Dy Keh Beng vs. International Labor and Marine Union of the Philippines

Piece-rate or pakiaw workers are not excluded from the category of employees under the Industrial Peace Act where the employer retains the right to control not only the end result but also the means and method by which the work is accomplished; payment by the piece is merely a method of compensation and does not define the essence of the employment relationship.

Dy Keh Beng was the proprietor of a basket factory engaged in the manufacture of baskets known as kaing. Carlos N. Solano and Ricardo Tudla were workers at the establishment, compensated on a piece-rate (pakiaw) basis. The International Labor and Marine Union of the Philippines was the labor organization to which Solano and Tudla belonged, and it filed the unfair labor practice charge on their behalf under Republic Act No. 875 (the Industrial Peace Act), specifically Section 4(a), sub-paragraphs (1) and (4), which prohibit interference with employees' exercise of their rights and discrimination in tenure to encourage or discourage union membership.

Dy Keh Beng was the proprietor of a basket factory engaged in the manufacture of baskets known as kaing. Carlos N. Solano and Ricardo Tudla worked at the establishment, and the International Labor and Marine Union of the Philippines filed a charge of unfair labor practice against Dy Keh Beng on their behalf, alleging that he had dismissed Solano and Tudla on September 28 and 29, 1960, respectively, on account of their union activities, in violation of Section 4(a), sub-paragraphs (1) and (4) of Republic Act No. 875.

Evidence for the complainant Union showed that Solano became an employee on May 2, 1953 and Tudla on July 15, 1955, and that except in the event of illness, their work with the establishment was continuous, although their services were compensated on a piece basis. The establishment had at times eight workers and never fewer than five, including the complainants, who used to receive ₱5.00 a day, sometimes less.

Dy Keh Beng contended that he did not know Tudla and that Solano was not his employee. According to Dy, Solano came to the establishment only when there was work, which he did on a pakiaw (piece-rate) basis, each piece of work being done under a separate contract. Dy asserted that Solano never stayed long enough at the establishment, had to leave as soon as he was through with the order given him, and that when there were no orders needing his services there was nothing for him to do. When orders came that his regular workers could not fill, Dy would go to Solano's address in Caloocan and fetch him. Dy also raised a special defense of simple extortion committed by the head of the labor union, Bienvenido Onayan.

The Hearing Examiner found that an employer-employee relationship existed between Dy Keh Beng and both complainants, notwithstanding that Solano was admitted to have worked on a piece basis. The Hearing Examiner's report was adopted in toto by the Court of Industrial Relations, which found Dy Keh Beng guilty of unfair labor practice and ordered him to reinstate Solano and Tudla to their former jobs with backwages from their respective dates of dismissal until fully reinstated, without loss of seniority and other rights. The CIR en banc affirmed this decision on June 10, 1970.

• No Employer-Employee Relationship: Petitioner argued that respondents Solano and Tudla were not his employees but merely piece workers, relying on the control test as articulated in Madrigal Shipping Co., Inc. vs. Nieves Baens del Rosario, et al., and contending that there was no evidence showing that petitioner had the right to direct the manner and method of respondents' work.
• Piece-Rate Basis Excludes Employment Status: Petitioner maintained that Solano's work on a pakiaw basis and his presence at the establishment only when there was work demonstrated the absence of a continuous employment relationship under Republic Act No. 875's definitions of "employer" and "employee."
• No Dismissal: Petitioner contended that the CIR erred in finding that Solano and Tudla were dismissed from employment by him.
• No Pattern of Discrimination: Petitioner argued that the testimonies adduced by the complainant were not convincing and did not disclose a pattern of discrimination.
• No Unfair Labor Practice: Petitioner asserted that the CIR erred in declaring him guilty of unfair labor practice acts as alleged in the complaint.
• Impropriety of Reinstatement and Backwages: Petitioner challenged the order of reinstatement with backwages from the respective dates of dismissal until fully reinstated.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between Dy Keh Beng and respondents Solano and Tudla despite their piece-rate (pakiaw) compensation.
• Dismissal: Whether respondents Solano and Tudla were dismissed from their employment by petitioner.
• Credibility of Evidence and Discrimination: Whether the testimonies adduced by the complainant were convincing and disclosed a pattern of discrimination by petitioner.
• Unfair Labor Practice: Whether petitioner was guilty of unfair labor practice acts as alleged in the complaint.
• Backwages: Whether the award of backwages from the respective dates of dismissal until fully reinstated was proper, and whether it should be modified.

• Employer-Employee Relationship: Yes. An employer-employee relationship existed because the control test was satisfied — the proprietor reserved the right to control not only the end to be achieved but also the means and method of its accomplishment, and piece-rate compensation is merely a method of determining wages, not a negation of employment status.
• Dismissal: Yes. The CIR's factual findings, supported by substantial evidence, were conclusive on the Supreme Court under Section 6 of Republic Act No. 875, and no abuse of discretion was shown.
• Credibility of Evidence and Discrimination: Yes. The CIR's conclusion that the findings of fact by the Hearing Examiner were supported by evidence on the record was not shown to be an abuse of discretion.
• Unfair Labor Practice: Yes. The CIR's finding of guilt for unfair labor practice, having been adopted in toto from the Hearing Examiner's report and supported by substantial evidence, was sustained.
• Backwages: Modified. The backwages award was limited to three years without qualification and deduction, applying the Teehankee formula for cases not terminated sooner, given that approximately eighteen years had elapsed since the dismissals.

• Employer-Employee Relationship: The control test, which this Court upheld, requires that the person for whom services are performed reserves the right to control not only the end to be achieved but also the means used in reaching that end. The test calls merely for the existence of the right to control the manner of doing the work, not the actual exercise of that right. Because Dy Keh Beng's establishment was engaged in manufacturing kaing baskets, workers necessarily had to observe Dy's requirements of size and quality, and since the work was done at Dy's establishment, the proprietor could easily exercise control over the workers. As to the piece-rate argument, the Court agreed with the Hearing Examiner that payment by the piece is merely a method of compensation and does not define the essence of the relationship; units of time and units of work are simply yardsticks for determining the rate of compensation. The pakyaw system, as judicially noticed in Sunrise Coconut Products Co. vs. Court of Industrial Relations, is generally practiced as a labor contract between employers and employees. Accordingly, the control test was satisfied and an employment relationship existed.
• Dismissal: Section 6 of Republic Act No. 875 provides that in unfair labor practice cases, the factual findings of the Court of Industrial Relations are conclusive on the Supreme Court if supported by substantial evidence. A long line of decisions has applied this provision, and the Court found no showing that the CIR abused its discretion in concluding that the Hearing Examiner's factual findings were supported by the record. The finding of dismissal therefore stood.
• Credibility of Evidence and Discrimination: For the same reason — the conclusiveness of the CIR's factual findings under Section 6 of Republic Act No. 875 when supported by substantial evidence — the Court found no abuse of discretion in the CIR's acceptance of the complainant's testimonies and its finding of a pattern of discrimination.
• Unfair Labor Practice: The CIR's declaration of guilt, having been adopted in toto from the Hearing Examiner's report and resting on factual findings supported by substantial evidence, was conclusive and not subject to reversal absent a showing of abuse of discretion, which petitioner failed to demonstrate.
• Backwages: Although the CIR's findings were sustained, the Court found it fitting to modify the backwages award because approximately eighteen years had elapsed since the complainants' dismissal. The open-ended award ordered by the CIR — backwages from the respective dates of dismissal until fully reinstated — was replaced with the formula articulated by Justice Teehankee for "cases not terminated sooner," which fixes the backwages award at three years without qualification and deduction, subject to deduction for mitigating circumstances in favor of the employer and subject to increase by way of exemplary damages for aggravating circumstances. Finding neither mitigating nor aggravating circumstances, the Court applied the three-year formula.

• Control Test — The existence of an employer-employee relationship is determined by whether the person for whom services are performed reserves the right to control not only the end to be achieved but also the means and method used in reaching that end. The test calls for the existence of the right to control, not its actual exercise. The Court applied this test to find that Dy Keh Beng, as proprietor of a basket factory, necessarily controlled the size and quality specifications of the kaing produced by the workers, satisfying the control test even though the workers were paid on a piece-rate basis.
• Piece-Rate Compensation as Merely a Method of Payment — Payment by the piece does not define the essence of the employment relationship; it is merely a method of compensation. Units of time and units of work are yardsticks for determining the rate of compensation. The Court relied on this principle to reject the argument that pakiaw workers are per se excluded from employment status.
• Conclusiveness of CIR Factual Findings — Under Section 6 of Republic Act No. 875, the factual findings of the Court of Industrial Relations in unfair labor practice cases are conclusive on the Supreme Court if supported by substantial evidence. The Court applied this rule to sustain the CIR's findings on dismissal, discrimination, and unfair labor practice.
• Teehankee Formula for Backwages — In cases not terminated sooner, backwages are fixed at three years without qualification and deduction, subject to deduction for mitigating circumstances in favor of the employer and subject to increase by way of exemplary damages where there are aggravating circumstances. The Court applied this formula due to the approximately eighteen years that had elapsed since the dismissals.

• "The test ... of the existence of employee and employer relationship is whether there is an understanding between the parties that one is to render personal services to or for the benefit of the other and recognition by them of the right of one to order and control the other in the performance of the work and to direct the manner and method of its performance." — This passage, quoted by the Court from Madrigal Shipping Co., Inc. vs. Nieves Baens del Rosario, et al., articulates the canonical formulation of the control test as applied in Philippine labor law.
• "it should be borne in mind that the control test calls merely for the existence of the right to control the manner of doing the work, not the actual exercise of the right." — This clarifies a critical nuance of the control test: the employer need not actually exercise control; the mere existence of the right to control suffices to establish the employment relationship.
• "circumstances must be construed to determine indeed if payment by the piece is just a method of compensation and does not define the essence of the relation. Units of time ... and units of work are in establishments like respondent (sic) just yardsticks whereby to determine rate of compensation, to be applied whenever agreed upon. We cannot construe payment by the piece where work is done in such an establishment so as to put the worker completely at liberty to turn him out and take in another at pleasure." — This passage, adopted from the Hearing Examiner's report, establishes that piece-rate compensation is merely a wage computation method and does not negate the existence of an employer-employee relationship.

• Madrigal Shipping Co., Inc. vs. Nieves Baens del Rosario, et al., L-13130, October 31, 1959 — Cited by petitioner as the source of the control test formulation; the Court upheld the test as stated but found it satisfied on the facts.
• Sunrise Coconut Products Co. vs. Court of Industrial Relations, 83 Phil. 518, 523 — Cited for Justice Perfecto's concurrence taking judicial notice that the pakyaw system as generally practiced in the Philippines is in fact a labor contract between employers and employees.
• LVN Pictures vs. Philippine Musicians Guild, et al., 110 Phil. — Cited as authority for upholding the control test.
• Feati University vs. Bautista, et al., L-21500, December 27, 1966, 18 SCRA 1966 — Cited for the proposition that the control test requires merely the existence of the right to control, not its actual exercise.
• Mercury Drug Co., et al. vs. Court of Industrial Relations, L-23357, April 30, 1974, 56 SCRA 694, 712 — Cited as the source of the Teehankee formula for backwages in cases not terminated sooner, fixing the award at three years without qualification and deduction.
• Philippine Newspapers' Guild vs. Evening News, Inc., 86 Phil. 303; GPTC Employees Union vs. Court of Industrial Relations, et al., 102 Phil. 538; Community Sawmill Company vs. Court of Industrial Relations and Community Effort Labor Union, L-24347, March 27, 1979; Gonzalo Puyat & Sons, Inc. vs. Labayo, 62 SCRA 488; De Leon, et al. vs. Pampanga Development Co., Inc., L-26844, September 30, 1969, 29 SCRA 628; Castillo, et al. vs. Court of Industrial Relations, L-26124, May 29, 1971, 39 SCRA 75 — Cited collectively as the long line of decisions applying Section 6 of Republic Act No. 875, under which the Supreme Court did not reverse the CIR's factual findings when supported by substantial evidence.

• Section 4(a), sub-paragraphs (1) and (4), Republic Act No. 875 (Industrial Peace Act) — Defines unfair labor practices of an employer, including interfering with, restraining, or coercing employees in the exercise of their guaranteed rights, and discriminating in regard to hire or tenure of employment to encourage or discourage union membership. The CIR found Dy Keh Beng to have violated these provisions by dismissing Solano and Tudla for their union activities.
• Section 2(d), Republic Act No. 875 — Defines "employee" broadly, not limited to the employees of a particular employer, and including any individual whose work has ceased as a consequence of or in connection with any current labor dispute or because of any unfair labor practice. Petitioner invoked this definition to argue that the respondents did not qualify as employees; the Court rejected this argument.
• Section 2(c), Republic Act No. 875 — Defines "employer" as any person acting in the interest of an employer, directly or indirectly, but excluding labor organizations acting other than as employers. Petitioner cited this provision in support of his contention that no employer-employee relationship existed.
• Section 6, Republic Act No. 875 — Provides that in unfair labor practice cases, the factual findings of the Court of Industrial Relations are conclusive on the Supreme Court if supported by substantial evidence. The Court relied on this provision to sustain the CIR's factual findings on dismissal, discrimination, and unfair labor practice.

Teehankee, Makasiar, Guerrero, and Melencio-Herrera, JJ., concurred.