Philippine Spring Water Resources, Inc. vs. Court of Appeals

A probationary employee who is allowed to work beyond the six-month probationary period becomes a regular employee entitled to security of tenure, and may only be dismissed for just or authorized causes under Article 282 of the Labor Code, or for failure to qualify as a regular employee in accordance with reasonable standards made known at the time of engagement. A quitclaim is void for lack of consideration when the employee receives only amounts he was legally entitled to such as salaries, 13th month pay, and commissions, which cannot constitute reasonable consideration for waiving claims for illegal dismissal.

Petitioner Philippine Spring Water Resources, Inc. (PSWRI) is engaged in the business of manufacturing, selling, and distributing bottled mineral water. Respondent Juvenstein B. Mahilum was hired as Vice-President for Sales and Marketing for the Bulacan-South Luzon Area with a monthly salary of ₱15,000.00 plus commissions. The employment relationship was governed by a Memorandum of Agreement providing for a six-month probationary status, subject to the Personnel's Manual and Company House Rules on Discipline. The Labor Code provisions on security of tenure (Article 279), probationary employment (Article 281), and termination by employer (Article 282) formed the statutory backdrop for the dispute.

Philippine Spring Water Resources, Inc. (PSWRI), a company engaged in manufacturing, selling, and distributing bottled mineral water, hired Juvenstein B. Mahilum as Vice-President for Sales and Marketing for the Bulacan-South Luzon Area in June 2004, with a monthly salary of ₱15,000.00 plus 0.25% commission on every cash on delivery and another 0.25% on new accounts. The parties executed a Memorandum of Agreement providing that Mahilum would be in a probationary status for the next six months and could be extended a permanent appointment only if he satisfactorily performed his duties as defined in the Personnel's Manual and Company House Rules on Discipline.

In November 2004, PSWRI planned to celebrate the inauguration of its Bulacan plant simultaneously with the company's Christmas party, and Mahilum was designated as over-all chairman of the affair scheduled for December 19, 2004. A few days after his designation, Mahilum called all committee chairpersons to a meeting, but the meeting was reset to the following day when some visitors arrived without prior appointment. Mahilum and his guests discussed sensitive legal issues relative to PSWRI's water drilling inside the plant over the protest of nearby residents and the local water district. The next day, Mahilum requested Ms. Vicky Evangelista, Vice-President for Administration and Finance, to take charge of the meeting should he fail to come back on time, as he attended a prior appointment with major clients in Makati City. Mahilum later learned that Evangelista postponed the meetings because she accompanied the daughter of petitioner Danilo Lua, President and Chief Executive Officer, to Bulacan. Thereafter, meetings on the program of activities were conducted without Mahilum's presence, with Evangelista taking charge and assuming the lead role until the day of the affair.

On the inaugural day, Mahilum was not seen around to supervise the program proper as he entertained some visitors of the company, having delegated the task to Evangelista. Mahilum's attention was called when Lua got furious because he was not recognized during the program — he was not mentioned in the opening remarks or called to deliver his inaugural speech. Upon inquiry from the emcees, Mahilum learned that they were not apprised of Lua's decision to deliver the speech, considering that Lua previously declined to have a part in the program as he would be very busy during the affair. Thus, Lua's speech appeared to be "optional" in the printed program.

The following day, Mahilum was required to explain why Lua was not recognized and made to deliver his speech, and he was placed under preventive suspension for thirty days. Mahilum submitted his written explanation, and an investigation was conducted. When his 30-day suspension ended, Mahilum reported for work but was prevented from entering the workplace. Sometime in the first week of March 2005, he received a copy of the Memorandum dated January 31, 2005, terminating his services effective February 1, 2005, citing "loss of trust and confidence" as the ground. On February 9, 2005, a clearance certificate was issued to Mahilum, and he received the amount of ₱43,998.56 and was made to execute a Release, Waiver and Quitclaim in favor of the company and Lua. Mahilum filed a complaint for illegal dismissal with prayer for reinstatement, payment of back wages and damages, arguing that he was illegally suspended and constructively dismissed, and that he was forced to sign the waiver.

• Wrong Mode of Appeal: Petitioners argued that the CA gravely abused its discretion when it applied Article 279 of the Labor Code in determining the legality of Mahilum's dismissal, insisting that Mahilum was a contractual employee whose probationary period depended on the stipulation of the Memorandum of Agreement.
• Due Process: Petitioners maintained that both substantive and procedural due process were observed in Mahilum's termination from employment with PSWRI.
• Commissions: Petitioners argued that it was error to award the 0.25% commission on cash sales from February 1, 2005 up to the finality of the decision, as a commission is an incentive that must be earned and is not a mandated benefit, being given out of the liberality and generosity of the employer.
• Damages: Petitioners contended that the award of moral and exemplary damages had no basis.

• Regular Employment: Mahilum insisted that he was a regular employee entitled to security of tenure, having been hired in June 2004 and having served the company for eight months at the time of his dismissal on February 1, 2005, which called for the application of Article 281 of the Labor Code.
• Quitclaim Validity: Mahilum argued that the CA's ruling ran counter to the underlying policy for the grant of reliefs outlined in Article 279 of the Labor Code, reasoning that no employee could ever expect any benefit from a complaint for illegal dismissal because at the time of its filing, there was no yet declaration of the termination's illegality.

• Procedural Remedy: Whether the petition for certiorari under Rule 65 was the proper mode of appeal to assail the CA's Amended Decision and Resolution.
• Regular Employment: Whether Mahilum was a regular employee at the time of his dismissal, notwithstanding the probationary provision in the Memorandum of Agreement.
• Illegal Dismissal: Whether Mahilum was illegally dismissed from employment on the ground of loss of trust and confidence.
• Quitclaim: Whether the Release, Waiver and Quitclaim executed by Mahilum barred his action for illegal dismissal.
• Commissions: Whether the 0.25% commission on cash on delivery sales should be included in the computation of Mahilum's backwages.
• Damages: Whether Mahilum was entitled to moral and exemplary damages and attorney's fees.

• Procedural Remedy: No. The proper remedy to assail a CA decision is a petition for review under Rule 45, not certiorari under Rule 65, which cannot substitute for a lost appeal. However, the Court opted to treat the petition as one for review on certiorari in the interest of substantial justice, considering the monetary awards involved.
• Regular Employment: Yes. Mahilum was a regular employee, having been allowed to work beyond the six-month probationary period; he served the company for eight months from June 2004 to February 2005, and under Article 281 of the Labor Code, an employee allowed to work after a probationary period is considered a regular employee.
• Illegal Dismissal: Yes. Mahilum was illegally dismissed; the charge of loss of trust and confidence had no basis because the act complained of was not work-related, and the NLRC and CA findings of illegal dismissal, being supported by substantial evidence, were binding on the Court.
• Quitclaim: No. The quitclaim did not bar the action for illegal dismissal; it was void for lack of consideration because the amounts Mahilum received were only those owing to him under the law, such as salaries, 13th month pay, and commissions.
• Commissions: No. The 0.25% commission was deleted from the computation of backwages; being in the nature of overriding commission or profit-sharing payment, it had no clear, direct, or necessary relation to the amount of work Mahilum actually performed.
• Damages: No. The awards of moral and exemplary damages were deleted for lack of evidence of bad faith, fraud, or oppressive conduct; however, Mahilum was entitled to attorney's fees of ten percent of his total monetary award.

• Procedural Remedy: The Court noted that the petitioners received the assailed CA Resolution on December 17, 2012, and filed the petition for certiorari on February 5, 2013, beyond the 15-day period to file an appeal under Rule 45. Even with a 30-day extension, the petition was still filed out of time. One of the requisites of certiorari is that there be no available appeal or any plain, speedy, and adequate remedy; where an appeal is available, certiorari will not prosper even if the ground is grave abuse of discretion. However, following the liberal spirit of the Rules of Court, the Court treated the petition as one for review on certiorari because the petition was filed within the reglementary period, errors of judgment were averred, and there was sufficient reason to relax the rules given the monetary awards to Mahilum.

• Regular Employment: The Court rejected the petitioners' theory that Mahilum remained a probationary employee because the suspensive condition of satisfactory performance failed to arise. Under Article 281 of the Labor Code, probationary employment shall not exceed six months from the date the employee started working, unless covered by an apprenticeship agreement stipulating a longer period. An employee who is allowed to work after a probationary period shall be considered a regular employee. Mahilum was hired in June 2004 and dismissed on February 1, 2005, serving eight months. Citing CALS Poultry Supply Corporation vs. Roco, the Court ruled that the computation of the 6-month probationary period is reckoned from the date of appointment up to the same calendar date of the 6th month following. Having been allowed to work after the lapse of the probationary period, Mahilum became a regular employee.

• Illegal Dismissal: The Court found that the primary cause of Mahilum's dismissal was his alleged lapses as chairman for the inauguration, with the termination letter citing "loss of trust and confidence." The petitioners could not belatedly invoke failure to qualify as a regular employee as a ground for dismissal. The Court applied the well-entrenched rule that findings of fact of quasi-judicial bodies like the NLRC are accorded respect, even finality, if supported by substantial evidence, particularly when passed upon and upheld by the CA. The CA affirmed the NLRC's factual findings that Mahilum's failure to effectively discharge his assignment was due to mere inadvertence and mistaken belief that he had properly delegated the details of the program. His designation as chairman did not form part of his duty as a supervisor, as he was engaged to supervise sales and marketing aspects. The charge of loss of trust and confidence had no leg to stand on because the act complained of was not work-related.

• Quitclaim: The Court agreed with the CA that the quitclaim executed by Mahilum did not operate to bar a cause of action for illegal dismissal. The amounts received by Mahilum were only those owing to him under the law, which bolstered the fact that the quitclaim was executed without consideration. The quitclaim could not be considered a valid and binding undertaking.

• Commissions: The Court distinguished Phil Duplicators, Inc. vs. NLRC, where salesmen's commissions comprising a predetermined percentage of the selling price of goods sold were included in the basic salary, from Boie-Takeda Chemicals, Inc. vs. De la Serna, where commissions paid as productivity bonuses were excluded. In Mahilum's case, his position as Vice-President for Sales and Marketing constrained the Court to hold that the 0.25% commission based on monthly sales and cash payments came in the nature of overriding commission, not sales commission. Not being a salesman who directly effected any sale, the commission partook of the nature of profit-sharing business based on quota, with no clear, direct, or necessary relation to the amount of work he actually performed. Thus, Mahilum's backwages were pegged at his basic salary, excluding the commissions.

• Damages: The Court deleted the awards of moral and exemplary damages, reiterating that moral damages are recoverable where the dismissal was attended by bad faith or fraud or constituted an act oppressive to labor, and exemplary damages may be awarded if the dismissal was effected in a wanton, oppressive, or malevolent manner. No evidence thereof was presented. However, Mahilum was entitled to attorney's fees of ten percent of his total monetary award, having been forced to litigate to seek redress of his grievances, as provided in Article 111 of the Labor Code.

• Probationary Employment and Regularization — Under Article 281 of the Labor Code, probationary employment shall not exceed six months from the date the employee started working, unless covered by an apprenticeship agreement stipulating a longer period. An employee who is allowed to work after a probationary period shall be considered a regular employee. The Court applied this doctrine to hold that Mahilum, having served eight months, became a regular employee entitled to security of tenure.

• Loss of Trust and Confidence — For the doctrine of loss of trust and confidence to justify dismissal, the act complained of must be work-related. The Court held that Mahilum's designation as chairman of the inauguration did not form part of his duty as a supervisor engaged for sales and marketing, and thus the charge of loss of trust and confidence had no basis.

• Quitclaim Validity — A quitclaim is void for lack of consideration when the employee receives only amounts he was legally entitled to, such as salaries, 13th month pay, and commissions. These cannot be considered reasonable and credible consideration for a quitclaim, rendering it void and ineffective to bar an action for illegal dismissal.

• Backwages and Commissions — Backwages are granted on grounds of equity to workers for earnings lost due to illegal dismissal, representing reparation based on earnings the employee would have obtained by virtue of a lawful decree or order or by rightful expectation. The outstanding feature of backwages is the degree of assuredness to an employee that he would have had them as earnings had he not been illegally terminated. Commissions in the nature of overriding commissions or profit-sharing payments, with no clear, direct, or necessary relation to the amount of work actually performed, are not properly includable in basic salary.

• "An employee who is allowed to work after a probationary period shall be considered a regular employee." — This quotation from Article 281 of the Labor Code, as applied by the Court, forms the basis for holding that Mahilum, having served eight months beyond the six-month probationary period, became a regular employee entitled to security of tenure.

• "The outstanding feature of backwages is thus the degree of assuredness to an employee that he would have had them as earnings had he not been illegally terminated from his employment." — This passage defines the controlling principle for determining what constitutes backwages, distinguishing assured earnings from speculative commissions.

• "Not being a salesman who directly effected any sale of a product, the commission embodied in the agreement partook of the nature of profit-sharing business based on quota." — This statement articulates the Court's rationale for excluding the 0.25% commission from the computation of Mahilum's backwages, distinguishing overriding commissions from sales commissions.

• CALS Poultry Supply Corporation vs. Roco, 434 Phil. 720 (2002) — Followed for the rule that the computation of the 6-month probationary period is reckoned from the date of appointment up to the same calendar date of the 6th month following.
• Phil Duplicators, Inc. vs. NLRC, G.R. No. 110068, November 11, 1993, 227 SCRA 747 — Distinguished; held that salesmen's commissions comprising a predetermined percentage of the selling price of goods sold form part of basic salary, but not applicable to Mahilum who was not a salesman directly effecting sales.
• Boie-Takeda Chemicals, Inc. vs. De la Serna, G.R. Nos. 92174 and 102552, December 10, 1993, 228 SCRA 329 — Followed; commissions paid as productivity bonuses closely resembling profit-sharing payments, with no clear direct or necessary relation to the amount of work done, are excluded from basic salary.
• Equitable Banking Corporation vs. Sadac, 523 Phil. 781 (2006) — Cited for the definition of backwages as reparation for illegal dismissal based on earnings the employee would have obtained by virtue of a lawful decree or order or by rightful expectation.
• Nacar vs. Gallery Frames, G.R. No. 189871, August 13, 2013, 703 SCRA 439 — Followed for the rule that monetary awards earn legal interest at the rate of six percent per annum.
• Triple Eight Integrated Services, Inc. vs. NLRC, 359 Phil. 955 (1998) — Cited for the rule that moral damages are recoverable where dismissal was attended by bad faith or fraud, and exemplary damages may be awarded if dismissal was effected in a wanton, oppressive, or malevolent manner.
• VMC Rural Electric Service Cooperative, Inc. vs. Court of Appeals, 535 Phil. 345 (2006) — Cited for the rule that certiorari under Rule 65 cannot substitute for a lost appeal under Rule 45.
• Tagle vs. Equitable PCI Bank, 575 Phil. 384 (2008) — Cited for the exceptions allowing a petition for certiorari to be treated as a petition for review on certiorari.

• Article 279, Labor Code — Security of tenure provision; applied to determine that Mahilum, as a regular employee, could only be dismissed for just cause or authorized causes, and that an employee unjustly dismissed is entitled to reinstatement, full backwages, and other benefits.
• Article 281, Labor Code — Probationary employment provision; applied to hold that probationary employment shall not exceed six months, and an employee allowed to work after a probationary period is considered a regular employee.
• Article 282, Labor Code — Termination by employer provision; applied to enumerate the just causes for termination, including serious misconduct, willful disobedience, gross and habitual neglect, fraud or willful breach of trust, and other analogous causes.
• Article 111, Labor Code — Attorney's fees provision; applied to award Mahilum attorney's fees equivalent to ten percent of the amount of wages recovered, having been forced to litigate to seek redress of his grievances.
• Rule 45, 1997 Rules of Civil Procedure — Petition for review on certiorari provision; applied to determine that the proper remedy to assail a CA decision is a petition for review under Rule 45, not certiorari under Rule 65.
• Rule 65, 1997 Rules of Civil Procedure — Certiorari provision; applied to determine that certiorari will not prosper where an appeal is available, even if the ground is grave abuse of discretion.

Presbitero J. Velasco, Jr. (Chairperson), Diosdado M. Peralta, Martin S. Villarama, Jr. (Designated Acting Member per Special Order No. 1691 dated May 22, 2014), and Marvic Mario Victor F. Leonen.