Parayday vs. Shogun Shipping Co., Inc.

The four-fold test—comprising (a) selection and engagement, (b) payment of wages, (c) power to discipline and dismiss, and (d) power to control the means and methods of work—is the proper standard for determining the existence of an employer-employee relationship; Article 295 of the Labor Code distinguishes between regular and casual employees but does not serve as a criterion for establishing whether an employment relationship exists in the first place. Uncontroverted allegations of engagement, compensation, and dismissal, deemed admitted under the rules of procedure, constitute substantial evidence of an employer-employee relationship.

Petitioners Pedrito R. Parayday and Jaime Reboso claimed to have been employed as fitters/welders by Oceanview/VRC Lighterage Co., Inc. and VRC/Oceanview Shipbuilders Co., Inc. (collectively "Oceanview") in October 1996 and March 1997, respectively. Oceanview was a corporation engaged in ship building. Respondent Shogun Shipping Co., Inc. ("Shogun Ships") was incorporated only in November 2002 and was engaged in domestic cargo shipping—a business distinct from Oceanview's ship-building operations. Petitioners alleged that Oceanview changed its corporate name to Shogun Ships in 2003, while respondent maintained that the two corporations were separate and distinct entities. The dispute centered on whether petitioners were regular employees of Shogun Ships entitled to security of tenure, or merely occasional helpers engaged on a per-need basis by regular employees of the company.

Petitioners Pedrito R. Parayday and Jaime Reboso alleged that they were engaged as fitters/welders by Oceanview/VRC Lighterage Co., Inc. and VRC/Oceanview Shipbuilders Co., Inc. (collectively "Oceanview") in October 1996 and March 1997, respectively. As fitters/welders, their duties included assembling, welding, fitting, and installing materials or components using electrical welding equipment, and repairing and securing parts and assemblies of Oceanview barges. In support of their claim of employment with Oceanview, petitioners presented a photocopy of Parayday's Oceanview Identification Card and a Certificate of Employment dated February 5, 2001, issued by "Oceanview Shipbuilding Co., Inc." Petitioners further alleged that sometime in 2003, Oceanview changed its corporate name to Shogun Ships Inc., which maintained the same line of business and retained Oceanview employees such as petitioners. Respondent denied that any such change of corporate name occurred and maintained that Oceanview was a separate and distinct entity from Shogun Ships, which was incorporated only in November 2002.

In the course of their employment, petitioners worked seven days a week and were paid a daily salary of Three Hundred Fifty Pesos (₱350.00) until their separation from employment sometime in May 2008. Petitioners alleged that Shogun Ships furnished them handwritten payslips or Time Keeper's Reports indicating their names, hours and days worked, and compensation received. Petitioners claimed that Shogun Ships failed to pay overtime pay, holiday pay, premium pay, service incentive leave, and 13th month pay despite their having rendered work during holidays, Sundays, and rest days.

Sometime in May 2006, petitioners were assigned to Lamao, Limay, Bataan to perform welding work on one of Shogun Ships' barges, M/T Daniela Natividad. On May 11, 2006, an explosion occurred, causing petitioners to sustain third-degree burns. They were hospitalized from May 11, 2006 until June 6, 2006. Although medical expenses were borne by Shogun Ships, petitioners were not paid salaries during their hospital confinement. Salaries resumed on June 7, 2006 and continued until the first week of August 2006, after which Shogun Ships discontinued providing financial assistance for medical expenses. Petitioners alleged that they continued to render services and reported back for work in August 2006. Sometime in 2008, the management of Shogun Ships verbally dismissed petitioners from service effective May 1, 2008, due to lack of work as fitters/welders.

Respondent denied that petitioners were regular employees of Shogun Ships. According to respondent, petitioners were at best helpers brought in by regular employees of Shogun Ships on certain occasions when repairs were needed on its barges. Regular employees occasionally called in friends and nearby neighbors, such as petitioners, who sought temporary work as helpers until the needed repairs were completed. Shogun Ships compensated them for services rendered but did not engage them on a regular basis, as the work was merely temporary or occasional. Shogun Ships already had regular employees for its technical, mechanical, and electrical needs. Respondent presented sworn statements and affidavits of Lito C. Panao and Virgilio Soriano, Jr., Shogun Ships' Vessel Materials Coordinator and Warehouseman, respectively, to support this claim. Respondent maintained that in 2008, regular employees ceased calling helpers because repairs could be completed without their assistance, and it was during this time that petitioners started demanding work that Shogun Ships could not provide.

The Labor Arbiter found petitioners to be regular employees who were illegally dismissed, ordering reinstatement with full backwages but denying claims for underpayment of wages, benefits, damages, and attorney's fees. The NLRC affirmed. The Court of Appeals reversed, holding that petitioners failed to adduce substantial evidence of an employer-employee relationship with Shogun Ships, giving no credence to the Time Keeper's Reports for failure to establish their genuineness and due execution, and refusing to treat Oceanview and Shogun Ships as the same entity in the absence of a full-blown trial on the propriety of piercing the corporate veil.

• Time Keeper's Reports as Evidence: Petitioners maintained that the Time Keeper's Reports were sufficient evidence of their continuous employment with Shogun Ships, showing their inclusion in the employer's payroll.
• Respondent's "Occasional Helper" Claim: Petitioners argued that the CA erred in relying on respondent's bare assertion that they were merely "occasionally called in" to serve as helpers.
• Piercing the Corporate Veil: Petitioners insisted that the facts justifying the application of the doctrine of piercing the veil of corporate fiction—namely, that Oceanview changed its corporate name to Shogun Ships—had been properly pleaded and proved during the proceedings before the Labor Arbiter and the NLRC.
• Four-Fold Test: Petitioners averred that the application of the four-fold test proved they were employees of Shogun Ships.
• "Per Need" Arrangement: Petitioners contended that their employment arrangement with Shogun Ships on a "per need" basis was formulated to prevent them from acquiring regular employment status.
• Insufficiency of Respondent's Evidence: Petitioners harped on the supposed insufficiency of documentary evidence furnished by respondent, which merely consisted of a copy of Shogun Ships' Certificate of Incorporation.
• Procedural Matters: Petitioners argued that the CA erred in entertaining and granting respondent's Petition for Certiorari under Rule 65, and that the CA ignored the Notice of Change of Counsel when it recognized counsel who had no authority from petitioners.

• No Employer-Employee Relationship: Respondent argued that applying the four-fold test, petitioners could not be considered employees of Shogun Ships, as no element of the test was satisfied.
• Separate Corporate Entities: Respondent maintained that there was no change of corporate name from Oceanview to Shogun Ships, and that the two corporations were separate and distinct entities engaged in different businesses—Oceanview in ship building and Shogun Ships in domestic cargo shipping.
• Petitioners as Occasional Helpers: Respondent contended that petitioners were merely helpers called in occasionally by regular employees of Shogun Ships when repairs were needed, and that their engagement was dependent on the availability of work on the barges.
• Functions Not Necessary or Desirable: Respondent insisted that petitioners' functions as fitters/welders could not be regarded as necessary and desirable to the business of cargo shipping, as barges are not consistently in a state of disrepair.
• No Dismissal: Respondent argued that since petitioners were not employees of Shogun Ships, no dismissal ever took place, much less any illegal dismissal.

• Corporate Identity: Whether Oceanview and Shogun Ships are one and the same corporate entity, such that the doctrine of piercing the corporate veil should apply.
• Employer-Employee Relationship: Whether petitioners were regular employees of Shogun Ships, applying the four-fold test.
• Validity of Dismissal: Whether petitioners were validly dismissed from employment.
• Finality of Unappealed Claims: Whether petitioners may still resurrect their claims for underpayment of wages, benefits, damages, and attorney's fees that were denied by the Labor Arbiter and which they did not appeal.
• Procedural Matters: Whether the CA erred in serving its Decision on petitioners' former counsel and in entertaining respondent's Petition for Certiorari under Rule 65.

• Corporate Identity: No. Oceanview and Shogun Ships are two separate and distinct corporate entities; the doctrine of piercing the corporate veil cannot apply because Oceanview was never impleaded as a party respondent or validly served with summons, and no full-blown trial was conducted on the issue.
• Employer-Employee Relationship: Yes. Petitioners were regular employees of Shogun Ships, as the four-fold test was satisfied through respondent's failure to specifically deny allegations of engagement, payment of wages, and dismissal, which were deemed admitted, and the right to control was inferable from the work setting.
• Validity of Dismissal: No. Petitioners were illegally dismissed, respondent having failed to prove just or authorized cause and to afford procedural due process, as petitioners were merely verbally dismissed without notice of the grounds for dismissal.
• Finality of Unappealed Claims: No. The Labor Arbiter's denial of petitioners' monetary claims became final and executory because petitioners did not appeal those findings, and respondents acquired vested rights by virtue of the unappealed judgment.
• Procedural Matters: No error was committed by the CA in serving its Decision on former counsel Atty. Banzuela, as the Motion to Withdraw as Counsel was received only on July 17, 2012, after the Decision had been served. The motion to cite respondent for direct contempt was also denied for lack of basis.

• Corporate Identity: The Court applied the general doctrine of separate juridical personality, holding that a corporation has a legal personality separate and distinct from that of its stockholders and other corporations to which it may be connected. The records were bereft of evidence showing that Shogun Ships was formerly known as Oceanview or that Oceanview changed its corporate name to Shogun Ships. Petitioners failed to present Oceanview's amended Articles of Incorporation or any evidence of corporate affiliation. Shogun Ships was incorporated only in 2002, years after petitioners claimed to have been engaged by Oceanview in 1996/1997. The Court further held that the doctrine of piercing the corporate veil requires that the court first acquire jurisdiction over the corporation to be pierced. Since Oceanview was never impleaded as a party respondent, never validly served with summons, and never represented by any authorized representative, the Labor Arbiter and NLRC never acquired jurisdiction over it. Applying the doctrine would offend Oceanview's right to due process. The Court relied on Kukan International Corporation vs. Reyes, which held that piercing the veil of corporate fiction is basically applied only to determine established liability and is not available to confer jurisdiction over a party not impleaded in a case.

• Employer-Employee Relationship: The Court held that Article 295 of the Labor Code merely distinguishes between regular and casual employees for purposes of determining rights to certain benefits and security of tenure; it should not be used as a criterion to determine the existence of an employer-employee relationship, and does not apply where the existence of an employment relationship is in dispute. The proper standard is the four-fold test: (a) selection and engagement of the employee; (b) payment of wages; (c) power to discipline and dismiss; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. The Court found that respondent failed to categorically deny several material allegations: that petitioners were engaged or permitted to work on repairs on Shogun Ships' barge M/T Daniela Natividad; that they worked for Shogun Ships until their verbal dismissal on May 1, 2008; that they were compensated for work done; that Shogun Ships provided financial assistance during their hospitalization and continued paying salaries after discharge; and that they were verbally dismissed. Under Rule 8, Section 11 of the Rules of Court, which supplements the NLRC Rules of Procedure, allegations not specifically denied are deemed admitted. As to the control element, the Court held 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. Since petitioners worked on barges alongside regular employees and took orders from engineers as to required specifications for repairs—which respondent failed to deny—it was logically inferable that Shogun Ships had the right to control petitioners' work. The Court also found that petitioners attained regular employment status under Article 295 because: (1) in the absence of a clear agreement on employment status, the presumption of regular employment applied; (2) their welding activities were necessary and desirable to Shogun Ships' cargo shipping business, as continuous repair and maintenance of barges was essential; and (3) they had worked for more than one year, albeit intermittently, from May 2006 until May 1, 2008. The Court rejected the Time Keeper's Reports as insufficient evidence because their genuineness and due execution were not established, but found that the uncontroverted allegations supplied substantial evidence of employment. The affidavits of Panao and Soriano were disregarded as biased.

• Validity of Dismissal: Having attained regular employment status, petitioners could only be dismissed for just or authorized cause and after being accorded due process. The burden of proof to establish these twin requirements rests on the employer. Respondent failed to discharge this burden: no just or authorized cause was proved, and petitioners were merely verbally dismissed without being served notices informing them of the grounds for dismissal. The dismissal was therefore illegal, warranting reinstatement and payment of backwages computed from May 1, 2008 up to actual reinstatement.

• Finality of Unappealed Claims: The Labor Arbiter denied petitioners' claims for underpayment of wages and benefits, damages, and attorney's fees, and held Shogun Ships solely liable for backwages and reinstatement, excluding individual respondents Cordero and Raymundo. Petitioners did not appeal from the Labor Arbiter's April 27, 2009 Decision. Under Article 223 of the Labor Code and Section 21, Rule V of the 2011 NLRC Rules of Procedure, the Labor Arbiter's decision becomes final and executory if no appeal is filed within ten calendar days. Relying on INIMACO vs. NLRC, the Court held that parties who do not appeal from a judgment can no longer seek modification or reversal of the same. The unappealed findings had become final and executory, and respondents acquired vested rights by virtue of the final judgment.

• Procedural Matters: The CA committed no error in serving its May 11, 2012 Decision on Atty. Banzuela, as the Motion to Withdraw as Counsel was received by the CA only on July 17, 2012—after the Decision had already been served. The motion to cite respondent for direct contempt was denied, as a perusal of respondent's Comment revealed no contemptuous language or deceitful acts warranting the charge.

• Four-Fold Test / Control Test — The four-fold test determines the existence of an employer-employee relationship through four elements: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power to discipline and dismiss; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. The control test is the most important element. 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. In this case, the Court found all four elements satisfied through respondent's failure to specifically deny petitioners' allegations of engagement, compensation, and dismissal, and through the inference of control from the work setting where petitioners took orders from Shogun Ships' engineers.

• Article 295 (formerly Article 280), Labor Code — Not a Criterion for Existence of Employment Relationship — Article 295 distinguishes between regular and casual employees for purposes of determining rights to benefits and security of tenure, but it should not be used as a criterion to determine the existence of an employer-employee relationship. The provision does not apply where the existence of an employment relationship is itself in dispute. The Court clarified that the Labor Arbiter and NLRC erred in applying Article 295 to determine whether an employment relationship existed; the four-fold test is the proper standard.

• Piercing the Veil of Corporate Fiction — The doctrine of piercing the corporate veil is basically applied only to determine established liability; it is not available to confer on the court a jurisdiction it has not acquired over a party not impleaded in a case. A corporation not impleaded in a suit cannot be subject to the court's process of piercing the veil of its corporate fiction. The doctrine can only be raised during a full-blown trial over a cause of action duly commenced involving parties duly brought under the authority of the court by way of service of summons. In this case, Oceanview was never impleaded as a party respondent, never served with summons, and never represented; thus, the doctrine could not apply.

• Separate Juridical Personality — A corporation has a legal personality separate and distinct from that of its stockholders and other corporations to which it may be connected. The Court applied this doctrine to hold that Oceanview and Shogun Ships were separate and distinct entities, as the records contained no evidence of a change of corporate name or corporate affiliation between them.

• Presumption of Regular Employment — In the absence of a clear agreement or contract, whether written or otherwise, which would clearly show that the employee was properly informed of his employment status, the presumption of regular employment applies in favor of the worker. The Court applied this presumption because the records were bereft of evidence that petitioners were duly informed of the nature and status of their engagement with Shogun Ships.

• Deemed Admitted Allegations — Under Rule 8, Section 11 of the Rules of Court, which supplements the NLRC Rules of Procedure, allegations which are not specifically denied are deemed admitted. The Court applied this rule to hold that respondent's failure to categorically deny petitioners' allegations of engagement, compensation, and dismissal lent credence to petitioners' assertions and satisfied the four-fold test.

• Finality of Unappealed Judgments — Parties who do not appeal from a judgment can no longer seek modification or reversal of the same. Once a decision becomes final and executory, it is removed from the power or jurisdiction of the court which rendered it to further alter or amend it. The winning party has the correlative right to enjoy the finality of the decision. The Court applied this doctrine to bar petitioners from resurrecting their denied monetary claims that they had not appealed.

• Substantial Evidence in Labor Cases — In labor cases, as in other administrative and quasi-judicial proceedings, the quantum of proof necessary is substantial evidence, defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." The Court found that petitioners met this standard through the uncontroverted allegations establishing the elements of the four-fold test.

• "Article 295 should, therefore, not be used as a criterion to determine the existence of an employer-employee relationship. More importantly, the same provision does not apply where the existence of an employment relationship is in dispute." — This passage articulates the ratio decidendi on the proper standard for determining the existence of an employer-employee relationship, distinguishing Article 295's role in classifying employees from the four-fold test's role in establishing the relationship itself.

• "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 formulation of the control test is frequently cited in Philippine labor jurisprudence and was central to the Court's finding that Shogun Ships possessed the right to control petitioners' work, even without direct evidence of actual exercise of control.

• "The principle of piercing the veil of corporate fiction, and the resulting treatment of two related corporations as one and the same juridical person with respect to a given transaction, is basically applied only to determine established liability; it is not available to confer on the court a jurisdiction it has not acquired, in the first place, over a party not impleaded in a case." — This passage, quoted from Kukan International Corporation vs. Reyes, defines the jurisdictional limitation on the doctrine of piercing the corporate veil and was dispositive of the corporate identity issue.

• "In the absence of a clear agreement or contract, whether written or otherwise, which would clearly show that petitioners were properly informed of their employment status with Shogun Ships, petitioners enjoy the presumption of regular employment in their favor." — This statement establishes the presumption of regular employment as applied to the facts, reinforcing the protective policy in labor law favoring workers when employment status is unclear.

• Kukan International Corporation vs. Reyes, 646 Phil. 210 (2010) — Controlling precedent on the jurisdictional requirement for piercing the corporate veil. The Court quoted this case for the proposition that piercing the veil of corporate fiction is applied only to determine established liability and is not available to confer jurisdiction over a party not impleaded in a case.

• Dy Keh Beng vs. International Labor and Marine Union of the Philippines, 179 Phil. 131 (1979) — Controlling precedent on the control test. The Court relied on this case for the principle that the control test calls merely for the existence of the right to control, not its actual exercise, and that control may be inferred when personnel work at the employer's establishment.

• Sy vs. Court of Appeals, 446 Phil. 404 (2003) — Followed for the principle that before a case for illegal dismissal can prosper, an employer-employee relationship must first be established.

• Palomado vs. National Labor Relations Commission, 327 Phil. 472 (1996) — Followed for the proposition that an indispensable precondition of illegal dismissal is the prior existence of an employer-employee relationship.

• Uichico vs. National Labor Relations Commission, 339 Phil. 242 (1997) — Followed for the rule that while the NLRC is not bound by technical rules of procedure, evidence presented must at least have a modicum of admissibility to be given probative value. Applied to reject the unauthenticated Time Keeper's Reports.

• Industrial Management International Development Corporation (INIMACO) vs. National Labor Relations Commission, 387 Phil. 659 (2000) — Controlling precedent on the finality of judgments. Applied to hold that parties who do not appeal from a judgment can no longer seek modification or reversal, barring petitioners from resurrecting their denied monetary claims.

• Concept Builders Inc. vs. National Labor Relations Commission, 326 Phil. 955 (1996) — Cited for the general doctrine of separate juridical personality of corporations.

• Coca-Cola Bottlers Phils., Inc. vs. National Labor Relations Commission, 366 Phil. 581 (1999) — Cited for the proposition that Article 295 does not apply where the existence of an employment relationship is in dispute.

• Article 295 (formerly Article 280), Labor Code — Defines regular and casual employment. An employment is deemed regular where the employee has been engaged to perform activities usually necessary or desirable in the usual business or trade of the employer. An employee who has rendered at least one year of service, whether continuous or broken, is considered a regular employee with respect to the activity in which he is employed. The Court held that this provision distinguishes between types of employees but should not be used as a criterion to determine the existence of an employer-employee relationship, and does not apply where the existence of an employment relationship is in dispute. Nevertheless, the Court applied Article 295 to confirm that petitioners attained regular employment status because their welding activities were necessary and desirable to Shogun Ships' cargo shipping business and because they had rendered more than one year of service.

• Article 223 (now 229), Labor Code — Governs appeals from Labor Arbiter decisions, providing that such decisions are final and executory unless appealed to the NLRC within ten calendar days from receipt. Applied to hold that the Labor Arbiter's denial of petitioners' monetary claims became final and executory because petitioners did not appeal.

• Rule 8, Section 11, Rules of Court — Provides that allegations which are not specifically denied are deemed admitted. The Court applied this provision, which supplements the NLRC Rules of Procedure, to hold that respondent's failure to specifically deny petitioners' allegations of engagement, compensation, and dismissal constituted admissions establishing the four-fold test elements.

• Rule 132, Section 20, Rules of Court — Governs authentication of private documents. The Court referenced this provision in rejecting the Time Keeper's Reports, as neither petitioner attested to the genuineness of the documents or disclosed the maker thereof.

• Section 21, Rule V, 2011 NLRC Rules of Procedure, as amended — Provides that the Labor Arbiter's decision becomes final and executory after ten calendar days from receipt if no appeal is filed. Applied in conjunction with Article 223 to establish the finality of the unappealed portions of the Labor Arbiter's Decision.

Perlas-Bernabe (Chairperson), Inting, Delos Santos, and Gaerlan, JJ., concurred. No separate concurring opinions were written.