Traders Royal Bank vs. NLRC

The existence of an employer-employee relationship is a question of fact determined by substantial evidence and the control test, not by the parties' service agreement; where the client bank exercises direct control and supervision over a janitor-driver's conduct and performance, the bank is the employer. An illegally dismissed employee is entitled to reinstatement with full back wages from the time of dismissal to actual reinstatement.

Traders Royal Bank (TRB) obtained janitorial services for its Iloilo Branch through Agro-Commercial Security Services Agency Inc. (AGRO) and, later, Royal Protective and Janitorial Services Inc. (ROYAL). Rogelio Española was assigned to TRB under that arrangement, and the dispute required determining whether he was TRB's employee or the service agency's employee for purposes of liability for illegal dismissal and monetary claims under labor law.

On 27 June 1974, Agro-Commercial Security Services Agency Inc. (AGRO) assigned Rogelio Española to work as a janitor at the Iloilo Branch of Traders Royal Bank (TRB), under Mission Order No. 29 dated 26 June 1974 issued by AGRO Administrative Officer Alberto G. Espinosa. The mission order stated that Española would be assigned as janitor to TRB's Iloilo Branch and that his employment would run from 26 January 1974 until revoked. Sometime in 1982, Española was informed that he would be absorbed by a new agency, Royal Protective and Janitorial Services Inc. (ROYAL), and that he would perform the same functions. Because ROYAL was managed and owned by the same people who previously handled AGRO, he received no separation pay or other benefits; ROYAL also appointed Espinosa, AGRO's former Administrative Officer, as its General Manager.

On 15 July 1988, TRB and ROYAL executed a new service agreement under which ROYAL would continue supplying janitorial services to TRB for one year beginning 23 March 1988. The contract provided that if no notice to terminate was given at the end of the one-year period, it would remain in force on a monthly basis. When the service agreement expired on 23 March 1989, TRB did not issue a termination notice and continued to avail itself of ROYAL's services on a monthly basis. Only on 4 February 1994 did TRB send ROYAL a letter expressing its desire to terminate the service agreement effective 16 March 1994. ROYAL then notified Española that, because of TRB's decision to end the contract, his services were no longer needed. After his dismissal, ROYAL declined to give him any further assignment since his job was allegedly coterminous with its contract with TRB.

In his position paper, Española claimed that he was required to work as a janitor and as a driver. He alleged that he cleaned the bank premises at night from Sunday to Thursday; that from Monday to Friday he drove TRB's armored car and picked up the children of TRB manager Mrs. Erlinda Ocampo and drove them to Angelicum School in Jaro, Iloilo City; that he stayed in the bank premises until 5:00 P.M., except for lunch, ran errands, and discharged other tasks assigned by TRB employees; that after 5:00 P.M. he drove TRB officers home; that he usually returned to the bank between 6:00 P.M. and 7:00 P.M.; that he then cleaned the bank for about two hours until 9:00 P.M.; and that because he worked late and started early and lived in Sta. Barbara, Iloilo, where there was no public transportation at night, he slept in the bank. Española asserted that his day-to-day work was monitored and supervised by TRB. These allegations were never refuted by TRB, which presented only its service agreement with ROYAL. The service agreement stated, among others, that the janitors assigned to TRB would in no way be considered employees of TRB and that ROYAL would be responsible for their conduct and performance, but it also stated that TRB would have direct control and supervision over the janitors' conduct and performance, with minimum interference by ROYAL, provided that discipline and administration would conform with TRB's standards and policies.

On 24 March 1994, Española filed a case against ROYAL, TRB, and Alberto Espinosa for illegal dismissal, illegal deduction, underpayment of wages, non-payment of overtime pay, premium pay for rest day, service incentive leave pay, 13th month pay, and night shift differentials, with a prayer for reinstatement and back wages, moral and exemplary damages, and attorney's fees. The Labor Arbiter found no employer-employee relationship between TRB and Española and considered him ROYAL's employee, while the NLRC found him to be TRB's employee. These conflicting findings frame the Supreme Court's review of whether TRB controlled and supervised Española's work.

• No Employer-Employee Relationship: TRB argued that Mission Order No. 29, issued by AGRO Administrative Officer Alberto G. Espinosa, showed that AGRO was Española's employer from 1974 to 1982 and that when Española agreed to be absorbed by ROYAL he became ROYAL's employee from 1982 to 1994; thus he was never employed by TRB.
• Service Agreement: TRB relied on its 15 July 1988 service agreement with ROYAL, particularly paragraphs 2 and 6, which stated that janitors assigned to TRB would not be considered TRB's employees, that ROYAL was responsible for their conduct and performance, and that TRB paid ROYAL P2,257.32 per month per janitress; TRB asserted that ROYAL provided the janitors' salaries and that Española's dismissal resulted from the valid termination of the service agreement.
• Grave Abuse of Discretion: TRB contended that the NLRC gravely abused its discretion in reversing the Labor Arbiter's decision and declaring Española to be TRB's employee.
• FILSYN Doctrine: TRB cited Filipino Synthetic Fiber Corp. vs. NLRC to argue that the doctrine therein should apply, such that the janitorial agency, not the client, was the employer.

• Control and Supervision: Respondent Rogelio Española maintained that TRB required him to work as a janitor and driver, monitored and supervised his day-to-day work, and assigned him tasks beyond janitorial duties, thereby making TRB his employer.
• Uncontroverted Allegations: Española maintained that TRB never refuted his allegations of control and supervision at any stage, so his averments that TRB controlled and supervised his work should be deemed admitted.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between petitioner Traders Royal Bank and private respondent Rogelio Española.
• Grave Abuse of Discretion: Whether the NLRC gravely abused its discretion in reversing the Labor Arbiter's decision and declaring Española to be TRB's employee.
• Illegal Dismissal and Reinstatement: Whether Española was illegally dismissed and entitled to reinstatement with full back wages.
• Back Wages Period: Whether the NLRC erred in limiting Española's back wages to the period from 16 March 1994 to 30 September 1996 instead of from dismissal to actual reinstatement.

• Employer-Employee Relationship: Yes. TRB was Española's employer under the control test; the relationship is a question of fact supported by substantial evidence and cannot be proved by agreement alone.
• Grave Abuse of Discretion: No. The NLRC did not gravely abuse its discretion in reversing the Labor Arbiter; the Labor Arbiter erred in disregarding Española's uncontroverted allegations and concluding that ROYAL was the direct employer.
• Illegal Dismissal and Reinstatement: Yes. Because TRB was the employer and Española was illegally dismissed, he is entitled to reinstatement with full back wages.
• Back Wages Period: No. The NLRC erred in limiting back wages to 16 March 1994 to 30 September 1996; an illegally dismissed employee is entitled to back wages from dismissal to actual reinstatement.

• Employer-Employee Relationship: The existence of an employer-employee relationship is a question of fact that must be supported by substantial evidence and cannot be established merely by the parties' agreement. The elements usually considered are (a) selection of the employee, (b) payment of wages, (c) power of dismissal, and (d) power to control the employee's conduct, with the control test generally assuming primacy. Here, Española's uncontroverted allegations showed that TRB required him to work as a janitor and driver, clean the bank at night, drive its armored car, fetch the manager's children, run errands, drive officers home, and remain in the bank premises; his day-to-day work was monitored and supervised by TRB. TRB never specifically denied these allegations and presented only its service agreement with ROYAL. Under Rule 9, Section 11, of the Rules of Court, which supplements the NLRC rules, an allegation not specifically denied is deemed admitted. Even the service agreement itself, in paragraph 3, stated that TRB would have direct control and supervision over the janitors' conduct and performance, with minimum interference by ROYAL, provided discipline and administration conformed with TRB's standards and policies. Thus, TRB was Española's employer.
• Grave Abuse of Discretion: The NLRC did not gravely abuse its discretion in reversing the Labor Arbiter. The Labor Arbiter disregarded Española's uncontroverted allegations and hastily concluded that because ROYAL was an independent contractor, it was Española's direct employer. Although ROYAL could very well be an independent contractor and Española's name appeared in its payroll, ROYAL did not establish that fact with competent evidence, and whatever role ROYAL had, it was not the employer of Española because TRB had control and supervision over his work. ROYAL itself submitted documents to establish that it was an independent contractor but alleged that it never knew TRB utilized Española as its driver and compelled him to do other chores, and ROYAL claimed that TRB had control and supervision over Española; TRB never refuted these statements. The NLRC's finding that Española was TRB's employee was therefore not tainted by grave abuse of discretion.
• Illegal Dismissal and Reinstatement: Since Española was illegally dismissed, he is entitled to reinstatement with full back wages. The termination of TRB's service agreement with ROYAL did not lawfully terminate Española's employment with TRB, because TRB was his employer and his dismissal was not shown to be for a just or authorized cause.
• Back Wages Period: The NLRC erred in ruling that Española was entitled to back wages only from 16 March 1994 to 30 September 1996. An illegally dismissed employee is entitled to back wages from the time he was dismissed to the time of his actual reinstatement. The salary differentials and 13th month pay differentials awarded by the NLRC were sustained.

• Control Test — In determining the existence of an employer-employee relationship, the elements usually considered are (a) selection of the employee, (b) payment of wages, (c) power of dismissal, and (d) power to control the employee's conduct, with the control test generally assuming primacy. The Court applied this test and found TRB to be Española's employer because TRB exercised direct control and supervision over his work as janitor-driver.
• Employer-Employee Relationship as a Question of Fact — The existence of an employer-employee relationship cannot be proved by merely showing the agreement of the parties; it is a question of fact that must be supported by substantial evidence. The Court relied on Española's uncontroverted allegations and the actual exercise of control, not merely on the service agreement's stipulation that the janitors were not TRB's employees.
• Uncontroverted Allegations Deemed Admitted — Under Rule 9, Section 11, of the Rules of Court, which supplements the NLRC rules, an allegation not specifically denied is deemed admitted. The Court treated Española's allegations that TRB monitored and supervised his day-to-day work as true because TRB never refuted them at any stage.
• Illegal Dismissal and Full Back Wages — An illegally dismissed employee is entitled to reinstatement with full back wages from the time of dismissal to actual reinstatement. The Court modified the NLRC's award accordingly.
• Independent Contractor Status Does Not Preclude Client's Liability as Employer — Even if ROYAL could be considered an independent contractor and Española's name appeared in its payroll, the client TRB was still the employer where it exercised control and supervision over the worker's conduct. The Court distinguished FILSYN because there the janitors worked exclusively as janitors and the agency presented substantial evidence of independent contractor status, while here Española also served as TRB's driver and TRB controlled his work.

• "This Court has ruled that the existence of employer-employee relationship cannot be proved by merely showing the agreement of the parties." — This states the rule that contractual stipulations alone do not establish or negate employment; the Court used it to reject TRB's reliance on its service agreement with ROYAL.
• "And in determining the existence of such relationship the elements usually considered are: (a) the selection of the employee; (b) the payment of wages; (c) the power of dismissal; and, (d) the power to control the employee's conduct, with the "control test" generally assuming primacy in the overall consideration." — This is the Court's canonical formulation of the control test, which supplied the decisive framework for finding TRB to be Española's employer.
• "The fact that Española's allegations were never controverted at any stage of the proceedings affirms that such averments were true." — This explains why the Court credited Española's allegations of TRB's control and supervision despite TRB's denial of an employment relationship.
• "An illegally dismissed employee is entitled to back wages from the time he was dismissed to the time of his actual reinstatement." — This is the ratio for modifying the NLRC's award, extending back wages beyond the period fixed by the NLRC.

• Filipino Synthetic Fiber Corp. vs. NLRC, G.R. No. 113347, 14 June 1996, 357 SCRA 334 — Cited by TRB but distinguished; in FILSYN the janitors worked exclusively as janitors, there was no proof the client controlled the manner of work, and the agency presented substantial evidence of independent contractor status, whereas Española also served as TRB's driver and TRB controlled his work.
• Tabas vs. California Manufacturing Co. Inc., G.R. No. 80680, 26 January 1989, 169 SCRA 497 — Cited for the rule that the existence of an employer-employee relationship cannot be proved by merely showing the agreement of the parties.
• Equitable Banking Corporation vs. NLRC, G.R. No. 102467, 13 June 1997, 273 SCRA 352 — Cited for the elements of an employer-employee relationship and the primacy of the control test.
• Mutual Benefit Association vs. NLRC, G.R. No. 102199, 28 January 1997, 267 SCRA 47 — Cited for the principle that the existence of an employer-employee relationship is a question of fact supported by substantial evidence.
• Philippine Airlines vs. NLRC, G.R. No. 11968, 28 July 1997, 276 SCRA 391 — Cited for the entitlement of an illegally dismissed employee to reinstatement with full back wages.
• Bustamante vs. NLRC, G.R. No. 111651, 28 November 1996, 265 SCRA 61 — Cited for the rule that back wages run from the time of dismissal to actual reinstatement.

• Rule 9, Section 11, Rules of Court — Provides that an allegation not specifically denied is deemed admitted; the Court applied it because TRB never denied Española's allegations that it monitored and supervised his day-to-day work.
• Section 3, New Rules of Procedure of the NLRC, 1990 — Cited as the NLRC rule supplemented by Rule 9, Section 11, of the Rules of Court on the effect of failure to specifically deny allegations.

Mendoza, Quisumbing, Buena, and De Leon, Jr., JJ., concurred.