Olympia Housing, Inc. vs. Lapastora

A valid closure of business, upheld in a related case, constitutes a supervening event that renders reinstatement a legal impossibility, warranting the award of separation pay in lieu of reinstatement and limiting backwages to the period from illegal dismissal until cessation of operations, notwithstanding the employer's failure to prove just or authorized cause for the employee's termination.

Olympia Housing, Inc. (OHI) was the entity engaged in the management of the Olympia Executive Residences (OER), a condominium hotel building in Makati City owned by the Olympia Condominium Corporation (OCC). OHI contracted with Fast Manpower and Allied Services Company, Inc. (Fast Manpower) for the provision of room attendants. Lapastora and Ubalubao worked as room attendants at OER, with Lapastora employed since March 1995 and Ubalubao since June 1997. A separate case, Ocampo vs. OHI, was filed by union officers and members challenging OHI's closure of business and termination of all employees, which became relevant to the present dispute on the issue of supervening events.

Allan Lapastora and Irene Ubalubao worked as room attendants at the Olympia Executive Residences (OER), a condominium hotel building in Makati City managed by Olympia Housing, Inc. (OHI). Lapastora was hired in March 1995 and Ubalubao in June 1997. They claimed to have been directly hired by OHI, receiving salaries directly from the company's operations clerk, Myrna Jaylo, and that OHI exercised control over them through time cards, disciplinary action reports, and checklists of room assignments.

OHI and its part owner, Felix Limcaoco, contended that Lapastora and Ubalubao were not its employees but of Fast Manpower and Allied Services Company, Inc. (Fast Manpower), with which OHI had a contract of services for the provision of room attendants. OHI asserted that Fast Manpower was a legitimate independent contractor that rendered janitorial services to various establishments, maintained an office, exercised the right to select or change personnel, and supervised and paid the wages of its employees. Fast Manpower corroborated this, maintaining that Lapastora and Ubalubao were deployed pursuant to its contract with OHI and that they were not dismissed but merely placed on floating status for lack of available work assignments after being found to have violated house rules.

On February 24, 2000, Lapastora and Ubalubao were placed on floating status through a memorandum sent by Fast Manpower. Prior to this, they had been subjected to investigations for alleged involvement in the theft of personal items and cash belonging to hotel guests. They claimed they were summarily dismissed by OHI despite lack of evidence and after they had petitioned for regularization. They subsequently filed a complaint for illegal dismissal, payment of backwages and other benefits, and regularization of employment against OHI, Limcaoco, and Fast Manpower, docketed as NLRC NCR Case No. 30-03-00976-00.

On August 22, 2000, a memorandum of agreement was executed transferring the management of OER from OHI to HSAI-Raintree, Inc. OHI then informed the Department of Labor and Employment (DOLE) of its cessation of operations and issued notices of termination to all its employees effective October 1, 2000. This prompted union officers and members to file a separate complaint for illegal dismissal and unfair labor practice, docketed as NLRC NCR CN 30-11-04400-00, entitled Ocampo vs. OHI. In that case, the NLRC upheld the validity of OHI's cessation of operations, finding that OHI complied with statutory requirements including filing a notice of closure with DOLE and furnishing written notices of termination to all employees, and that OHI presented financial statements substantiating its claim of operating at a loss. This ruling was affirmed by the CA and ultimately by the Supreme Court, which denied the petition for failure to comply with procedural rules and lack of reversible error.

• Employer-Employee Relationship: OHI argued that Lapastora and Ubalubao were not its employees but employees of Fast Manpower, with which it had a valid contract of services for the provision of room attendants, and that Fast Manpower was a legitimate independent contractor.
• Stare Decisis: OHI maintained that since the NLRC's ruling in Ocampo vs. OHI upholding the validity of its closure of business was affirmed by both the CA and the Supreme Court, the principle of stare decisis should apply, precluding relitigation of the issues already resolved in that case.
• Supervening Event: OHI argued that even assuming illegal dismissal was established, its cessation of operations on October 1, 2000 was a supervening event that should limit the award of backwages to that date and justify deletion of the order of reinstatement, since it complied with the DOLE notice requirements for a valid closure of business.
• Impossibility of Reinstatement: OHI asseverated that reinstatement was no longer possible in view of the transfer of management of OER to HSAI-Raintree.

• Direct Employment by OHI: Lapastora and Ubalubao alleged they were directly hired by OHI, received salaries directly from its operations clerk, and were under OHI's control and supervision as evidenced by time cards, disciplinary action reports, and checklists of room assignments.
• Illegal Dismissal: They claimed they were summarily dismissed by OHI after petitioning for regularization and after being subjected to investigations for alleged theft, despite lack of evidence proving their involvement.
• Regular Employment: They argued that their continuous employment by OHI for more than a year demonstrated the continuing need and desirability of their services, characterizing them as regular employees entitled to security of tenure.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between OHI and Lapastora, notwithstanding the contract of services between OHI and Fast Manpower.
• Validity of Dismissal: Whether Lapastora was illegally dismissed by OHI.
• Stare Decisis: Whether the principle of stare decisis applies based on the ruling in the related case of Ocampo vs. OHI.
• Supervening Event: Whether OHI's valid closure of business constitutes a supervening event affecting the award of reinstatement and backwages.

• Employer-Employee Relationship: Yes. The existence of a contract of services between OHI and Fast Manpower did not negate the employer-employee relationship between OHI and Lapastora, as Fast Manpower failed to establish its capacity as an independent contractor and OHI exercised control and supervision over Lapastora.
• Validity of Dismissal: Yes. Lapastora was illegally dismissed, OHI having failed to prove any just or authorized cause for termination and having violated the twin notice rule.
• Stare Decisis: No. The principle of stare decisis does not apply because the present case and Ocampo vs. OHI involved completely different sets of facts and distinct issues.
• Supervening Event: Yes. OHI's valid closure of business, upheld in Ocampo vs. OHI, constitutes a supervening event rendering reinstatement a legal impossibility, warranting separation pay in lieu thereof and limiting backwages to the period from dismissal until cessation of operations.

• Employer-Employee Relationship: The Labor Arbiter found that OHI exercised control and supervision over Lapastora through its supervisor, Anamie Lat, and that documentary evidence—time cards, medical cards, and medical examination reports—all indicated OHI as employer. The affidavit of OHI's housekeeping coordinator, Jaylo, attested that OHI was responsible for selecting employees for its housekeeping department and paid salaries by depositing them to employees' ATM accounts. Fast Manpower failed to establish its capacity as an independent contractor under the standards provided by law. The contract of services between OHI and Fast Manpower could not alter established facts proving the contrary, because labor and employment are matters imbued with public interest that cannot be subjected to the agreement of the parties but must be governed by existing laws designed for the protection of labor. A party cannot dictate the character of its business by mere unilateral declaration in a contract; its character must be measured by statutory criteria. The Court found no compelling reason to deviate from the findings of the LA and NLRC, which were affirmed by the CA, as findings of fact by LAs when affirmed by the NLRC are entitled to great respect and even finality, especially when supported by substantial evidence.

• Validity of Dismissal: On the substantive aspect, OHI failed to prove that Lapastora's dismissal was grounded on a just or authorized cause. While OHI claimed it called Lapastora's attention for tardiness, unexplained absences, and loitering, the records did not show that he was notified of the company's dissatisfaction or made to explain his supposed infractions, nor that he was ever disciplined. Allegations regarding his involvement in theft remained unfounded suspicions unproven despite OHI's probe. On the procedural aspect, OHI admittedly failed to observe the twin notice rule: Lapastora was not informed of the charges against him and was denied the opportunity to disprove them, having been summarily terminated. The employer bears the onus of proving with clear, accurate, consistent, and convincing evidence the validity of the dismissal, which OHI failed to discharge.

• Stare Decisis: The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by the Supreme Court in its final decisions, based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument. However, there is no doctrine of law similarly applicable in both the present case and Ocampo vs. OHI. While both are illegal dismissal cases, they are based on completely different sets of facts and involve distinct issues. In the present case, Lapastora claimed illegal dismissal after being arbitrarily placed on floating status on mere suspicion of involvement in theft without being given the opportunity to explain. In Ocampo vs. OHI, the petitioners questioned the validity of OHI's closure of business and the eventual termination of all employees. The differences in facts and issues rule out invocation of the doctrine.

• Supervening Event: Although stare decisis does not apply, the Court recognized the validity of OHI's cessation of business—as upheld in the NLRC Decision dated November 22, 2002 in Ocampo vs. OHI, affirmed by the CA and the Supreme Court—as a supervening event that inevitably alters the judgment award in favor of Lapastora. The NLRC noted that OHI complied with all statutory requirements, including filing a notice of closure with DOLE and furnishing written notices of termination to all employees, and presented financial statements substantiating operating losses. Reinstatement presupposes that the previous position still exists or that a similar unfilled position is available; where no such position exists, reinstatement becomes a legal impossibility and the law cannot exact compliance with what is impossible. Accordingly, separation pay in lieu of reinstatement is proper, computed from March 1995 to October 2000. Backwages are likewise proper, computed from the time of illegal dismissal on February 24, 2000 until October 1, 2000 when reinstatement was rendered impossible without fault on Lapastora's part. The award of service incentive leave pay, 13th month pay, and attorney's fees was likewise sustained, OHI having failed to prove payment and Lapastora having been forced to litigate to protect his rights.

• Four-Fold Test / Control Test — The existence of an employer-employee relationship is determined by the employer's power to control the employee's conduct, not merely the result of the work. The Court relied on the LA's finding that OHI exercised control and supervision over Lapastora through its supervisor, and that documentary evidence indicated OHI as employer. The contract of services with Fast Manpower could not negate this relationship because labor and employment are matters imbued with public interest not subject to the parties' agreement.

• Labor-Only Contracting vs. Independent Contracting — A party cannot dictate the character of its business—whether as labor-only contractor or job contractor—by mere unilateral declaration in a contract; its character must be measured in terms of and determined by the criteria set by statute. Fast Manpower's failure to establish its capacity as an independent contractor meant OHI remained the employer.

• Twin Notice Rule — In termination cases, the employer must furnish the employee two written notices: (1) a notice specifying the grounds for termination and giving the employee reasonable opportunity to explain, and (2) a notice of termination indicating that grounds have been established to justify termination. OHI's failure to observe this requirement rendered Lapastora's dismissal procedurally infirm.

• Stare Decisis — The principle enjoins adherence by lower courts to doctrinal rules established by the Supreme Court in its final decisions; once a question of law has been examined and decided, it should be deemed settled and closed to further argument. It is entrenched in Article 8 of the Civil Code. The doctrine does not apply where the cases involve completely different sets of facts and distinct issues.

• Supervening Event Doctrine — A valid closure of business, upheld in a related case, constitutes a supervening event that alters the judgment award, rendering reinstatement a legal impossibility and warranting separation pay in lieu thereof. Reinstatement presupposes that the previous position still exists or a similar position is available; where no such position exists, the law cannot exact compliance with what is impossible.

• Burden of Proof for Payment of Benefits — The burden rests on the employer to prove payment, rather than on the employee to prove nonpayment, because pertinent personnel files, payrolls, records, and similar documents are in the custody and absolute control of the employer. OHI's failure to dispute Lapastora's claim for nonpayment and its disclaimer of employer-employee relationship gave rise to the presumption that the claims were not paid.

• "A party cannot dictate, by the mere expedient of a unilateral declaration in a contract, the character of its business, i.e., whether as labor-only contractor or as job contractor, it being crucial that its character be measured in terms of and determined by the criteria set by statute." — This passage articulates the rule that the character of a contractor's business cannot be established by contractual stipulation alone but must be determined by statutory criteria, a principle central to the finding that OHI was Lapastora's employer.

• "Reinstatement presupposes that the previous position from which one had been removed still exists or there is an unfilled position more or less of similar nature as the one previously occupied by the employee. Admittedly, no such position is available. Reinstatement therefore becomes a legal impossibility. The law cannot exact compliance with what is impossible." — This passage, quoted from Galindez vs. Rural Bank of Llanera, Inc., defines the doctrinal basis for awarding separation pay in lieu of reinstatement when the employer's business has ceased operations.

• "The principle of stare decisis enjoins adherence by lower courts to doctrinal rules established by this Court in its final decisions. It is based on the principle that once a question of law has been examined and decided, it should be deemed settled and closed to further argument." — This passage provides the canonical formulation of the stare decisis doctrine as applied in Philippine jurisdiction, anchoring its basis in Article 8 of the Civil Code.

• Aliling vs. Feliciano, G.R. No. 185829, April 25, 2012, 671 SCRA 186 — Cited for the rule that the employer bears the onus of proving with clear, accurate, consistent, and convincing evidence the validity of a dismissal.
• Lynvil Fishing Enterprises, Inc. vs. Ariola, 680 Phil. 696 (2012) — Cited for the twin notice rule in termination cases, requiring two written notices before valid termination.
• Almeda vs. Asahi Glass Philippines, Inc., 586 Phil. 103 (2008) — Cited for the principle that a party cannot dictate the character of its business by unilateral declaration in a contract.
• Metro Transit Organization, Inc. vs. NLRC, 367 Phil. 259 (1999) — Cited for the rule that findings of fact by Labor Arbiters, when affirmed by the NLRC, are entitled to great respect and even finality, especially when supported by substantial evidence.
• Ting vs. Velez-Ting, 601 Phil. 676 (2009) — Cited for the elaboration of the principle of stare decisis and its basis in Article 8 of the Civil Code.
• Galindez vs. Rural Bank of Llanera, Inc., G.R. No. 84975, July 5, 1989, 175 SCRA 132 — Cited for the doctrine that reinstatement becomes a legal impossibility when no position is available, and the law cannot exact compliance with what is impossible.
• Industrial Timber Corporation vs. NLRC, 323 Phil. 753 (1996) — Cited for the rule on computation of separation pay from the time of employment until closure of business.
• Golden Ace Builders vs. Talde, 634 Phil. 364 (2010) — Cited for the rule on computation of backwages from the time of illegal dismissal until reinstatement is rendered impossible.
• Mantle Trading Services, Inc. vs. NLRC, 611 Phil. 570 (2009) — Cited for the rule that the burden of proving payment of benefits rests on the employer, not the employee.

• Article 280, Labor Code — Defines regular and casual employment, providing that employment is deemed regular where the employee is engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, and that any employee who has rendered at least one year of service shall be considered a regular employee. Applied to hold Lapastora a regular employee, his services as room attendant being necessary and desirable to OHI's business of managing condominium units.
• Article 8, Civil Code — Provides that judicial decisions applying or interpreting the laws or the Constitution shall form part of the legal system of the Philippines. Cited as the statutory basis for the principle of stare decisis.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Martin S. Villarama, Jr., and Francis H. Jardeleza concurred in the decision. No separate concurring opinions were noted.