Social Security Commission vs. Rizal Poultry and Livestock Association, Inc., et al.

A final judgment of the NLRC, affirmed by the Court of Appeals, finding no employer-employee relationship between the parties, is conclusive on the Social Security Commission under res judicata by conclusiveness of judgment, even if the SSC case is for non-remittance of SSS contributions and the labor case was for illegal dismissal, because the issue of employer-employee relationship is common and identity of cause of action is not required.

Alberto Angeles claimed employment with BSD Agro Industrial Development Corporation and/or its owner Benjamin San Diego, and later impleaded Rizal Poultry and Livestock Association, Inc. in proceedings before the Social Security Commission. The Social Security Act of 1997 requires compulsory SSS coverage of employees and remittance of contributions by employers, but such coverage depends on the existence of an employer-employee relationship. A prior labor case for illegal dismissal had already resolved whether such a relationship existed between Angeles and the respondents.

Alberto Angeles claimed to have been employed by BSD Agro Industrial Development Corporation and/or its owner Benjamin San Diego from 1985 to 1997. He had earlier filed a complaint for illegal dismissal against BSD Agro and/or San Diego. The Labor Arbiter initially found that Angeles was an employee and that he had been illegally dismissed. On appeal, however, the NLRC reversed the Labor Arbiter and held that no employer-employee relationship existed between Angeles and the respondents. The NLRC anchored its ruling on the finding that the duties performed by Angeles—carpentry, plumbing, painting, and electrical works—were not independent and integral steps in the essential operations of the company, which was engaged in the poultry business. Angeles elevated the case to the Court of Appeals via petition for certiorari; the appellate court affirmed the NLRC ruling and upheld the absence of employer-employee relationship. Angeles moved for reconsideration, but it was denied. No further appeal was undertaken, and an entry of judgment was made on May 26, 2001.

Thereafter, Angeles filed a petition before the Social Security Commission to compel Rizal Poultry and Livestock Association, Inc. or BSD Agro to remit to the Social Security System all contributions due for and in his behalf. Respondents countered with a motion to dismiss citing the rulings of the NLRC and the Court of Appeals regarding the absence of employer-employee relationship between Angeles and the respondents.

The SSC did not take the NLRC decision into consideration. In an Order dated February 19, 2002, it denied the motion to dismiss. The SSC reasoned that decisions of the NLRC and other tribunals on the issue of employer-employee relationship were not binding on the Commission; at most, such finding had only persuasive effect and did not constitute res judicata. While the parties before the NLRC and in the SSC case were the same, the issues and subject matter were entirely different: the labor case was for illegal dismissal with demands for backwages and other monetary claims, while the SSC action was for remittance of unpaid SSS contributions. The causes of action were not identical, one being for violation of the Labor Code and the other for violation of the SSS Law. The SSC added that factual matters should not weigh in resolving a motion to dismiss based on failure to state a cause of action, and that Angeles had categorically alleged employment from 1985 to 1997. Respondents' motion for reconsideration was denied on June 11, 2002, with the SSC reiterating that res judicata did not apply because of the absence of the indispensable element of identity of cause of action.

Respondents then sought recourse before the Court of Appeals by way of a petition for certiorari. The Court of Appeals reversed the SSC and held that there was a common issue between the cases before the SSC and the NLRC: whether there existed an employer-employee relationship between Angeles and the respondents. The case thus fell squarely under the principle of res judicata, particularly the rule on conclusiveness of judgment, as enunciated in Smith Bell and Co. vs. Court of Appeals. The Court of Appeals ordered the dismissal of SSC Case No. 9-15225-01. After denial of its motion for reconsideration in a Resolution dated February 9, 2005, the SSC filed the instant petition.

• Res Judicata / Conclusiveness of Judgment: The Social Security Commission maintained that the prior judgment of the NLRC and Court of Appeals finding no employer-employee relationship did not have the force of res judicata, whether as bar by prior judgment or as conclusiveness of judgment, because the labor dispute and the SSC claim did not proceed from the same cause of action; the SSC action was for non-remittance of SSS contributions while the NLRC case was for illegal dismissal.
• Identity of Parties: The SSC argued that identity of parties was unavailing because the SSS intervened and Rizal Poultry was added as a respondent in the SSC case; there was no showing that BSD Agro and Rizal Poultry referred to the same juridical entity, so the finding of absence of employer-employee relationship between BSD Agro and Angeles could not automatically extend to Rizal Poultry.
• Evidence and Merits: The SSC claimed that the evidence submitted in the SSC case was different from that adduced in the NLRC case, and that instead of ordering dismissal, the Court of Appeals should have allowed the SSC to resolve the case on its merits by applying the Social Security Act of 1997.
• Propriety of Dismissal: The SSC assailed the order of dismissal of the case lodged before it.

• Res Judicata / Conclusiveness of Judgment: Respondents asserted that the findings of the NLRC were conclusive upon the SSC under the principle of res judicata and in line with Smith Bell vs. Court of Appeals.
• Substantial Identity of Parties: Respondents argued that there was substantially an identity of parties in the NLRC and SSC cases because Angeles himself, in his petition, treated Rizal Poultry, BSD Agro, and San Diego as one and the same entity.
• Definition of Employee: Respondents opposed the SSC's view that the evidence to prove the existence of employer-employee relationship before the NLRC and the SSS were entirely different; they opined that the definition of an employee always proceeds from the existence of an employer-employee relationship.

• Res Judicata / Conclusiveness of Judgment: Whether the decision of the NLRC and the Court of Appeals, finding no employer-employee relationship, constitutes res judicata as a rule on conclusiveness of judgment so as to preclude the relitigation of the issue of employer-employee relationship in a subsequent case filed before the Social Security Commission.
• Power of the Court of Appeals to Order Dismissal: Whether the Court of Appeals may order outright the dismissal of the SSC case in the certiorari proceedings before it.

• Res Judicata / Conclusiveness of Judgment: Yes. The NLRC and Court of Appeals finding of no employer-employee relationship is conclusive on the SSC under res judicata by conclusiveness of judgment; identity of cause of action is not required, and identity of issue suffices.
• Power of the Court of Appeals to Order Dismissal: Yes. The Court of Appeals may order the outright dismissal of the SSC case because the final NLRC judgment is binding on the SSC and the relief sought is inextricably related to the ruling that no employer-employee relationship existed.

• Res Judicata / Conclusiveness of Judgment: Res judicata embraces two concepts: bar by prior judgment under Rule 39, Section 47(b), and conclusiveness of judgment under Rule 39, Section 47(c). Bar by prior judgment requires identity of parties, subject matter, and causes of action, and absolutely bars the second action. Conclusiveness of judgment applies where there is identity of parties but no identity of causes of action; the first judgment is conclusive only as to matters actually and directly controverted and determined, and any right, fact, or matter in issue directly adjudicated or necessarily involved in the first action is conclusively settled and cannot be relitigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. Identity of cause of action is not required; identity of issue suffices. The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be, as between the first and second action, identity of parties, subject matter, and causes of action. If identity of parties, subject matter, and causes of action is shown, bar by prior judgment applies; if only identity of parties is shown but not identical causes of action, conclusiveness of judgment applies. Here, the NLRC ruling was affirmed by the Court of Appeals, duly promulgated, and became final and executory when no appeal was undertaken within the reglementary period; the NLRC, a quasi-judicial body, had undisputed jurisdiction, as did the Court of Appeals; and the NLRC case was decided on the merits, as was the Court of Appeals' affirmance. On identity of parties, strict identity is not required; substantial identity suffices. There is substantial identity when there is a community of interest between a party in the first case and a party in the second, even if the latter was not impleaded in the first. Although Rizal Poultry was impleaded as an additional respondent in the SSC case, BSD Agro, Rizal Poultry, and San Diego were litigating under one and the same entity before both the NLRC and the SSC. Angeles admitted before the NLRC that he was employed by BSD Agro and San Diego from 1985 until 1997, and made a similar claim in his SSC petition including Rizal Poultry as employer. He presented an Identification Card and a Job Order before the SSC to prove employment in Rizal Poultry, and clarified in his opposition to the motion to dismiss that he failed to adduce these before the NLRC even if they would have proven his employment with BSD Agro. Most significantly, the three respondents litigated as one entity before the SSC, represented by one counsel and submitting their pleadings as such one entity. At the very least, a community of interest existed among them, so there was substantial if not actual identity of parties. On identity of issue, the remittance of SSS contributions is mandated by Section 22(a) of the Social Security Act of 1997, but mandatory coverage under the Act is premised on the existence of an employer-employee relationship, as evident from Section 9(a), and Section 8(d) defines an employee as one who performs services for an employer using mental or physical efforts and receives compensation where there is an employer-employee relationship. The illegal dismissal case before the NLRC involved an inquiry into the existence or non-existence of an employer-employee relationship, and the very same inquiry was needed in the SSC case. There was no indication of an essential conceptual difference between the definition of "employee" under the Labor Code and the Social Security Act. Thus, res judicata in the concept of conclusiveness of judgment applied, and the NLRC judgment finding an absence of employer-employee relationship between Angeles and respondents was conclusive on the SSC case. Smith Bell and Co. vs. Court of Appeals was a case in point: Smith Bell availed of the services of private respondents to transport cargoes; cases were filed for illegal dismissal before the NLRC and with the SSC to direct Smith Bell to report all private respondents to the SSS for coverage; while the SSC case was pending before the Court of Appeals, Smith Bell presented the Supreme Court resolution affirming the NLRC, Secretary of Labor, and Court of Appeals finding that no employer-employee relationship existed; the Court granted Smith Bell's petition and ordered dismissal of the SSC case, holding that the controversy was squarely covered by res judicata, particularly conclusiveness of judgment, because the relief sought in the SSC case was inextricably related to the ruling that private respondents were not employees of Smith Bell. Co vs. People likewise applied: an information was filed against Co for violation of the Social Security Act for non-remittance of SSS contributions; earlier, respondent spouses had filed a labor case for illegal dismissal and the NLRC finally ruled that there was no employer-employee relationship; the Court applied Smith Bell and declared that the final and executory NLRC decision that respondent spouses were not employees of petitioner was binding in the case for violation of the Social Security Act, and that conclusiveness of judgment also applies in criminal cases. Applying the rule, the Court of Appeals aptly ruled that the common issue was whether there existed an employer-employee relationship, that the issue was laid to rest in CA G.R. SP No. 55383 through the Court's Decision dated October 27, 2000, which had long attained finality, and that the relief sought in SSC Case No. 9-15225-01 was inextricably related to the ruling that Angeles was not an employee of petitioners. The NLRC decision on the absence of employer-employee relationship being binding in the SSC case, the dismissal by the Court of Appeals of the SSC case was affirmed.
• Power of the Court of Appeals to Order Dismissal: Because the NLRC decision on the absence of employer-employee relationship was binding on the SSC under res judicata by conclusiveness of judgment, the Court of Appeals did not err in ordering the outright dismissal of SSC Case No. 9-15225-01 in the certiorari proceedings before it. The relief sought in the SSC case was inextricably related to the final ruling that no employer-employee relationship existed, and the SSC could not relitigate that issue. The petition was accordingly denied and the Court of Appeals decision and resolution were affirmed.

• Res Judicata — A final judgment may bar a subsequent action either as bar by prior judgment or as conclusiveness of judgment. The elements are: (1) the judgment sought to bar the new action must be final; (2) the decision must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the disposition of the case must be a judgment on the merits; and (4) there must be, as between the first and second action, identity of parties, subject matter, and causes of action. In this case, the NLRC and Court of Appeals judgment was final, rendered with jurisdiction, and on the merits; the Court applied res judicata in its conclusiveness-of-judgment aspect.
• Conclusiveness of Judgment — Where there is identity of parties in the first and second cases but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. Any right, fact, or matter in issue directly adjudicated or necessarily involved in the determination of an action before a competent court is conclusively settled and cannot again be litigated between the parties and their privies, whether or not the claim, demand, purpose, or subject matter of the two actions is the same. Identity of cause of action is not required; identity of issue suffices. The Court applied this because the common issue was the existence of an employer-employee relationship.
• Substantial Identity of Parties — Res judicata does not require absolute identity of parties; substantial identity suffices. There is substantial identity when there is a community of interest between a party in the first case and a party in the second case, even if the latter was not impleaded in the first. The Court found substantial, if not actual, identity among BSD Agro, Rizal Poultry, and San Diego because they litigated as one entity, were represented by one counsel, and submitted pleadings as one entity.
• Employer-Employee Relationship as Precondition to SSS Coverage — Mandatory coverage under the Social Security Act is premised on the existence of an employer-employee relationship. Section 8(d) defines an employee as any person who performs services for an employer in which either or both mental or physical efforts are used and who receives compensation for such services, where there is an employer-employee relationship. The illegal dismissal case before the NLRC and the SSC case both required the same inquiry into the existence or non-existence of that relationship, and the text disclosed no essential conceptual difference between the definition of "employee" under the Labor Code and the Social Security Act.
• Binding Effect of Final Labor Case on SSC Case — A final and executory NLRC decision, affirmed by the Court of Appeals, finding no employer-employee relationship is binding on the SSC in a subsequent case for remittance of SSS contributions, because the relief sought is inextricably related to the ruling on the absence of employer-employee relationship. The doctrine of conclusiveness of judgment also applies in criminal cases for violation of the Social Security Act, as held in Co vs. People.

• "There is "bar by prior judgment" when, as between the first case where the judgment was rendered and the second case that is sought to be barred, there is identity of parties, subject matter, and causes of action. In this instance, the judgment in the first case constitutes an absolute bar to the second action." — This defines bar by prior judgment, the first aspect of res judicata, and explains its absolute preclusive effect when the three identities concur.
• "But where there is identity of parties in the first and second cases, but no identity of causes of action, the first judgment is conclusive only as to those matters actually and directly controverted and determined and not as to matters merely involved therein. This is the concept of res judicata known as "conclusiveness of judgment."" — This states the controlling doctrine applied by the Court, distinguishing conclusiveness of judgment from bar by prior judgment and supplying the rule that resolved the SSC case.
• "There is substantial identity of parties when there is a community of interest between a party in the first case and a party in the second case, even if the latter was not impleaded in the first case." — This is the canonical formulation of substantial identity of parties, which the Court used to treat BSD Agro, Rizal Poultry, and San Diego as substantially identical parties despite Rizal Poultry not being impleaded in the NLRC case.
• "The judgment in the NLRC case pertaining to a finding of an absence of employer-employee relationship between Angeles and respondents is conclusive on the SSC case." — This is the ratio decidendi: it directly states the preclusive effect of the final NLRC and Court of Appeals finding on the Social Security Commission's proceedings.

• Smith Bell and Co. vs. Court of Appeals, G.R. No. 59692, 11 October 1990, 190 SCRA 362 — The Court described this as a case in point and applied its ruling that a final NLRC finding of no employer-employee relationship barred a subsequent SSC case for SSS coverage under res judicata by conclusiveness of judgment.
• Co vs. People, G.R. No. 160265, 13 July 2009, 592 SCRA 381 — The Court cited this as a fairly recent case and applied Smith Bell; held that a final NLRC decision that respondent spouses were not employees bound the case for violation of the Social Security Act, and that the doctrine applies in criminal cases.
• Oropeza Marketing Corporation vs. Allied Banking Corporation, 441 Phil. 551, 564-565 (2002) — Cited for the elements of res judicata, which the Court used to test whether the NLRC judgment barred the SSC case.
• Development Bank of the Philippines vs. Court of Appeals, 409 Phil. 717, 731 (2001) — Cited for the rule on substantial identity of parties and community of interest, which the Court applied to Rizal Poultry, BSD Agro, and San Diego.
• Chua vs. Court of Appeals, 483 Phil. 126, 136 (2004), citing Social Security System vs. Court of Appeals, 401 Phil. 132, 141 (2000) — Cited for the rule that mandatory coverage under the Social Security Act is premised on the existence of an employer-employee relationship.
• Noceda vs. Arbizo-Directo, G.R. No. 178495, 26 July 2010, 625 SCRA 472, 479 — Cited for the rule that identity of cause of action is not required for conclusiveness of judgment, and that identity of issue suffices.

• Rule 39, Section 47(b), Rules of Civil Procedure — This provision embodies res judicata as bar by prior judgment, which requires identity of parties, subject matter, and causes of action and absolutely bars the second action. The Court distinguished it from the present case because the labor case and the SSC case did not have identical causes of action.
• Rule 39, Section 47(c), Rules of Civil Procedure — This provision embodies res judicata as conclusiveness of judgment, which applies where there is identity of parties but no identity of causes of action. The Court applied this provision because the common issue of employer-employee relationship had already been adjudicated in the NLRC case.
• Section 22(a), Social Security Act of 1997 — This provision mandates the remittance of SSS contributions by employers and imposes a penalty of three percent per month for non-payment. The Court cited it to show that the SSC case concerned remittance of contributions, but that coverage still depended on the existence of an employer-employee relationship.
• Section 9(a), Social Security Act of 1997 — This provision makes SSS coverage compulsory upon all employees not over sixty years of age and their employers. The Court cited it to establish that mandatory coverage under the Act is premised on the existence of an employer-employee relationship.
• Section 8(d), Social Security Act of 1997 — This provision defines an employee as any person who performs services for an employer in which either or both mental or physical efforts are used and who receives compensation for such services, where there is an employer-employee relationship. The Court cited it to compare the definition of employee under the Social Security Act with that under the Labor Code and to conclude that the same inquiry was required in both cases.

Renato C. Corona (Chief Justice and Chairperson), Presbitero J. Velasco, Jr., Teresita J. Leonardo-De Castro, and Diosdado M. Peralta.