G.R. No.

146530 January 17, 2005

PEDRO CHAVEZ, petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION, SUPREME PACKAGING, INC. and ALVIN LEE, Plant
Manager, respondents.

Facts: Supreme Packaging, respondent, is engaged in business of manufacturing cartons and other
packaging materials and distribution. On october 25, 1984, It engaged the services of petitioner pedro
chavez as a truck driver asnd he was tasked to deliver the products from respondent’s factory in
Mariveles, Bataan, to its various customers, mostly in Metro Manila. Supreme packkaging also furnished
him with a truck. Most the deliveries of chavez were made at nighttime, commencing at 6:00 p.m. from
Mariveles, and returning thereto in the afternoon two or three days after in accordance with the routing
slips issued by supreme packaging indicating order, time and urgency of delivery. He was paid initially a
sum of 350 per trip. Adjusted to 480 then 900 per trip at time of dismissal of chavez.

In 1992, chavez expressed his desire of availing benefits of a regular employee such as over time pay,
night differential and 13th month pay to alvin lee, plant manager. Lee has promised the benefits to chavez
but have failed to actually do so.

On february 20, 1995, chavez filed a complaint fro regularization with the regional arbitration branch no. 3
of the nlrc in pampanga and before the case could be heard, supreme packaging terminated the services
of chavez.

On May 25, 1995, chavez filed an amended complaint against the respondents for illegal dismissal, unfair
labor practice and non-payment of overtime pay, nightshift differential pay, 13th month pay, among others

Respondents, supreme packaging denied the existence of an employer-employee relationship between

them contending that chavez is an independent contractor as evidenced by their contract of service which
stated that inland trandsport delivery shall cover travel route from mariveles to manila, payment will be per
trip basis and classification of truck used (6 wheeler - 300, 10 wheeler - 350), in amount involved,
contractor to provide at least 2 helpers, contractor to exercise direct control and shall be responsible to
the Principal for the cost of any damage to, loss of any goods, cargoes, finished products or the like, while
the same are in transit, Contractor shall have absolute control and disciplinary power over its men
working for him, Contractor shall hold the Principal free and harmless from any liability or claim that may
arise by virtue of the Contractor’s non-compliance to the existing provisions of the Minimum Wage Law,
the Employees Compensation Act, the Social Security System Act, or any other such law or decree that
may hereafter be enacted, it being clearly understood that any truck drivers, helpers or men working with
and for the Contractor, are not employees who will be indemnified by the Principal

The contract service dated december 12, 1984 was renewed twice in july 10 1989 and september 28,
1992

The respondents insisted that the petitioner had the sole control over the means and methods by which
his work was accomplished. He paid the wages of his helpers and exercised control over them and so he
is not entitled to regularization because he was not an employee of supreme packaging. They also
contended that they did not dismiss chavex but it was due to severance of his contractual relation for
violation of terms and condition of contract as it was alleged that chavez failed to observe the minimum
degree of diligence in the proper maintenance of the truck he was using

After parties filed their pleadings, Labor Arbiter rendered decision finding repondents guilty of illegeal
dismiussal and declared chavez as a regular employee as he was performing a service that was
necessary and desirable to the latter’s business and had discharged duties as truck driver for the
company for a continuous and uninterrupted period of more than ten years.

The contract of service invoked by the respondents was declared null and void as it constituted a
circumvention of the constitutional provision affording full protection to labor and security of tenure and
the LA found that the dismissal was anchored on chavez’ insistent demand to be regularized. There was

also a lack of valid and just cause for the dismissal and supreme packaging and alvin lee is ordered to
pay chavez his separation pay equivalent to one (1) month pay per year of service based on the average
monthly pay of ₱10,800.00 in lieu of reinstatement as his reinstatement back to work will not do any good
between the parties as the employment relationship has already become strained and full backwages
from the time his compensation was withheld on February 23, 1995 up to January 31, 1997 (cut-off date)
until compliance, otherwise, his backwages shall continue to run. Also to pay complainant his 13th month
pay, night shift differential pay and service incentive leave pay hereunder computed as follows:
a) Backwages ………………….. ₱248,400.00
b) Separation Pay ………….…... ₱140,400.00
c) 13th month pay ………….……₱ 10,800.00
d) Service Incentive Leave Pay .. 2,040.00
TOTAL ₱401,640.00

Respondent is also ordered to pay ten (10%) of the amount due the complainant as attorney’s fees.

Upon appeal to nlrc by respondents, it was dismissed and affirmed the decision of the labor arbiter and
characterized the contract of service between parties as scheme to take advantage of chavez
unfamiliarity unfamiliarity with the English language and/or legal niceties, wanted to evade the effects and
implications of his becoming a regularized employee

After respondents sought for reconsideration, nlrc reversed its decision and held that there was no
employee-employer relationship and that supreme packaging did not exercise control over the means and
methods by chavez for his delivery services and upheld validity of the contract of service and that chavez
was an independent contractor.

NLRC ruled that the contract of service was not intended to circumvent Article 280 of the Labor Code on
the regularization of employees. Said contract, including the fixed period of employment contained
therein, having been knowingly and voluntarily entered into by the parties thereto was declared valid

Petitioner sought reconsideration but was denied by nlrc.

Upon appeal to CA, it rendered decision that chavez was a regular employee as he performed service
that was indespensible to respondents business and he had been working for company for 10 continuous
years. CA also stated that petitioner is not an independent contractor since he had no substantial capital
in forms and in tools and machineries as the truck was provided by the company. The Ca also stated that
the routing slips issued showed it had exercised control as it provided order of delivery and time and
urgency of delivery.

CA also stated that chavez did not abandon his job as he just filed a complaint for regularization and the
respondents have failed to show just and valid cause for the dismissal.

CA also stated that in circumstances that it is apparent that contract has been entered into to preclude
acquisition of tenurial security by the employee, they should be struck down and disregarded as contrary
to public policy and morals. In this case, the "contract of service" is just another attempt to exploit the
unwitting employee and deprive him of the protection of the Labor Code by making it appear that the
stipulations of the parties were governed by the Civil Code as in ordinary transactions

However, upon motion for reconsideration, CA reversed its decision and upheld the contract of service
and stated that the extent of control of respondent was only with respect to the result but not to the means
and methods used by him. The CA cited the following circumstances: (1) the respondents had no say on
how the goods were to be delivered to the customers; (2) the petitioner had the right to employ workers
who would be under his direct control; and (3) the petitioner had no working time.

The fact that the petitioner had been with the respondent company for more than ten years was,
according to the CA, of no moment because his status was determined not by the length of service but by
the contract of service

Hence, instant petition for review on certiorari

 Issue:

#1 whether the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction In
reversing its own findings and holding THAT THERE EXISTED NO EMPLOYER-EMPLOYEE
RELATIONSHIP BETWEEN PRIVATE RESPONDENT AND PETITIONER IN AS MUCH AS THE
"CONTROL TEST" WHICH IS CONSIDERED THE MOST ESSENTIAL CRITERION IN DETERMINING
THE EXISTENCE OF SAID RELATIONSHIP IS NOT PRESENT

#2 whether the CA committed grave abuse of discretion amounting to lack or excess of jurisdiction in
giving more consideration to the contract of service than in article 280 of the labor code which
categorically defines a regular employment NOTWITHSTANDING ANY WRITTEN AGREEMENT TO THE
CONTRARY AND REGARDLESS OF THE ORAL AGREEMENT OF THE PARTIES;

Ruling:

Issue # 1
The court held that there existed and employer-employee relationship between the parties.

The elements to determine the existence of an employment relationship are: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the
employer’s power to control the employee’s conduct.

Court held that all 4 elements are present in this case.

First, it was the respondents who engaged the services of the petitioner without the intervention of a third
party.

Second, Wages are defined as "remuneration or earnings, however designated, capable of being
expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or
other method of calculating the same, which is payable by an employer to an employee under a written or
unwritten contract of employment for work done or to be done, or for service rendered or to be rendered."
Court stated that petitioner was paid on a per trip basis is not significant and it only provided for method of
computing compensastion and not determining the absence of employer-employee relationship.

Moreover, under the Rules Implementing the Labor Code, every employer is required to pay his
employees by means of payroll. Payroll should show the employee’s rate of pay, deductions made, and
the amount actually paid to the employee and here, respondent did not present payroll to support their
claim that the petitioner was not their employee
Third, respondents’ power to dismiss the petitioner was inherent in the fact that they engaged the services
of the petitioner as truck driver. They exercised this power by terminating the petitioner’s services albeit in
the guise of "severance of contractual relation" due allegedly to the latter’s breach of his contractual
obligation.

Fourth, of the four elements of the employer-employee relationship, the "control test" is the most
important.
Compared to an employee, an independent contractor is one who carries on a distinct and independent
business and undertakes to perform the job, work, or service on its own account and under its own
responsibility according to its own manner and method, free from the control and direction of the principal
in all matters connected with the performance of the work except as to the results thereof\

Here, it showed that respondents exercised control over the manner and methods by which chavez will
accomplish his work as truck driver as the right of control of respondent was manifested in the ff
circumstances: that the truck belonged to the company exclusively used for delivery, they provided routing
slips, time of delivery, order of delivery
Evidently, he did not possess substantial capitalization or investment in the form of tools, machinery and
work premises. Moreover, the petitioner performed the delivery services exclusively for the respondent
company for a continuous and uninterrupted period of ten years.

 Issue # 2
The court stated that notwithstanding the contract of service, the factiual circumstances establish the
existence of an employer-employee relationship between the parties and that the existence of an
employer-employee relationship cannot be negated by expressly repudiating it in a contract and providing
therein that the employee is an independent contractor when, as in this case, the facts clearly show
otherwise.

Indeed, the employment status of a person is defined and prescribed by law and not by what the parties
say it should be.

And as the employer-employee relationship existed, the court stated that employer bears the burden to
prove that the dismissal was for a valid and just cause. In this case, the respondents failed to prove any
such cause for the petitioner’s dismissal. They averred that the petitioner abandoned his job.

However, To constitute abandonment, these two factors must concur: (1) the failure to report for work or
absence without valid or justifiable reason; and (2) a clear intention to sever employer-employee
relationship

Here, the petitioner did not intend to sever his relationship with the respondent company for at the time
that he allegedly abandoned his job, the petitioner just filed a complaint for regularization, which was
forthwith amended to one for illegal dismissal. A charge of abandonment is totally inconsistent with the
immediate filing of a complaint for illegal dismissal, more so when it includes a prayer for reinstatement.

Neither can the respondents’ claim that the petitioner was guilty of gross negligence in the proper
maintenance of the truck constitute a valid and just cause for his dismissal because Gross negligence
implies a want or absence of or failure to exercise slight care or diligence, or the entire absence of care.

Court stated that The negligence, to warrant removal from service, should not merely be gross but also
habitual. The single and isolated act of the petitioner’s negligence in the proper maintenance of the truck
alleged by the respondents does not amount to "gross and habitual neglect" warranting his dismissal.

The court agrees with the findings of the labor arbiter.

Under Article 279 of the Labor Code, an employee who is unjustly dismissed is entitled to reinstatement,
without loss of seniority rights and other privileges, and to the payment of full backwages, inclusive of
allowances, and other benefits or their monetary equivalent, computed from the time his compensation
was withheld from him up to the time of his actual reinstatement.

However, as found by the Labor Arbiter, the circumstances obtaining in this case do not warrant the
petitioner’s reinstatement. A more equitable disposition, as held by the Labor Arbiter, would be an award
of separation pay equivalent to one month for every year of service from the time of his illegal dismissal
up to the finality of this judgment in addition to his full backwages, allowances and other benefits.

Petition granted.