South East International Rattan, Inc. vs. Coming

The existence of an employer-employee relationship is determined by the four-fold test: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct, or the "control test." Failure to report an employee to the SSS and absence from payrolls that do not contain a true and complete list of employees are not conclusive proof of the absence of employer-employee relationship, and doubts reasonably arising from the evidence in controversies between a laborer and his master are resolved in favor of the laborer.

Petitioner South East International Rattan, Inc. (SEIRI) is a domestic corporation engaged in manufacturing and exporting furniture, with principal place of business at Paknaan, Mandaue City. Petitioner Estanislao Agbay is the President and General Manager of SEIRI. Respondent Jesus J. Coming claimed to have been hired as a Sizing Machine Operator on March 17, 1984, with a work schedule from 8:00 a.m. to 5:00 p.m. SEIRI was incorporated on July 18, 1986, and allegedly suspended operations from the last quarter of 1989 to August 1992. The dispute centers on whether respondent was an employee of SEIRI or of its furniture suppliers, Allan Mayol and Faustino Apondar.

Respondent Jesus J. Coming filed a complaint for illegal dismissal, underpayment of wages, non-payment of holiday pay, 13th month pay and service incentive leave pay against South East International Rattan, Inc. (SEIRI) and its President and General Manager, Estanislao Agbay. Respondent alleged that he was hired as Sizing Machine Operator on March 17, 1984, with a work schedule from 8:00 a.m. to 5:00 p.m. His compensation was initially on "pakiao" basis but was fixed at ₱150.00 per day in June 1984, paid weekly. In 1990, his employment was interrupted when he was told to resume work in two months; being uneducated, he was persuaded by management and his brother not to complain. He reported back to work after two months upon order of management. On January 1, 2002, respondent was dismissed without lawful cause, told that the company was not doing well financially and that he would be called back only if his services were needed again. When he waited for almost a year without being called back, he filed the complaint; his brother Vicente was used by management to persuade him to withdraw the case.

Petitioners denied having hired respondent, asserting that SEIRI was incorporated only in 1986, that respondent actually worked for SEIRI's furniture suppliers, and that respondent was not included in the list of employees submitted to the SSS. Petitioners presented Vicente Coming's affidavit stating that respondent worked for various other employers from 1982 to 1999, including Ben Mayol, Okay Okay Yard, Eleuterio Agbay, Dodoy Luna, and Allan Mayol, and only worked with Vicente for Faustino Apondar as a side line job. Allan Mayol and Faustino Apondar issued notarized certifications that respondent worked for them instead. Petitioners also submitted SEIRI's payrolls and individual pay records for 1999-2000, which did not include respondent's name, and the affidavit of SEIRI's Treasurer Angelina Agbay stating that respondent was never hired by SEIRI.

Respondent submitted an affidavit signed by five former co-workers — Eleoterio Brigoli, Pedro Brigoli, Napoleon Coming, Efren Coming, and Gil Coming — stating that respondent was one of the pioneer employees who worked in SEIRI for almost twenty years, that Agbay directly paid them and held absolute control of all aspects of their employment. The Labor Arbiter found that respondent's work as sizing machine operator was usually necessary and desirable to petitioners' rattan furniture business, and that failure to include respondent in the SSS employment report was not conclusive proof that he was not their employee. The NLRC reversed, giving weight to the certifications of Mayol and Apondar and Vicente Coming's affidavit. The CA reversed the NLRC, giving more credence to the five former employees' declarations, noting that the payrolls submitted covered only 1999-2000 and not the entire eighteen-year period, and that the names of the five affiants, whom petitioners admitted to be their former employees, likewise did not appear in those documents. The CA found that petitioners maintained a separate payroll for certain employees or willfully retained a portion of the payroll, and that the "control test" was satisfied by facts showing petitioners wielded control over respondent's work performance.

• Employer-Employee Relationship: Petitioners argued that no employer-employee relationship existed between them and respondent, asserting that SEIRI was incorporated only in 1986, that respondent actually worked for SEIRI's furniture suppliers Allan Mayol and Faustino Apondar, and that respondent was not included in the list of employees submitted to the SSS.
• Evidence Presented: Petitioners argued that the CA incorrectly appreciated the evidence, pointing to the SSS Employment Reports from 1987 to 2002, certifications issued by Mayol and Apondar, two affidavits of Vicente Coming, payroll sheets (1999-2000), individual pay envelopes and employee earnings records, and the affidavit of Angelina Agbay, all of which allegedly showed respondent was not their employee.
• Illegal Dismissal: Petitioners argued that the finding of illegal dismissal was not in accord with applicable law and jurisprudence because respondent was never their employee in the first place.
• Backwages Computation: Petitioners argued that the CA's ruling that backwages should be computed from the time of illegal termination until finality of the decision was not supported by prevailing jurisprudence.

• Regular Employment: Respondent argued that he was a regular employee of SEIRI, having worked there for almost twenty years as a pioneer employee, and that his termination on January 1, 2002 was without lawful cause.
• Supporting Affidavit: Respondent submitted an affidavit signed by five former co-workers attesting that he was their co-worker at SEIRI, that Agbay directly paid them and held absolute control of all aspects of their employment, and that respondent was one of the pioneer employees of SEIRI.

• Employer-Employee Relationship: Whether the Court of Appeals' finding that an employer-employee relationship existed between petitioners and respondent is in accord with law and applicable decisions of the Supreme Court.
• Appreciation of Evidence: Whether the Court of Appeals correctly appreciated in accordance with applicable law and jurisprudence the evidence presented by both parties.
• Illegal Dismissal: Whether the Court of Appeals' finding that petitioners are liable for illegal dismissal of respondent is in accord with applicable law and jurisprudence.
• Backwages Computation: Whether the Court of Appeals' ruling that backwages due respondent should be computed from the time of illegal termination until finality of the decision is supported by prevailing jurisprudence.

• Employer-Employee Relationship: Yes. The four-fold test was satisfied, and substantial evidence supported the finding that respondent was a regular employee of SEIRI. The Court affirmed the CA's application of the four-fold test, which showed that petitioners selected and engaged respondent, paid his wages, had the power to dismiss him, and controlled his conduct.
• Appreciation of Evidence: Yes. The CA correctly appreciated the evidence. Failure to report respondent to the SSS and his absence from payrolls covering only 1999-2000 did not negate the existence of employer-employee relationship, and petitioners failed to prove that Mayol and Apondar were independent contractors.
• Illegal Dismissal: Yes. Respondent, as a regular employee, enjoyed security of tenure under Article 279 of the Labor Code and could only be dismissed for just or authorized cause; his dismissal without valid cause was illegal.
• Backwages Computation: Yes. Where reinstatement is no longer viable, backwages shall be computed from the time of illegal termination up to the finality of the decision, and separation pay equivalent to one month salary for every year of service should be awarded as an alternative.

• Employer-Employee Relationship: The Court noted that the issue of whether an employer-employee relationship exists is essentially a question of fact, and while the Court is not a trier of facts, it may look into factual issues in labor cases when the factual findings of the Labor Arbiter, the NLRC, and the CA are conflicting. Here, the findings of the NLRC differed from those of the Labor Arbiter and the CA, compelling the Court's exercise of its authority to review the evidence. The Court applied the four-fold test: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct, or the "control test." Substantial evidence — that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion — is sufficient to prove the existence of the relationship. The CA found that petitioners wielded control over respondent's work performance based on facts showing they required him to work within company premises, obliged him to report daily and perform the same job, enforced definite hours of work from 8:00 a.m. to 5:00 p.m., exercised discretion over the mode of payment, implemented company rules and regulations, and that Agbay directly paid respondent's salaries and controlled all aspects of his employment. The Court affirmed the CA's findings.
• Appreciation of Evidence: The Court cited Tan vs. Lagrama for the rule that the fact that a worker was not reported as an employee to the SSS is not conclusive proof of the absence of employer-employee relationship; otherwise, an employer would be rewarded for his failure or neglect to perform his obligation. Nor does the absence of respondent's name from the payrolls negate the relationship, for a payroll to be utilized to disprove employment must contain a true and complete list of employees. The payrolls submitted by petitioners covered only 1999 and 2000, not the entire eighteen-year period respondent claimed to have worked for SEIRI. The certifications of Mayol and Apondar showed that respondent's services to them were not regular and were only "off and on" basis, which did not foreclose respondent's regular or full-time employment with SEIRI. Petitioners failed to present competent proof that Mayol and Apondar were independent contractors. Petitioners' admission that the five affiants were their former employees was binding upon them, and their allegation that the affiants were "disgruntled workers" with an axe to grind was not substantiated. The Court also noted that petitioners changed their theory in their motion for reconsideration by denying employment relationship with the five affiants, which contradicted their earlier admission.
• Illegal Dismissal: As a regular employee, respondent enjoyed the right to security of tenure under Article 279 of the Labor Code and could only be dismissed for a just or authorized cause, otherwise the dismissal becomes illegal. Respondent's employment was terminated without valid cause by petitioners, entitling him to reinstatement without loss of seniority rights and other privileges and to full back wages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time his compensation was withheld from him up to the time of his actual reinstatement. Where reinstatement is no longer viable as an option, back wages shall be computed from the time of the illegal termination up to the finality of the decision. Separation pay equivalent to one month salary for every year of service should likewise be awarded as an alternative in case reinstatement is not possible.
• Backwages Computation: The Court affirmed the CA's ruling that backwages should be computed from the time of illegal termination until the finality of the decision, citing CRC Agricultural Trading vs. National Labor Relations Commission and other jurisprudence. This is the proper rule where reinstatement is no longer viable.

• Four-Fold Test for Employer-Employee Relationship — The existence of an employer-employee relationship is determined by: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee's conduct, or the "control test." The Court applied this test and found that all elements were satisfied, particularly the control test, based on facts showing petitioners required respondent to work within company premises, enforced definite hours of work, exercised discretion over the mode of payment, implemented company rules, and directly paid respondent's salaries.
• Substantial Evidence Rule — Substantial evidence — that amount of relevant evidence which a reasonable mind might accept as adequate to justify a conclusion — is sufficient to prove the existence of an employer-employee relationship. Although no particular form of evidence is required, a finding that the relationship exists must rest on substantial evidence. The Court found that the five former co-workers' affidavit constituted substantial evidence supporting respondent's claim.
• Non-Conclusive Effect of SSS Non-Reporting — The fact that a worker was not reported as an employee to the SSS is not conclusive proof of the absence of employer-employee relationship; otherwise, an employer would be rewarded for his failure or even neglect to perform his obligation. Similarly, absence from payrolls does not negate employment where the payroll does not contain a true and complete list of employees.
• Resolution of Doubts in Favor of Labor — In any controversy between a laborer and his master, doubts reasonably arising from the evidence are resolved in favor of the laborer. This principle was applied in affirming the finding of employer-employee relationship and illegal dismissal.

• "In Tan v. Lagrama, the Court held that the fact that a worker was not reported as an employee to the SSS is not conclusive proof of the absence of employer-employee relationship. Otherwise, an employer would be rewarded for his failure or even neglect to perform his obligation." — This passage states the controlling rule on the non-conclusive effect of SSS non-reporting, which was central to the Court's rejection of petitioners' defense.
• "Nor does the fact that respondent's name does not appear in the payrolls and pay envelope records submitted by petitioners negate the existence of employer-employee relationship. For a payroll to be utilized to disprove the employment of a person, it must contain a true and complete list of the employee." — This passage articulates the rule on the evidentiary value of payrolls in disproving employment, emphasizing the requirement of completeness.
• "In any controversy between a laborer and his master, doubts reasonably arising from the evidence are resolved in favor of the laborer." — This passage states the canonical principle of resolving doubts in favor of labor, which underpinned the Court's affirmance of the CA's ruling.
• "As a regular employee, respondent enjoys the right to security of tenure under Article 279 of the Labor Code and may only be dismissed for a just or authorized cause, otherwise the dismissal becomes illegal." — This passage defines the legal consequence of regular employment status and the basis for the finding of illegal dismissal.

• Tan vs. Lagrama, 436 Phil. 190 (2002) — Controlling precedent for the rule that failure to report an employee to the SSS is not conclusive proof of the absence of employer-employee relationship; cited to support the Court's rejection of petitioners' defense.
• Opulencia Ice Plant and Storage vs. NLRC, G.R. No. 98368, December 15, 1993, 228 SCRA 473 — Cited for the rule that a payroll must contain a true and complete list of employees to be utilized to disprove employment.
• Masing and Sons Development Corporation vs. Rogelio, G.R. No. 161787, July 27, 2011, 654 SCRA 490 — Cited for the substantial evidence rule in labor cases and the principle that doubts are resolved in favor of the laborer.
• CRC Agricultural Trading vs. National Labor Relations Commission, G.R. No. 177664, December 23, 2009, 609 SCRA 138 — Cited for the rule on computation of backwages from illegal termination until finality of the decision where reinstatement is no longer viable.
• Atok Big Wedge Company, Inc. vs. Gison, G.R. No. 169510, August 8, 2011, 655 SCRA 193 — Cited for the four-fold test in determining the existence of an employer-employee relationship.

• Article 279, Labor Code of the Philippines — Security of Tenure provision stating that in cases of regular employment, the employer shall not terminate the services of an employee except for a just cause or when authorized by the Title; an employee who is unjustly dismissed is entitled to reinstatement without loss of seniority rights and other privileges and to full backwages, inclusive of allowances and other benefits or their monetary equivalent, computed from the time his compensation was withheld up to the time of actual reinstatement. The Court applied this provision to hold that respondent's dismissal without valid cause was illegal.
• Articles 282, 283, and 284, Labor Code of the Philippines — Provisions on just and authorized causes for termination of employment. The Court noted that respondent could only be dismissed for a just or authorized cause under these provisions, otherwise the dismissal becomes illegal.
• Section 5, Rule 133, Rules of Court — Substantial evidence rule, cited in relation to the quantum of evidence required to prove the existence of an employer-employee relationship.

Chief Justice Maria Lourdes P. A. Sereno (Chairperson), Associate Justice Teresita J. Leonardo-de Castro, Associate Justice Lucas P. Bersamin, and Associate Justice Bienvenido L. Reyes concurred in the decision.