Corporal, Sr. vs. NLRC

Barbers and manicurists who work on the employer's premises, observe fixed working hours, use only personal hand tools lacking substantial capital, and are subject to the employer's rules and control are regular employees — not independent contractors — and are entitled to separation pay and 13th month pay upon cessation of the employer's business.

New Look Barber Shop, located at 651 P. Paterno Street, Quiapo, Manila, was originally a single proprietorship owned and managed by Vicente Lao. In January 1982, Lao's children organized Lao Enteng Company, Inc., a corporation registered with the Securities and Exchange Commission, with Trinidad Lao Ong as president. Upon incorporation, the corporation took over the assets, equipment, and properties of the barber shop and continued the business. The seven petitioners — five male barbers and two female manicurists — had been engaged by Vicente Lao and were retained by the corporation, working continuously until their services were terminated on April 15, 1995.

The five male petitioners — Osias I. Corporal, Sr., Pedro Tolentino, Manuel Caparas, Elpidio Lacap, and Simplicio Pedelos — worked as barbers, while the two female petitioners — Teresita Flores and Patricia Nas — worked as manicurists at New Look Barber Shop in Quiapo, Manila. Petitioner Nas also alleged that she served as watcher and marketer. At the outset, the barber shop was a single proprietorship owned and managed by Vicente Lao, who had personally engaged the services of the petitioners. In January 1982, Lao's children organized Lao Enteng Company, Inc., a corporation registered with the SEC with Trinidad Lao Ong as president. Upon incorporation, the corporation took over the assets, equipment, and properties of the barber shop and continued the business, retaining all the petitioners and continuously paying their wages.

Petitioners worked at the barber shop for up to fifteen years, with some having started as early as the 1960s. They reported daily, observed definite hours of work, and were not free to accept other employment elsewhere. Petitioner Nas was instructed by the respondents to watch the other six petitioners in their daily tasks. The petitioners owned only personal hand tools — combs, scissors, and razors for the barbers; nail cutters, nail polishes, nippers, and cuticle removers for the manicurists. They received fifty to sixty percent of the gross amount charged to customers. Some of the petitioners were registered with the Social Security System as employees of Lao Enteng Company, Inc., though the company claimed this was merely an accommodation and that all SSS contributions were paid by the petitioners themselves. The company did not, however, present proof that petitioners solely paid all SSS contributions.

On April 15, 1995, Trinidad Ong informed the petitioners that the building where the barber shop was located had been sold and that their services were no longer needed. The company maintained that the barber shop had been operating at a loss and that it was eventually forced to close. On April 28, 1995, petitioners filed a complaint for illegal dismissal, illegal deduction, separation pay, non-payment of 13th month pay, and salary differentials. The Labor Arbiter found that the parties were engaged in a joint venture and that no employer-employee relationship existed, dismissing the complaint. The NLRC affirmed, characterizing the petitioners as independent contractors because they supplied their own implements and shared earnings with the shop owner, exercising control only as to the result of the work.

• Independent Contractor Misclassification: Petitioners argued that the NLRC gravely erred in declaring them independent contractors, contending that they did not carry on an independent business, did not perform their work in their own manner and method, and were not free from the control and direction of the private respondents.
• Lack of Substantial Capital: Petitioners maintained that, individually or collectively, they did not have substantial capital or investment in tools, equipment, work premises, or other materials necessary to operate a barber shop, owning only combs, scissors, razors, nail cutters, nail polishes, nippers, and cuticle removers.
• SSS Registration as Employees: Petitioners faulted the NLRC for arbitrarily disregarding SSS employment records showing that four of them were registered as regular employees of the respondent company, with specific employer ID numbers for both Vicente Lao/Barber and Pawn Shop and Lao Enteng Company, Inc.
• Illegal Dismissal and Money Claims: Petitioners contended that they were illegally dismissed and were entitled to their money claims, including separation pay, 13th month pay, and salary differentials.

• Joint Venture Partnership: Respondent countered that the petitioners were joint venture partners receiving fifty percent commission of the amount charged to customers, and that there was no employer-employee relationship between them. Respondent Trinidad Lao Ong stated that Vicente Lao's contribution included the place of business and payment for utilities, while petitioners as industrial partners supplied the labor.
• Serious Business Losses: Respondent argued that, assuming arguendo an employer-employee relationship existed, petitioners were still not entitled to separation pay because the cessation of operations was due to serious business losses.
• No Control Over Petitioners: Respondent maintained that it had no control over petitioners, who were free to come and go as they wished, and that the operation and management of the barber shop was left entirely to them.
• SSS Registration as Mere Accommodation: Respondent averred that some petitioners were allowed to register with the SSS as employees of Lao Enteng Company, Inc. only as an act of accommodation, and that all SSS contributions were made by the petitioners themselves.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between the petitioners and private respondent Lao Enteng Company, Inc.
• Independent Contractor Status: Whether the petitioners were independent contractors as concluded by the NLRC.
• Entitlement to Separation Pay and 13th Month Pay: Whether the petitioners, as employees, were entitled to separation pay and 13th month pay upon the closure of the barber shop.

• Employer-Employee Relationship: Yes. All four elements of the employer-employee relationship — selection and engagement, power of dismissal, payment of wages, and power of control — were present, with the control test assuming primacy.
• Independent Contractor Status: No. Petitioners did not carry on an independent business, lacked substantial capital or investment, worked on the employer's premises, and were subject to the employer's rules and control, failing both requisites of independent contractorship under the Omnibus Rules Implementing the Labor Code.
• Entitlement to Separation Pay and 13th Month Pay: Yes. Under Article 283 of the Labor Code, employees terminated due to closure of business are entitled to separation pay equivalent to one month pay per year of service, and under the Revised Guidelines on the Implementation of the 13th Month Pay Law, all rank-and-file employees who worked at least one month in a calendar year are entitled to 13th month pay.

• Employer-Employee Relationship: The Court applied the four-fold test: (1) selection and engagement — the late Vicente Lao engaged the petitioners to work as barbers and manicurists; (2) payment of wages — the respondent company continuously paid their wages; (3) power of dismissal — the company was clothed with the power to dismiss any or all of them for just and valid cause; and (4) power of control — the company wielded control over the work performance of the petitioners, as evidenced by the facts that they worked in the company-owned barber shop, were required to report daily and observe definite hours, were not free to accept other employment, had devoted full-time work for up to fifteen years, and petitioner Nas was instructed to watch the other six. The Court emphasized that the power to control refers to the existence of the power and not necessarily its actual exercise; it is enough that the employer has the right to wield that power. The Labor Arbiter's finding of a joint venture was unsupported by any documentary evidence aside from the self-serving affidavit of Trinidad Lao Ong; no written partnership agreement was presented. The sharing of proceeds for every job does not negate the existence of an employment relationship. The SSS registration of some petitioners as employees further corroborated the existence of an employer-employee relationship, and the Court found it unlikely that respondents would report persons as their workers and pay their SSS premiums if they were not truly employees.

• Independent Contractor Status: The Court applied Section 8, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code, which defines an independent contractor as one who (a) carries on an independent business and undertakes contract work on his own account, under his own responsibility, according to his own manner and method, free from the control and direction of the employer except as to results, and (b) has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials. Juxtaposing this definition against the facts, the Court found that petitioners did not carry on an independent business, did not undertake cutting hair and manicuring on their own account, and did not have substantial capital — owning only combs, scissors, razors, nail cutters, nail polishes, and nippers. They were not given work assignments in any place other than at the premises of New Look Barber Shop, were required to observe company rules on daily attendance, job performance, and regularity of output, and performed work directly related to the company's business of operating barber shops. The NLRC's conclusion that barbers are independent contractors because they supply their own scissors and split earnings with the owner was rejected.

• Entitlement to Separation Pay and 13th Month Pay: The Court agreed with the Labor Arbiter that there was sufficient evidence the barber shop closed due to serious business losses and the sale of the building. An employer may adopt policies or changes in its operations to ensure profit or protect investment, including selling or disposing of assets, which may bring about termination of employees. However, Article 283 of the Labor Code mandates the grant of separation pay in case of closure or cessation of business, equivalent to one month pay for every year of service. The separation pay was to be computed at the prevailing minimum wage at the time of termination (April 15, 1995), since petitioners were entitled to the protection of minimum wage statutes. As for 13th month pay, the Revised Guidelines on the Implementation of the 13th Month Pay Law provide that all rank-and-file employees are entitled to 13th month pay regardless of the amount of basic salary, designation, employment status, or method of wage payment, provided they worked at least one month during a calendar year. The Court found the other claims — P10,000 as penalty for non-compliance with procedural process, P10,000 as moral damages, refund of P1.00 per day for the sweeper's salary, salary differentials for petitioner Nas, and attorney's fees — to be without basis.

• Four-Fold Test for Employer-Employee Relationship — The existence of an employer-employee relationship is determined by the presence of four elements: (1) the selection and engagement of the workers; (2) the power of dismissal; (3) the payment of wages by whatever means; and (4) the power to control the worker's conduct. The power of control assumes primacy in the overall consideration. The power to control refers to the existence of the power and not necessarily to its actual exercise; it is enough that the employer has the right to wield that power. The Court applied this test and found all four elements present, establishing that the petitioners were regular employees.

• Independent Contractorship Under the Labor Code — Under Section 8, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code, an independent contractor is one who (a) carries on an independent business and undertakes contract work on his own account, under his own responsibility, according to his own manner and method, free from control and direction of the employer except as to results, and (b) has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials necessary in the conduct of the business. Both requisites must concur. The Court found that petitioners failed both: they did not carry on an independent business and lacked substantial capital, owning only personal hand tools.

• Exception to Finality of NLRC Factual Findings — While findings of fact of the NLRC are generally accorded respect and finality on appeal, the Court will not uphold erroneous conclusions unsupported by substantial evidence. Where the NLRC's findings contradict those of the Labor Arbiter, the Court, in the exercise of its equity jurisdiction, may look into the records and reexamine the questioned findings. The Court invoked this exception because the Labor Arbiter found a joint venture while the NLRC found independent contractorship, and neither conclusion was supported by substantial evidence.

• Separation Pay Upon Closure of Business (Article 283, Labor Code) — Even where closure is due to serious business losses, Article 283 mandates the grant of separation pay equivalent to one month pay for every year of service. The Court applied this provision to award separation pay to the petitioners, computed at the prevailing minimum wage at the time of termination.

• "The power to control refers to the existence of the power and not necessarily to the actual exercise thereof, nor is it essential for the employer to actually supervise the performance of duties of the employee. It is enough that the employer has the right to wield that power." — This passage articulates the canonical formulation of the control test, emphasizing that the existence of the right to control, not its actual exercise, is the determinative factor in establishing an employer-employee relationship.

• "An independent contractor is one who undertakes 'job contracting', i.e., a person who (a) carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof, and (b) has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of the business." — This passage sets out the statutory definition of an independent contractor under the Omnibus Rules Implementing the Labor Code, which the Court applied to distinguish employees from independent contractors in the barber shop industry.

• "By no standard can these be considered substantial capital necessary to operate a barber shop." — This statement underscores the Court's rejection of the argument that personal hand tools such as combs, scissors, razors, and nail cutters constitute substantial capital or investment, thereby defeating the claim of independent contractorship.

• Anino vs. NLRC, 290 SCRA 489 (1998) — Cited for the proposition that the Court will not uphold erroneous conclusions of the NLRC unsupported by substantial evidence, establishing the exception to the general rule of finality of NLRC factual findings.
• Paz Martin Jo vs. NLRC, G.R. No. 121605, February 2, 2000 — Cited both for the exception allowing the Court to reexamine NLRC findings when they contradict those of the Labor Arbiter, and for the formulation of the control test emphasizing the existence rather than the exercise of the power to control.
• Labor Congress of the Philippines vs. NLRC, 290 SCRA 509 (1998) — Cited for the rule that the sharing of proceeds for every job does not necessarily mean the workers are not employees.
• Ponce vs. NLRC, 293 SCRA 366 (1998) — Cited in connection with the statutory definition of independent contractor under Section 8, Rule VIII, Book III of the Omnibus Rules Implementing the Labor Code.
• Nagusara vs. NLRC, 290 SCRA 245 (1998) — Cited for the principle that it is unlikely an employer would report persons as its workers and pay their SSS premiums if they were not truly its employees.
• Associated Labor Unions-VIMCONTU vs. NLRC, 204 SCRA 913 (1991) — Cited for the proposition that an employer may adopt policies or changes in its operations to ensure profit or protect investment, including the sale or disposal of assets which may result in employee termination.
• Phil. Tobacco Flue-Curing & Redrying Corp. vs. NLRC, 300 SCRA 37 (1998) — Cited in support of the application of Article 283 of the Labor Code mandating separation pay upon closure of business.

• Article 283, Labor Code — Mandates the grant of separation pay equivalent to one month pay for every year of service in case of closure or cessation of the employer's business. The Court applied this provision to award separation pay to the petitioners despite the closure being due to serious business losses.
• Section 8, Rule VIII, Book III, Omnibus Rules Implementing the Labor Code — Defines an independent contractor as one who carries on an independent business, undertakes work on his own account under his own responsibility according to his own manner and method, free from control except as to results, and has substantial capital or investment in tools, equipment, machineries, work premises, and other materials. The Court applied this provision to determine that petitioners were not independent contractors.
• Section 1, P.D. 851 (13th Month Pay Law), as implemented by the Revised Guidelines — Provides that all rank-and-file employees are entitled to 13th month pay regardless of basic salary amount, designation, employment status, or method of wage payment, provided they worked at least one month during a calendar year. The Court applied this to award 13th month pay to all seven petitioners.

Bellosillo (Chairman), Mendoza, Buena, and De Leon, Jr., JJ., concurred.