintenance, use or operation of the Assets except ordinary wear and tear;[28] (Emphasis supplied)

Also, McLeod did not present any evidence to show the alleged renaming of Peggy Mills, Inc. to Sta. Rosa Textiles, Inc.

Hence, it is not correct for McLeod to treat PMI and SRTI as the same entity.

Respondent corporations assert that SRTI hired McLeod as consultant after PMI stopped operations.[29] On the other hand, McLeod asserts that he was respondent corporations employee from 1980
to 30 November 1993.[30] However, McLeod failed to present any proof of employer-employee relationship between him and Filsyn, SRTI, or FETMI. McLeod testified, thus:

ATTY. ESCANO:
Do you have any employment contract with Far Eastern Textile?

WITNESS:
It is my belief up the present time.

ATTY. AVECILLA:
May I request that the witness be allowed to go through his Annexes, Your Honor.

ATTY. ESCANO:
Yes, but I want a precise answer to that question. If he has an employment contract with Far Eastern Textile?

WITNESS:
Can I answer it this way, sir? There is not a valid contract but I was under the impression taking into consideration that the closeness that I had at Far Eastern Textile is enough during that period
of time of the development of Peggy Mills to reorganize a staff. I was under the basic impression that they might still retain my status as Vice President and Plant Manager of the company.

ATTY. ESCANO:
But the answer is still, there is no employment contract in your possession appointing you in any capacity by Far Eastern?

WITNESS:
There was no written contract, sir.
xxxx

ATTY. ESCANO:
So, there is proof that you were in fact really employed by Peggy Mills?

WITNESS:
Yes, sir.

ATTY. ESCANO:
Of course, my interest now is to whether or not there is a similar document to present that you were employed by the other respondents like Filsyn Corporation?

WITNESS:
I have no document, sir.

ATTY. ESCANO:
What about Far Eastern Textile Mills?

WITNESS:
I have no document, sir.

ATTY. ESCANO:
And Sta. Rosa Textile Mills?

WITNESS:
There is no document, sir.[31]

xxxx

ATTY. ESCANO:
Q Yes. Let me be more specific, Mr. McLeod. Do you have a contract of employment from Far Eastern Textiles, Inc.?

A No, sir.

Q What about Sta. Rosa Textile Mills, do you have an employment contract from this company?

A No, sir.

xxxx
 Q And what about respondent Eric Hu. Have you had any contract of employment from Mr. Eric Hu?

A Not a direct contract but I was taken in and I told to take over this from Mr. Eric Hu. Automatically, it confirms that Mr. Eric Hu, in other words, was under the control of Mr. Patricio Lim at that
period of time.

Q No documents to show, Mr. McLeod?

A No. No documents, sir.[32]

McLeod could have presented evidence to support his allegation of employer-employee relationship between him and any of Filsyn, SRTI, and FETMI, but he did not.Appointment letters or employment contracts,
payrolls, organization charts, SSS registration, personnel list, as well as testimony of co-employees, may serve as evidence of employee status.[33]
It is a basic rule in evidence that parties must prove their affirmative allegations. While technical rules are not strictly followed in the NLRC, this does not mean that the rules on proving allegations are
entirely ignored. Bare allegations are not enough. They must be supported by substantial evidence at the very least.[34]
However, McLeod claims that for purposes of determining employer liability, all private respondents are one and the same employer because: (1) they have the same address; (2) they are all engaged in
the same business; and (3) they have interlocking directors and officers.[35]

This assertion is untenable.

A corporation is an artificial being invested by law with a personality separate and distinct from that of its stockholders and from that of other corporations to which it may be connected.[36]

While a corporation may exist for any lawful purpose, the law will regard it as an association of persons or, in case of two corporations, merge them into one, when its corporate legal entity is used as a
cloak for fraud or illegality. This is the doctrine of piercing the veil of corporate fiction. The doctrine applies only when such corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or
defend crime,[37] or when it is made as a shield to confuse the legitimate issues, or where a corporation is the mere alter ego or business conduit of a person, or where the corporation is so organized and controlled
and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation.[38]

To disregard the separate juridical personality of a corporation, the wrongdoing must be established clearly and convincingly. It cannot be presumed.[39]

Here, we do not find any of the evils sought to be prevented by the doctrine of piercing the corporate veil.

Respondent corporations may be engaged in the same business as that of PMI, but this fact alone is not enough reason to pierce the veil of corporate fiction.[40]

In Indophil Textile Mill Workers Union v. Calica,[41] the Court ruled, thus:

In the case at bar, petitioner seeks to pierce the veil of corporate entity of Acrylic, alleging that the creation of the corporation is a devise to evade the application of the CBA between petitioner
Union and private respondent Company. While we do not discount the possibility of the similarities of the businesses of private respondent and Acrylic, neither are we inclined to apply the
doctrine invoked by petitioner in granting the relief sought. The fact that the businesses of private respondent and Acrylic are related, that some of the employees of the private respondent
are the same persons manning and providing for auxiliary services to the units of Acrylic, and that the physical plants, offices and facilities are situated in the same compound, it is our
considered opinion that these facts are not sufficient to justify the piercing of the corporate veil of Acrylic.[42] (Emphasis supplied)
Also, the fact that SRTI and PMI shared the same address, i.e., 11/F BA-Lepanto Bldg., Paseo de Roxas, Makati City,[43] can be explained by the two companies stipulation in their Deed of Dation in Payment with
Lease that simultaneous with the dation in payment, SRTC shall grant unto PMI the right to lease the Assets under terms and conditions stated hereunder.[44]

As for the addresses of Filsyn and FETMI, Filsyn held office at 12th Floor, BA-Lepanto Bldg., Paseo de Roxas, Makati City,[45] while FETMI held office at 18F, Tun Nan Commercial Building, 333 Tun Hwa South Road,
Sec. 2, Taipei, Taiwan, R.O.C.[46] Hence, they did not have the same address as that of PMI.

That respondent corporations have interlocking incorporators, directors, and officers is of no moment.

The only interlocking incorporators of PMI and Filsyn were Patricio and Carlos Palanca, Jr.[47] While Patricio was Director and Board Chairman of Filsyn, SRTI, and PMI,[48]he was never an officer of FETMI.

Eric Hu, on the other hand, was Director of Filsyn and SRTI.[49] He was never an officer of PMI.

Marialen C. Corpuz, Filsyns Finance Officer,[50] testified on cross-examination that (1) among all of Filsyns officers, only she was the one involved in the management of PMI; (2) only she and Patricio were the
common officers between Filsyn and PMI; and (3) Filsyn and PMI are two separate companies.[51]

Apolinario L. Posio, PMIs Chief Accountant, testified that SRTI is a different corporation from PMI.[52]

At any rate, the existence of interlocking incorporators, directors, and officers is not enough justification to pierce the veil of corporate fiction, in the absence of fraud or other public policy considerations.[53]

In Del Rosario v. NLRC,[54] the Court ruled that substantial identity of the incorporators of corporations does not necessarily imply fraud.

In light of the foregoing, and there being no proof of employer-employee relationship between McLeod and respondent corporations and Eric Hu, McLeods cause of action is only against his former employer,
PMI.

On Patricios personal liability, it is settled that in the absence of malice, bad faith, or specific provision of law, a stockholder or an officer of a corporation cannot be made personally liable for corporate liabilities.[55]

To reiterate, a corporation is a juridical entity with legal personality separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. The rule is that obligations incurred
by the corporation, acting through its directors, officers, and employees, are its sole liabilities.[56]

Personal liability of corporate directors, trustees or officers attaches only when (1) they assent to a patently unlawful act of the corporation, or when they are guilty of bad faith or gross negligence in directing its
affairs, or when there is a conflict of interest resulting in damages to the corporation, its stockholders or other persons; (2) they consent to the issuance of watered down stocks or when, having knowledge of
such issuance, do not forthwith file with the corporate secretary their written objection; (3) they agree to hold themselves personally and solidarily liable with the corporation; or (4) they are made by specific
provision of law personally answerable for their corporate action.[57]

Considering that McLeod failed to prove any of the foregoing exceptions in the present case, McLeod cannot hold Patricio solidarily liable with PMI.
The records are bereft of any evidence that Patricio acted with malice or bad faith. Bad faith is a question of fact and is evidentiary. Bad faith does not connote bad judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious wrongdoing. It means breach of a known duty through some ill motive or interest. It partakes of the nature of fraud.[58]

In the present case, there is nothing substantial on record to show that Patricio acted in bad faith in terminating McLeods services to warrant Patricios personal liability. PMI had no other choice but to stop plant
operations. The work stoppage therefore was by necessity. The company could no longer continue with its plant operations because of the serious business losses that it had suffered. The mere fact that Patricio
was president and director of PMI is not a ground to conclude that he should be held solidarily liable with PMI for McLeods money claims.

The ruling in A.C. Ransom Labor Union-CCLU v. NLRC,[59] which the Court of Appeals cited, does not apply to this case. We quote pertinent portions of the ruling, thus:

(a) Article 265 of the Labor Code, in part, expressly provides:

Any worker whose employment has been terminated as a consequence of an unlawful lockout shall be entitled to reinstatement with full backwages.

Article 273 of the Code provides that:

Any person violating any of the provisions of Article 265 of this Code shall be punished by a fine of not exceeding five hundred pesos and/or imprisonment for not less than one (1) day nor more
than six (6) months.

(b) How can the foregoing provisions be implemented when the employer is a corporation? The answer is found in Article 212 (c) of the Labor Code which provides:

(c) Employer includes any person acting in the interest of an employer, directly or indirectly. The term shall not include any labor organization or any of its officers or agents except when acting
as employer.
.
The foregoing was culled from Section 2 of RA 602, the Minimum Wage Law. Since RANSOM is an artificial person, it must have an officer who can be presumed to be the employer, being the
person acting in the interest of (the) employer RANSOM. The corporation, only in the technical sense, is the employer.

The responsible officer of an employer corporation can be held personally, not to say even criminally, liable for non-payment of back wages. That is the policy of the law.

xxxx

(c) If the policy of the law were otherwise, the corporation employer can have devious ways for evading payment of back wages. In the instant case, it would appear that RANSOM, in 1969,
foreseeing the possibility or probability of payment of back wages to the 22 strikers, organized ROSARIO to replace RANSOM, with the latter to be eventually phased out if the 22 strikers win
their case. RANSOM actually ceased operations on May 1, 1973, after the December 19, 1972 Decision of the Court of Industrial Relations was promulgated against RANSOM.[60] (Emphasis
supplied)

Clearly, in A.C. Ransom, RANSOM, through its President, organized ROSARIO to evade payment of backwages to the 22 strikers. This situation, or anything similar showing malice or bad faith on the part of Patricio,
does not obtain in the present case. In Santos v. NLRC,[61] the Court held, thus:
 It is true, there were various cases when corporate officers were themselves held by the Court to be personally accountable for the payment of wages and money claims to its employees. In A.C.
Ransom Labor Union-CCLU vs. NLRC, for instance, the Court ruled that under the Minimum Wage Law, the responsible officer of an employer corporation could be held personally liable for
nonpayment of backwages for (i)f the policy of the law were otherwise, the corporation employer (would) have devious ways for evading payment of backwages. In the absence of a clear
identification of the officer directly responsible for failure to pay the backwages, the Court considered the President of the corporation as such officer. The case was cited in Chua vs. NLRC in
holding personally liable the vice-president of the company, being the highest and most ranking official of the corporation next to the President who was dismissed for the latters claim for unpaid
wages.
A review of the above exceptional cases would readily disclose the attendance of facts and circumstances that could rightly sanction personal liability on the part of the company officer. In A.C.
Ransom, the corporate entity was a family corporation and execution against it could not be implemented because of the disposition posthaste of its leviable assets evidently in order to evade
its just and due obligations. The doctrine of piercing the veil of corporate fiction was thus clearly appropriate. Chua likewise involved another family corporation, and this time the conflict was
between two brothers occupying the highest ranking positions in the company. There were incontrovertible facts which pointed to extreme personal animosity that resulted, evidently in bad
faith, in the easing out from the company of one of the brothers by the other.

The basic rule is still that which can be deduced from the Courts pronouncement in Sunio vs. National Labor Relations Commission; thus:

We come now to the personal liability of petitioner, Sunio, who was made jointly and severally responsible with petitioner company and CIPI for the payment of the backwages of
private respondents. This is reversible error. The Assistant Regional Directors Decision failed to disclose the reason why he was made personally liable. Respondents, however,
alleged as grounds thereof, his being the owner of one-half () interest of said corporation, and his alleged arbitrary dismissal of private respondents.

Petitioner Sunio was impleaded in the Complaint in his capacity as General Manager of petitioner corporation. There appears to be no evidence on record that he acted maliciously
or in bad faith in terminating the services of private respondents. His act, therefore, was within the scope of his authority and was a corporate act.

It is basic that a corporation is invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to
which it may be related. Mere ownership by a single stockholder or by another corporation of all or nearly all of the capital stock of a corporation is not of itself sufficient ground
for disregarding the separate corporate personality. Petitioner Sunio, therefore, should not have been made personally answerable for the payment of private respondents back
salaries.[62] (Emphasis supplied)

Thus, the rule is still that the doctrine of piercing the corporate veil applies only when the corporate fiction is used to defeat public convenience, justify wrong, protect fraud, or defend crime. In the absence of
malice, bad faith, or a specific provision of law making a corporate officer liable, such corporate officer cannot be made personally liable for corporate liabilities. Neither Article 212(c) nor Article 273 (now 272)
of the Labor Code expressly makes any corporate officer personally liable for the debts of the corporation.As this Court ruled in H.L. Carlos Construction, Inc. v. Marina Properties Corporation:[63]

We concur with the CA that these two respondents are not liable. Section 31 of the Corporation Code (Batas Pambansa Blg. 68) provides:

Section 31. Liability of directors, trustees or officers. - Directors or trustees who willfully and knowingly vote for or assent to patently unlawful acts of the corporation or who are
guilty of gross negligence or bad faith ... shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders and other persons.

The personal liability of corporate officers validly attaches only when (a) they assent to a patently unlawful act of the corporation; or (b) they are guilty of bad faith or gross negligence in directing
its affairs; or (c) they incur conflict of interest, resulting in damages to the corporation, its stockholders or other persons.
 The records are bereft of any evidence that Typoco acted in bad faith with gross or inexcusable negligence, or that he acted outside the scope of his authority as company president. The unilateral
termination of the Contract during the existence of the TRO was indeed contemptible for which MPC should have merely been cited for contempt of court at the most and a preliminary injunction
would have then stopped work by the second contractor. Besides, there is no showing that the unilateral termination of the Contract was null and void.[64]

McLeod is not entitled to payment of vacation leave and sick leave as well as to holiday pay. Article 82, Title I, Book Three of the Labor Code, on Working Conditions and Rest Periods, provides:

Coverage. The provisions of this title shall apply to employees in all establishments and undertakings whether for profit or not, but not to government employees, managerial employees, field
personnel, members of the family of the employer who are dependent on him for support, domestic helpers, persons in the personal service of another, and workers who are paid by results as
determined by the Secretary of Labor in appropriate regulations.

As used herein, managerial employees refer to those whose primary duty consists of the management of the establishment in which they are employed or of a department or subdivision thereof,
and to other officers or members of the managerial staff. (Emphasis supplied)
As Vice President/Plant Manager, McLeod is a managerial employee who is excluded from the coverage of Title I, Book Three of the Labor Code. McLeod is entitled to payment of vacation leave and sick leave
only if he and PMI had agreed on it. The payment of vacation leave and sick leave depends on the policy of the employer or the agreement between the employer and employee.[65] In the present case, there is
no showing that McLeod and PMI had an agreement concerning payment of these benefits.

McLeods assertion of underpayment of his 13th month pay in December 1993 is unavailing.[66] As already stated, PMI stopped plant operations in 1992. McLeod himself testified that he received his last salary
from PMI in December 1992. After the termination of the employer-employee relationship between McLeod and PMI, SRTI hired McLeod as consultant and not as employee. Since McLeod was no longer an
employee, he was not entitled to the 13th month pay.[67] Besides, there is no evidence on record that McLeod indeed received his alleged reduced 13th month pay of P44,183.63 in December 1993.[68]

Also unavailing is McLeods claim that he was entitled to the unpaid monetary equivalent of unused plane tickets for the period covering 1989 to 1992 in the amount of P279,300.00.[69] PMI has no company policy
granting its officers and employees expenses for trips abroad.[70] That at one time PMI reimbursed McLeod for his and his wifes plane tickets in a vacation to London[71] could not be deemed as an established
practice considering that it happened only once. To be considered a regular practice, the giving of the benefits should have been done over a long period, and must be shown to have been consistent and
deliberate.[72]

In American Wire and Cable Daily Rated Employees Union v. American Wire and Cable Co., Inc.,[73] the Court held that for a bonus to be enforceable, the employer must have promised it, and the parties must
have expressly agreed upon it, or it must have had a fixed amount and had been a long and regular practice on the part of the employer.

In the present case, there is no showing that PMI ever promised McLeod that it would continue to grant him the benefit in question. Neither is there any proof that PMI and McLeod had expressly agreed upon
the giving of that benefit.

McLeods reliance on Annex M[74] can hardly carry the day for him. Annex M, which is McLeods letter addressed to Philip Lim, VP Administration, merely contains McLeods proposals for the grant of some benefits
to supervisory and confidential employees. Contrary to McLeods allegation, Patricio did not sign the letter. Hence, the letter does not embody any agreement between McLeod and the management that would
entitle McLeod to his money claims.

Neither can McLeods assertions find support in Annex U.[75] Annex U is the Agreement which McLeod and Universal Textile Mills, Inc. executed in 1959. The Agreement merely contains the renewal of the service
agreement which the parties signed in 1956.

McLeod cannot successfully pretend that his monthly salary of P60,000 was reduced without his consent.
McLeod testified that in 1990, Philip Lim explained to him why his salary would have to be reduced. McLeod said that Philip told him that they were short in finances; that it would be repaid.[76] Were McLeod not
amenable to that reduction in salary, he could have immediately resigned from his work in PMI.

McLeod knew that PMI was then suffering from serious business losses. In fact, McLeod testified that PMI was not able to operate from August 1989 to 1992 because of the strike. Even before 1989, as Vice
President of PMI, McLeod was aware that the company had incurred huge loans from DBP.[77] As it happened, McLeod continued to work with PMI. We find it pertinent to quote some portions of Apolinario
Posios testimony, to wit:

Q You also stated that before the period of the strike as shown by annex K of the reply filed by the complainant which was I think a voucher, the salary of Mr. McLeod was roughly P60,000.00 a
month?

A Yes, sir.

Q And as shown by their annex L to their reply, that this was reduced to roughly P50,000.00 a month?

A Yes, sir.

Q You stated that this was indeed upon the instruction by the Vice-President of Peggy Mills at that time and that was Mr. Philip Lim, would you not?

A Yes, sir.
Q Of your own personal knowledge, can you say if this was, in fact, by agreement between Mr. Philip Lim or any other officers of Peggy Mills and Mr. McLeod?

A If I recall it correctly, I assume it was an agreement, verbal agreement with, between Mr. Philip Lim and Mr. McLeod, because the voucher that we prepared was actually acknowledged by Mr.
McLeod, the reduced amount was acknowledged by Mr. McLeod thru the voucher that we prepared.

Q In other words, Mr. Witness, you mean to tell us that Mr. McLeod continuously received the reduced amount of P50,000.00 by signing the voucher and receiving the amount in question?

A Yes, sir.

Q As far as you remember, Mr. Posio, was there any complaint by Mr. McLeod because of this reduced amount of his salary at that time?

A I dont have any personal knowledge of any complaint, sir.

Q At least, that is in so far as you were concerned, he said nothing when he signed the voucher in question?

A Yes, sir.

Q Now, you also stated that the reason for what appears to be an agreement between Peggy Mills and Mr. McLeod in so far as the reduction of his salary from P60,000.00 to P50,000.00 a month
was because he would have a reduced number of working days in view of the strike at Peggy Mills, is that right?

A Yes, sir.
 Q And that this was so because on account of the strike, there was no work to be done in the company?

A Yes, sir.[78]

xxxx

Q Now, you also stated if you remember during the first time that you testified that in the beginning, the monthly salary of the complainant was P60,000.00, is that correct?

A Yes, sir.

Q And because of the long period of the strike, when there was no work to be done, by agreement with the complainant, his monthly salary was adjusted to only P50,495 because he would not
have to report for work on Saturday. Do you remember having made that explanation?

A Yes, sir.

Q You also stated that the complainant continuously received his monthly salary in the adjusted amount of P50,495.00 monthly signing the necessary vouchers or pay slips for that without
complaining, is that not right, Mr. Posio?

A Yes, sir.[79]

Since the last salary that McLeod received from PMI was P50,495, that amount should be the basis in computing his retirement benefits. McLeod must be credited only with his service to PMI as it had a juridical
personality separate and distinct from that of the other respondent corporations.

Since PMI has no retirement plan,[80] we apply Section 5, Rule II of the Rules Implementing the New Retirement Law which provides:

5.1 In the absence of an applicable agreement or retirement plan, an employee who retires pursuant to the Act shall be entitled to retirement pay equivalent to at least one-half (1/2)
month salary for every year of service, a fraction of at least six (6) months being considered as one whole year.

5.2 Components of One-half (1/2) Month Salary. For the purpose of determining the minimum retirement pay due an employee under this Rule, the term one-half month salary shall include
all of the following:

(a) Fifteen (15) days salary of the employee based on his latest salary rate. x x x
With McLeod having worked with PMI for 12 years, from 1980 to 1992, he is entitled to a retirement pay equivalent to month salary for every year of service based on his latest salary rate of P50,495 a month.

There is no basis for the award of moral damages.

Moral damages are recoverable only if the defendant has acted fraudulently or in bad faith, or is guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations. The breach
must be wanton, reckless, malicious, or in bad faith, oppressive or abusive.[81] From the records of the case, the Court finds no ultimate facts to support a conclusion of bad faith on the part of PMI.

Records disclose that PMI had long offered to pay McLeod his money claims. In their Comment, respondents assert that they offered to pay McLeod the sum of P840,000, as separation benefits, and not P300,000,
if only to buy peace and to forestall any complaint that McLeod may initiate before the NLRC. McLeod admitted at the hearing before the Labor Arbiter that PMI has made this offer

ATTY. ESCANO:
x x x According to your own statement in your Position Paper and I am referring to page 8, your unpaid retirement benefit for fourteen (14) years of service at P60,000.00 per year is P840,000.00,
is that correct?

WITNESS:
That is correct, sir.

ATTY. ESCANO:
And this amount is correct P840,000.00, according to your Position Paper?

WITNESS:
That is correct, sir.

ATTY. ESCANO:
The question I want to ask is, are you aware that this amount was offered to you sometime last year through your own lawyer, my good friend, Atty. Avecilla, who is right here with us?

WITNESS:
I was aware, sir.

ATTY. ESCANO:
So this was offered to you, is that correct?

WITNESS:
I was told that a fixed sum of P840,000.00 was offered.

ATTY. ESCANO:
And , of course, the reason, if I may assume, that you declined this offer was that, according to you, there are other claims which you would like to raise against the Respondents which, by your
impression, they were not willing to pay in addition to this particular amount?

WITNESS:
Yes, sir.

ATTY. ESCANO:
The question now is, if the same amount is offered to you by way of retirement which is exactly what you stated in your own Position Paper, would you accept it or not?

WITNESS:
Not on the concept without all the basic benefits due me, I will refuse.[82]

xxxx

ATTY. ROXAS:
Q You mentioned in the cross-examination of Atty. Escano that you were offered the separation pay in 1994, is that correct, Mr. Witness?

WITNESS:
A I was offered a settlement of P300,000.00 for complete settlement and that was I think in January or February 1994, sir.

ATTY. ESCANO:
No. What was mentioned was the amount of P840,000.00.

WITNESS:
What did you say, Atty. Escano?

ATTY. ESCANO:
The amount that I mentioned was P840,000.00 corresponding to the . . . . . . .

WITNESS:
May I ask that the question be clarified, your Honor?

ATTY. ROXAS:
Q You mentioned that you were offered for the settlement of your claims in 1994 for P840,000.00, is that right, Mr. Witness?

A During that period in time, while the petition in this case was ongoing, we already filed a case at that period of time, sir. There was a discussion. To the best of my knowledge, they are willing
to settle for P840,000.00 and based on what the Attorney told me, I refused to accept because I believe that my position was not in anyway due to a compromise situation to the benefits I am
entitled to.[83]
Hence, the awards for exemplary damages and attorneys fees are not proper in the present case.[84]

That respondent corporations, in their appeal to the NLRC, did not serve a copy of their memorandum of appeal upon PMI is of no moment. Section 3(a), Rule VI of the NLRC New Rules of Procedure provides:

Requisites for Perfection of Appeal. (a) The appeal shall be filed within the reglementary period as provided in Section 1 of this Rule; shall be under oath with proof of payment of the required
appeal fee and the posting of a cash or surety bond as provided in Section 5 of this Rule; shall be accompanied by a memorandum of appeal x x x and proof of service on the other party of such
appeal. (Emphasis supplied)

The other party mentioned in the Rule obviously refers to the adverse party, in this case, McLeod. Besides, Section 3, Rule VI of the Rules which requires, among others, proof of service of the memorandum of
appeal on the other party, is merely a rundown of the contents of the required memorandum of appeal to be submitted by the appellant. These are not jurisdictional requirements.[85]

WHEREFORE, we DENY the petition and AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 55130, with the following MODIFICATIONS: (a) the retirement pay of John F. McLeod should be computed
at month salary for every year of service for 12 years based on his salary rate of P50,495 a month; (b) Patricio L. Lim is absolved from personal liability; and (c) the awards for moral and exemplary damages and
attorneys fees are deleted. No pronouncement as to costs.

SO ORDERED.

5
Quebec v NLRC

BELLOSILLO, J.:

This petition for certiorari[1] assails the 31 August 1995 decision of public respondent National Labor Relations Commission (NLRC) which reversed its own resolution of
27 February 1995 dismissing private respondents appeal for lack of merit.
Petitioner Serafin Quebec Sr. was the owner of the Canhagimet Express, a transportation company plying Oras-Catbalogan (Samar) - the Bicol area - Metro Manila,
and vice-versa, before the company was sold. Canhagimet Express was managed by Serafin Quebec Jr. until he was murdered on 1 September 1981.[2] Petitioner Serafin
Quebec Sr. was his father. Serafin Quebec III, obviously the son of Serafin Quebec Jr. and grandson of petitioner, briefly managed the company thereafter until he fled when
he received serious threats to his life following the death of his father.
In September 1981 private respondent Antonio Quebec, brother of petitioner, was hired by the Company as inspector and liaison officer with the powers and duties of
a supervisor/manager[3] at a monthly salary of P5,000.00 but without any 13th month pay, overtime pay, service incentive leave pay (SILP) and night premium
pay.[4] Neither was he paid any separation pay when he was dismissed without any notice and hearing in 1991 by Paciencia Quebec, wife of petitioner, on suspicion of
covering up the latter's womanizing activities.[5]
Meanwhile on 5 November 1981 private respondent Pamfilo Pombo Sr., brother-in-law of petitioner by reason of his marriage to petitioner's sister Estelita Quebec, was
hired as driver-mechanic and co-manager of Antonio in Catbalogan, Northern Samar, the Bicol Region and Manila, for a monthly salary of P4,000.00. He was dismissed
without notice and hearing in October 1990 allegedly for his failure to help in the repair of Bus No. 152. Neither was he given any separation pay, overtime pay, 13th month
pay nor service incentive leave pay.[6] Consequently, private respondents Antonio Quebec and Pamfilo Pombo Sr. separately filed illegal dismissal cases against petitioner
which were later consolidated under one Labor Arbiter.[7]
In his 5 January 1994 decision,[8] the Labor Arbiter dismissed the complaints against petitioner and found the dismissal of Antonio to be valid on the ground that an
employee could be terminated from employment for lack of confidence due to serious misconduct. The serious misconduct alluded to was the purported misappropriation
of company funds by Antonio. The Labor Arbiter opined that such misconduct was proved by circumstantial evidence through Antonio's unsatisfactory answers on how he
was able to afford a house and lot within a short time.
The Labor Arbiter also found valid the dismissal of Pamfilo Pombo as he was indisputably engaged in the shipment of rattan and stalagmites via the Canhagimet buses
without paying the corresponding freightage.
Accordingly, private respondents appealed to the NLRC which initially dismissed the appeal for lack of merit in its 27 February 1995 resolution. However, on 31 August
1995 the NLRC set aside its earlier resolution and granted the motion for reconsideration by holding that private respondents Quebec and Pombo were illegally dismissed
because (1) there was an employer-employee relationship between the parties; (2) petitioner did not submit any evidence, e.g., payrolls and vouchers, to rebut the
allegations of unpaid money claims; and, (3) other than petitioners bare denial of respondents employment status in the Canhagimet Express, no evidence was submitted
to refute respondents claim that they were dismissed without due process. Thus, the NLRC ordered petitioner to pay private respondents the following amounts:[9]

I. PAMPILO POMBO SR.

A. Back wages: (Oct. 1990 to 31 Aug. 1995)

4 years and 10 months (P4,000.00 x 58 mos.) = P232, 000.00

B. Separation Pay: (5 Nov.1981 to Oct.1990)

9 years (4,000.00 x 9 yrs.) = 36, 000.00

C. Service Incentive Leave Pay:

(19 Dec. 1989 to 18 Dec. 1992)
3 years and 5 days (P131.51 x 5 days x 3 yrs.) = 1,972.65
D. 13th Month Pay: (19 Dec. 1989 to 18 Dec. 1992)
3 years (P 4,000.00 x 3 yrs.) = 12,000.00

TOTAL AWARD - - - - - - - - - - - - - P281,972.65

II. ANTONIO QUEBEC

A. Back wages: (Nov. 1991 to 31 Aug. 1995)

3 yrs. and 9 mos. (P5,000.00 x 45 mos.) = P 225,000.00

B. Separation Pay: (1 Sept. 1981 to 30 Nov. 1991)

10 yrs. (P5,000.00 x 10 yrs.) = 50,000.00

C. Service Incentive Leave Pay:

(19 Dec. 1989 to 18 Dec. 1992)
3 yrs. and 5 days (P164.38 x 5 days x 3 yrs.) = 2,465.70

D. 13th Month Pay: (19 Dec. 1989 to 18 Dec. 1992)

3 yrs. (P5,000.00 x 3 yrs.) = 15,000.00

TOTAL AWARD - - - - - - - - - - - - - P292,465.70

OVER - ALL AWARD - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - P574,438.35

Petitioner, in seeking a reversal of the NLRC's appreciation of the facts, is now essentially raising questions of fact. In a long line of cases we have ruled that resort to
judicial review of the decisions of the NLRC in a petition for certiorari under Rule 65 of the Rules of Court is confined only to issues of want or excess of jurisdiction and
grave abuse of discretion on the part of the tribunal rendering them. It does not include an inquiry as to the correctness of the evaluation of evidence which served as the
basis of the labor official or officer in determining his conclusion. Findings of fact of such administrative officers are generally given finality.[10] In this regard, the finding of
an employer-employee relationship between the private parties becomes indubitable when the Labor Arbiter and the NLRC are in agreement thereto. More importantly,
this relationship was admitted before us by petitioner.[11]
The remaining issue to be resolved then is whether private respondents were illegally dismissed. Although this is a factual question and should not be taken now for
judicial review, an exception is to be made for the reason that the Labor Arbiter and the NLRC in this case are at odds on this point.[12]
 There were various reasons cited for the dismissal of Antonio Quebec, i.e., that he was covering up for the womanizing activities of petitioner, and that petitioner
suspected him of misappropriating Canhagimet funds by the mere fact that he was unable to explain his wherewithal to buy a house and lot in a short time. Two reasons
were also asseverated on Pamfilo's dismissal, i.e., his non-payment of freightage at the Canhagimet buses in transporting his rattan and stalagmites, and his inability to
help in the repair of a bus. Both claims however were never substantiated by any evidence other than the barefaced allegations in the affidavits of petitioner and his
witnesses.[13]
When there is no showing of a clear, valid and legal cause for the termination of employment, the law considers the matter a case of illegal dismissal and the burden is
on the employer to prove that the termination was for a valid or authorized cause.[14] This burden of proof appropriately lies on the shoulders of the employer and not on
the employee because a worker's job has some of the characteristics of property rights and is therefore within the constitutional mantle of protection. No person shall be
deprived of life, liberty or property without due process of law, nor shall any person be denied the equal protection of the laws.[15]
Apropos thereto, Art. 277, par. (b), of the Labor Code mandates in explicit terms that the burden of proving the validity of the termination of employment rests on the
employer. Failure to discharge this evidential burden would necessarily mean that the dismissal was not justified, and, therefore, illegal.[16] Hence, a mere accusation of wrongdoing
or a mere pronouncement of lack of confidence is not a sufficient cause for a valid dismissal of an employee. As we held in Ranises vs. NLRC[17]-

While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee, such loss or breach of trust must have some basis. Unsupported
by sufficient proof, loss of confidence is without basis and may not be successfully invoked as a ground for dismissal. Loss of confidence as a ground for dismissal has
never been intended to afford an occasion for abuse because of its subjective nature. Thus, there must be an actual breach of duty committed by the employee and the
same must be supported by substantial evidence. Consequent therefore to respondent employer's failure to discharge the burden of substantiating its charges of breach
of trust against petitioner, there is no just cause for the latter's dismissal. Hence, his termination from employment is illegal (emphasis ours).

Furthermore, not only does our legal system dictate that the reasons for dismissing a worker must be pertinently substantiated, it also mandates that the manner
of dismissal must be properly done, otherwise, the termination itself is gravely defective and may be declared unlawful.[18]
The charge of lack of due process in the dismissals for lack of notice and hearing, as correctly observed by the Labor Arbiter, was never controverted.[19] For this, too,
petitioner must be held liable.
Considering that the dismissal of private respondents was illegal, the payment of back wages is in order; and since their termination was after 21 March 1989, or after
RA No. 6715 took effect, they are also entitled to full back wages, inclusive of allowances and other benefits allowed by law, computed from the time their compensation
was withheld up to the finality of this judgment.[20]
In lieu of reinstatement, however, separation pay is to be awarded herein due to the fact that the reinstatement of respondents to their previous confidential jobs is
no longer possible since the Canhagimet Express was already sold by petitioner.[21] Separation pay is the amount that an employee receives at the time of his severance
from the service and is designed to provide him with the wherewithal during the period that he is looking for another
employment. The grant of separation pay does not preclude an award for back wages for the latter represents the amount of earnings lost by reason of the unjustified
dismissal.[22]
However, inasmuch as Antonio Quebec and Pamfilo Pombo Sr. have admitted in their counter-affidavits dated 26 July 1993[23] that they exercised managerial or
supervisory powers in their jobs, they cannot avail of the 13th month pay, overtime pay and service incentive leave pay. Presidential Decree No. 851 as amended by
Memorandum Order No. 88 provides for the 13th month pay to be of mandatory effect only on all rank-and-file employees.[24] As to the overtime pay and service
incentive leave pay, we have discussed in Salazar v. NLRC [25] that -

x x x although petitioner cannot strictly be classified as a managerial employee under Art. 82 of the Labor Code, and Sec. 2 (b), Rule I, Book III of the Omnibus
Rules Implementing the Labor Code, nonetheless he is still not entitled to payment of the aforestated benefits (overtime pay, premium pay for holidays and
rest days and service incentive leave pay) because he falls squarely under another exempt category- officers or members of a managerial staff as defined under
Sec. 2 (c) of the abovementioned implementing rules: Sec. 2. Exemption. - The provisions of this Rule shall not apply to the following persons if they qualify for
exemption under the condition set forth herein: x x x x (c) Officers or members of a managerial staff if they perform the following duties and
responsibilities: (l) The primary duty consists of the performance of work directly related to management policies of their employer; (2) Customarily and regularly
exercise discretion and independent judgment; (3) x x x x [i] Regularly and directly assist a proprietor or a managerial employee whose primary duty consists of
the management of the establishment in which he is employed or subdivision thereof x x x x

Accordingly, the award for service incentive leave pay and 13th month pay benefits must be deleted from the computation of the NLRC while the amounts of back
wages due private respondents should be adjusted up to the finality of this decision.
WHEREFORE, the questioned decision of 31 August 1995 of the National Labor Relations Commission is MODIFIED by (1) deleting the amounts of P1,972.65 as service
incentive leave pay and P12,000.00 as 13th month pay awarded to Pamfilo Pombo, Sr., as well as the amounts of P2,465.70 as service incentive leave pay and P15,000.00 as
13th month pay awarded to Antonio Quebec; and, (2) increasing the award for back wages computed from October 1990 in the case of Pamfilo Pombo Sr., and from
November 1991 for Antonio Quebec, up to the finality of this decision. The grant of separation pay of P36,000.00 to Pombo Sr. and P50,000.00 to Quebec is AFFIRMED.
SO ORDERED.