Sandigan Savings and Loan Bank, Inc. vs. National Labor Relations Commission

The existence of an employer-employee relationship, particularly regular employment, is determined primarily by the "right of control test"—whether the hiring party controls not only the result of the work but also the means and methods by which it is accomplished. Where such control is absent, as in the case of a realty sales agent paid on commission and free to adopt her own methods, the relationship is that of an independent contractor, not employment. Consequently, an illegally dismissed regular employee is entitled to reinstatement and full backwages from the time compensation was withheld until actual reinstatement, pursuant to Article 279 of the Labor Code as amended by R.A. No. 6715.

Private respondent Anita Javier initially worked as a realty sales agent for petitioner Sandigan Realty Development Corporation from 1982 to 1986 under a commission-based arrangement. In 1986, she was hired as a marketing collector by petitioner Sandigan Savings and Loan Bank, whose president also headed the realty firm. She continued her realty sales work on the side. On April 20, 1990, the bank's president summarily dismissed her. Javier filed a complaint for illegal dismissal against both the bank and the realty corporation.

• Nature of Javier's Work for Sandigan Realty: From November 1982 to November 1986, Javier worked as a realty sales agent for Sandigan Realty. She was paid a 5% commission for each sale. If she made no sale, she received a monthly allowance of P500.00. After she became a bank employee in December 1986, she continued selling properties on the side but no longer received the monthly allowance.
• Employment with Sandigan Bank: On December 1, 1986, Javier was hired as a marketing collector for Sandigan Bank. Her latest salary and allowance, per a Notice of Salary Adjustment, were P1,840.00 and P510.00 per month, respectively.
• Circumstances of Dismissal: On April 20, 1990, the bank's president, Angel Andan, instructed his personnel officer to prepare Javier's termination papers, then changed it to a resignation letter. He told Javier not to ask for the reason, stating it was his decision. He also ordered a co-employee to give Javier her commission from the realty firm so she would not return.
• Post-Dismissal Actions: Javier reported for work the next day but left when she could not find her table. She subsequently filed an illegal dismissal complaint.
• Lower Court Findings: The Labor Arbiter found the dismissal illegal and ordered reinstatement with backwages, damages, and attorney's fees from both companies. The NLRC affirmed the finding of illegal dismissal but deleted damages and attorney's fees, awarding backwages and separation pay computed from both the bank and the realty corporation.

• Employer-Employee Relationship with Realty: Petitioners argued that Javier was not a regular employee of Sandigan Realty but an independent contractor. They contended the realty firm had no control over the means and methods of her sales work, as she was paid on commission, worked at her own pace, and selling was merely her sideline.
• Error in Computation: Petitioners contended the NLRC erred in computing the monetary award. They asserted the backwages should not be based on a monthly rate of P2,400.00 and that separation pay for six years from the bank was incorrect.

• Regular Employee Status: Private respondent Javier maintained she was a regular employee of both the bank and the realty corporation, having performed work necessary and desirable to both businesses.
• Entitlement to Reinstatement: In her Comment and Memorandum, Javier pressed for reinstatement to her former position, arguing there was no sufficient basis for granting separation pay in lieu thereof.

• Employer-Employee Relationship: Whether private respondent Javier was a regular employee of petitioner Sandigan Realty Development Corporation, entitling her to backwages and separation pay from it upon illegal dismissal.
• Proper Monetary Award: Whether the computation of the monetary award (backwages and separation pay) by the NLRC was correct in fact and in law.

• Employer-Employee Relationship: Javier was not a regular employee of Sandigan Realty but an independent contractor. The element of control was absent; the realty firm was only interested in the result of her work (sales), not the means and methods. She was free to adopt her own selling methods and time, paid by commission, and the work was a sideline. Consequently, she was not entitled to backwages or separation pay from the realty corporation.
• Proper Monetary Award: The NLRC's computation was erroneous. As an illegally dismissed regular employee of Sandigan Bank, Javier is entitled to reinstatement and full backwages from April 20, 1990 (date of dismissal) until actual reinstatement, pursuant to Article 279 of the Labor Code as amended by R.A. No. 6715. The backwages should be based on her latest monthly salary and allowance totaling P2,350.00. Earnings derived elsewhere during the period of dismissal should be deducted. The award of separation pay was improper absent a showing that reinstatement was impossible.

• Right of Control Test — The most determinative factor in establishing an employer-employee relationship is the hiring party's power to control the employee not only as to the result of the work but also as to the means and methods by which the result is accomplished. Where such control is lacking, as when a worker is free to determine the manner and schedule of work and is paid per result, the relationship is that of an independent contractor, not employment.
• Backwages Under Amended Article 279 — Following the amendment by R.A. No. 6715 (effective March 21, 1989), an illegally dismissed employee is entitled to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld until actual reinstatement. This superseded the prior "Mercury Drug Rule" which limited backwages to three years.

• "Where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means by which such end is reached, the relationship is deemed to exist. Stated differently, it is the power of control which is the most determinative factor."
• "The amendment to Art. 279 of the Labor Code introduced by Rep. Act No. 6715 inserted the qualification 'full' to the word 'backwages'. The intent of the law seems to be clear. The plain words of the statute provide that an employee who is unjustly dismissed is entitled to FULL backwages from the time of his dismissal to actual reinstatement."

• Cosmopolitan Funeral Homes, Inc. v. Maalat, 187 SCRA 108 (1990) — Cited to illustrate the application of the "right of control test" and the distinction between an employee and an independent contractor.
• Sara v. Agarrado, 166 SCRA 625 (1988) — Applied by analogy. A worker paid on commission who worked at her own pleasure and could delegate tasks was held to be an independent contractor.
• Beech v. de Guzman, 187 SCRA 773 (1990) — Another case where a worker earning on a per-talent commission basis and working on her own schedule was held to be an independent contractor.
• Pines City Educational Center v. NLRC, 227 SCRA 655 (1993) — Referenced in the concurring and dissenting opinion regarding the interpretation of "full backwages" under R.A. No. 6715.

• Article 279, Labor Code (as amended by R.A. No. 6715) — Provides that an unjustly dismissed employee is entitled to reinstatement without loss of seniority rights and to full backwages, inclusive of allowances and other benefits, computed from the time compensation was withheld up to actual reinstatement. This provision was applied to compute the backwages award in this case.

• Justice Santiago M. Kapunan
• Justice Jose C. Vitug
• Justice Bellosillo (First name not provided in text)

• Justice Padilla (concurring and dissenting) — Concurred with the finding of illegal dismissal and the application of Article 279 for backwages computation. However, dissented on the deduction of earnings derived elsewhere from the backwages. Argued that the law mandates "full backwages" without qualification or deduction, and that the principle of unjust enrichment does not apply given the law's clear language and pro-labor policy.