Tan vs. Lagrama

A worker paid on a fixed piece-work basis may still be a regular employee where the employer exercises control over the means and methods of the work, supplies the workplace and materials, and admits the right to hire and fire. Piece-rate payment is merely a method of computing compensation and does not determine the existence or absence of an employer-employee relationship.

Petitioner Rolando Tan was the president of Supreme Theater Corporation and general manager of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo Lagrama was a painter who produced ad billboards and murals for motion pictures shown at the Empress, Supreme, and Crown Theaters. The dispute arose from Tan's termination of Lagrama's services after accusing him of urinating in his work area, and the central legal question was whether Lagrama was Tan's employee or an independent contractor, and whether his dismissal was lawful.

Petitioner Rolando Tan was the president of Supreme Theater Corporation and the general manager of Crown and Empire Theaters in Butuan City. Private respondent Leovigildo Lagrama was a painter who made ad billboards and murals for the motion pictures shown at the Empress, Supreme, and Crown Theaters. He rendered such services for more than ten years, from September 1, 1988 to October 17, 1998.

On October 17, 1998, Tan summoned Lagrama and upbraided him, accusing him of urinating inside his work area. When Lagrama asked what Tan was saying, Tan told him not to argue, that he did not want him to draw anymore, and ordered him to get out. Lagrama denied the charge, claiming he was not the only one who entered the drawing area and that even if the charge were true, it was a minor infraction not warranting dismissal. Every time Lagrama tried to speak, Tan shouted "Get out," leaving him no choice but to leave the premises.

Lagrama thereafter filed a complaint with the Sub-Regional Arbitration Branch No. X of the NLRC in Butuan City, alleging illegal dismissal and seeking payment of 13th month pay, service incentive leave pay, salary differential, and damages. Tan denied that Lagrama was his employee, asserting that Lagrama was an independent contractor who performed his work according to his own methods, while Tan was interested only in the result. Tan cited Lagrama's admission that he was paid on a fixed piece-work basis — paid for every painting turned out as an ad billboard or mural, on a "no mural/billboard drawn, no pay" policy. Tan submitted affidavits from other cinema owners, an amusement park owner, and church construction supervisors to show that Lagrama's services were also contracted by them. He denied having dismissed Lagrama and alleged that it was Lagrama who refused to paint for him after being scolded.

Labor Arbiter Rogelio P. Legaspi rendered a decision on June 17, 1999 declaring Lagrama's dismissal illegal and ordering Tan to pay separation pay of P59,000.00, backwages of P47,200.00, 13th month pay of P17,700.00, service incentive leave pay of P2,949.99, and damages of P10,000.00, totaling P136,849.99. Tan appealed to the NLRC Fifth Division, which on June 30, 2000 reversed the Labor Arbiter and found Lagrama to be an independent contractor. Lagrama's motion for reconsideration was denied on September 29, 2000. He then filed a petition for certiorari under Rule 65 before the Court of Appeals, which found that Tan exercised control over Lagrama's work by dictating submission deadlines and setting rules on the use of the work area and rest room. The Court of Appeals held that Lagrama's work for other cinema owners was a mere sideline and found no evidence of any intention on his part to sever the employment relationship. On May 31, 2001, the Court of Appeals granted the petition, annulled the NLRC resolutions, and reinstated the Labor Arbiter's decision. Tan's motion for reconsideration was denied.

• Jurisdiction and Grave Abuse of Discretion: Petitioner argued that the Court of Appeals' decision was bereft of any finding that the NLRC lacked jurisdiction, exceeded its jurisdiction, or gravely abused its discretion in its resolution of June 30, 2000.
• Substitution of Judgment: Petitioner maintained that absent any positive finding that the NLRC resolution was not supported by substantial evidence, the Court of Appeals had no authority to substitute its conclusion for that of the NLRC.
• Misplaced Discourse on Freelance Artists: Petitioner argued that the Court of Appeals' discussion on "freelance artists and painters" was misplaced and had no factual or legal basis in the record.
• Unsupported Factual Findings: Petitioner contended that the Court of Appeals' statements regarding "employment," "monthly salary of P1,475.00," and "work schedule from Monday to Saturday, from 8:00 a.m. to 5:00 p.m." were not supported by the evidence on record.
• Inapplicability of Precedent: Petitioner argued that the case of Lambo vs. NLRC, 317 SCRA 420, relied upon by the Court of Appeals, was not applicable to the peculiar circumstances of this case.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between petitioner Tan and private respondent Lagrama.
• Illegal Dismissal: Whether petitioner Tan was guilty of illegally dismissing private respondent Lagrama.

• Employer-Employee Relationship: Yes. All four elements of the four-fold test were present: Tan engaged Lagrama's services, exercised control over the means and methods of his work, admitted the right to fire him, and paid him wages. Lagrama was a regular employee, not an independent contractor.
• Illegal Dismissal: Yes. The dismissal was without just cause and without due process. Tan failed to present evidence proving the alleged infraction, and Lagrama was denied the opportunity to be heard.

• Employer-Employee Relationship: The Court applied the four-fold test: (1) power of selection and engagement, (2) control over the means and methods of work, (3) power to dismiss, and (4) payment of wages. The first element was undisputed — Tan personally engaged Lagrama's services. As to the control test, the most important element, the evidence showed that Lagrama worked in a designated area inside the Crown Theater where Tan prescribed rules on cleanliness and hygiene, including a prohibition against urinating in the work area. Tan's control extended not only to the use of the work area but also to the result, manner, and means of the work. Tan also provided the workplace and supplied the materials, admitting he paid Lagrama only for the latter's services. As to the power to dismiss, Tan's own position paper before the NLRC stated that he "had every right, nay all the compelling reason, to fire him," which was an acknowledgment that Lagrama was his employee. As to wages, the fact that Lagrama was paid on a fixed piece-work basis was of no moment; payment by result is a method of compensation and does not define the essence of the relationship. The failure of Tan to present a payroll raised the presumption that its presentation would be adverse to his case. The reasonable connection between Lagrama's billboard painting and Tan's theater business established regular employment, as billboards were important to the business. The fact that Lagrama was not reported to the SSS was not conclusive, as an employer should not be rewarded for his failure to perform his obligation. Lagrama's sideline work for others on weekends did not alter his employment relationship with Tan. Having been employed since 1988, Lagrama was a regular employee entitled to security of tenure under Article 279 of the Labor Code. The claim of abandonment was rejected, as abandonment requires both absence without valid reason and a clear intention to sever the relationship, the latter being the more determinative factor. Lagrama's filing of a complaint for illegal dismissal negated any intention to abandon his job.

• Illegal Dismissal: The employer bears the burden of proving the lawfulness of dismissal. The Implementing Rules of the Labor Code require both a just or authorized cause and due process. Two aspects are involved: the legality of the act of dismissal and the legality in the manner of dismissal. Tan's refusal to give Lagrama work and his order for Lagrama to get out constituted dismissal. While urinating in a workplace other than a designated rest room could constitute violation of reasonable regulations under Article 282(1) of the Labor Code, the same must be shown by evidence, and here there was no evidence that Lagrama did urinate in a place other than a rest room. The Labor Arbiter found that the relationship between employer and employee had become so strained that reinstatement would no longer serve any purpose, a finding not disputed by the parties, making separation pay in lieu of reinstatement appropriate. Backwages were ordered computed from the time of dismissal up to the finality of the decision, pursuant to Bustamante vs. NLRC, without deduction or qualification. However, service incentive leave pay was deleted because, under the Bureau of Working Conditions' classification, a supervised piece-rate worker is not entitled to that benefit, as held in Makati Haberdashery vs. NLRC and Mark Roche International vs. NLRC, since he is paid a fixed amount for work done regardless of time spent.

• Four-Fold Test for Employer-Employee Relationship — The test comprises four elements: (1) the power of selection and engagement of employees; (2) control over the employee with respect to the means and methods by which work is to be accomplished; (3) the power to dismiss; and (4) payment of wages. The "control test" is the most important element. An independent contractor carries on a distinct and independent business, performing the work under his own responsibility according to his own manner and method, free from the control and direction of the principal except as to results. In this case, all four elements were present, establishing that Lagrama was an employee, not an independent contractor.

• Piece-Rate Payment Does Not Determine Employment Status — Payment by result is a method of computing compensation, not a basis for determining the existence or absence of an employer-employee relationship. One may be paid on the basis of results or time expended and may or may not acquire employment status, depending on whether the elements of the employer-employee relationship are present. The fact that Lagrama was paid on a fixed piece-work basis did not negate his status as a regular employee.

• Regular Employment Based on Connection to Employer's Business — The primary standard for determining regular employment is the reasonable connection between the particular activity performed by the employee and the usual trade or business of the employer. If the employee has been performing the job for at least one year, even intermittently, the repeated and continuing need for its performance is sufficient evidence of the necessity of that activity to the employer's business, making the employment regular.

• Abandonment as Just Cause for Dismissal — Abandonment requires two elements: (1) failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship, with the second element being the more determinative factor. Mere absence is not sufficient. The burden is on the employer to show a deliberate and unjustified refusal on the part of the employee to resume employment without any intention of returning. The filing of a complaint for illegal dismissal negates any intention to abandon employment.

• Two Aspects of Illegal Dismissal — The validity of dismissal has two aspects: (1) the legality of the act of dismissal, i.e., dismissal under grounds provided by Article 282 of the Labor Code, and (2) the legality in the manner of dismissal, i.e., due process. Illegality of the act constitutes discharge without just cause; illegality in the manner constitutes dismissal without due process. The employer bears the burden of proving the lawfulness of dismissal.

• Supervised Piece-Rate Workers and Service Incentive Leave Pay — The Bureau of Working Conditions classifies workers paid by results into two groups: (1) those whose time and performance is supervised by the employer, and (2) those whose time and performance is unsupervised. The first involves control and supervision over the manner of work, establishing an employer-employee relationship. However, a supervised piece-rate worker is not entitled to service incentive leave pay, as he is paid a fixed amount for work done regardless of time spent.

• "Of the four elements of the employer-employee relationship, the 'control test' is the most important. Compared to an employee, an independent contractor is one who carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and under its own responsibility according to its own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof." — This passage articulates the canonical formulation of the control test, the most critical element in distinguishing an employee from an independent contractor.

• "That Lagrama worked for Tan on a fixed piece-work basis is of no moment. Payment by result is a method of compensation and does not define the essence of the relation." — This statement establishes that the method of wage computation does not determine employment status, a principle frequently cited in labor jurisprudence involving piece-rate workers.

• "By stating that he had the right to fire Lagrama, petitioner in effect acknowledged Lagrama to be his employee. For the right to hire and fire is another important element of the employer-employee relationship." — This passage demonstrates how an employer's own admissions in pleadings can establish the existence of an employer-employee relationship.

• "Abandonment requires two elements: (1) the failure to report for work or absence without valid or justifiable reason, and (2) a clear intention to sever the employer-employee relationship, with the second element as the more determinative factor and being manifested by some overt acts." — This is the standard formulation of the elements of abandonment as a just cause for dismissal, frequently cited in illegal dismissal cases.

• Ramos vs. Court of Appeals, G.R. No. 124354, April 11, 2002 — Cited for the four-fold test of employer-employee relationship.
• De los Santos vs. NLRC, G.R. No. 121327, December 20, 2001 — Cited for the definition of an independent contractor as one who carries on a distinct and independent business free from the control of the principal except as to results.
• Lambo vs. NLRC, 317 SCRA 420 (1999) — Cited for the proposition that non-reporting of an employee to the SSS is not conclusive on the question of employment status, and that piece-rate payment does not determine employment status.
• Bustamante vs. NLRC, 265 SCRA 61 (1996) — Cited for the rule that backwages should be computed from the time of dismissal up to the time of finality of the decision, without deduction or qualification.
• Makati Haberdashery vs. NLRC, 179 SCRA 448 (1989) — Cited for the rule that supervised piece-rate workers are not entitled to service incentive leave pay.
• Mark Roche International vs. NLRC, 313 SCRA 356 (1999) — Cited for the same proposition regarding service incentive leave pay for piece-rate workers.
• Conti vs. NLRC, 271 SCRA 114 (1997) — Cited for the rule that employment for at least one year, even intermittently, establishes regular employment where there is a repeated and continuing need for the activity.
• Shoemart, Inc. vs. NLRC, 176 SCRA 385 (1989) — Cited for the two aspects of illegal dismissal: legality of the act and legality of the manner.

• Article 97(f), Labor Code — Defines "wages" as remuneration or earnings capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, payable by an employer to an employee for work done or services rendered. Applied to show that piece-rate payment falls within the statutory definition of wages.
• Article 279, Labor Code — Provides for security of tenure in regular employment, entitling an unjustly dismissed employee to reinstatement without loss of seniority rights and full backwages. Applied to establish Lagrama's entitlement to security of tenure as a regular employee.
• Article 282(1), Labor Code — Provides that an employer may terminate employment for serious misconduct or willful disobedience of reasonable regulations. Noted as potentially applicable to the alleged urination infraction, but held inapplicable for lack of evidence.
• Book III, Rule X, Section 6(a), Rules Implementing the Labor Code — Requires every employer to pay employees by means of a payroll showing rate of pay, deductions, and amount paid. Applied to draw an adverse inference from Tan's failure to present a payroll.
• Book V, Rule XXIII, Section 2 and Book VI, Rule I, Section 2, Implementing Rules of the Labor Code — Provide that no worker shall be dismissed except for a just or authorized cause and after due process. Applied to establish the dual requirement of just cause and procedural due process in dismissal cases.
• Rule 131, Section 3(e), Revised Rules on Evidence — Establishes the presumption that evidence willfully suppressed would be adverse if produced. Applied to Tan's failure to present the payroll.

Bellosillo, Quisumbing, and Corona, JJ., concurred.