G.R. No. 10073 - Yamada vs. Manila Railroad Co.

In June 1989, the Philippine Government and the Commission for European Communities entered into a Financing Memorandum to provide financial and technical assistance for rural micro projects in five provinces of the Cordillera region.
As a result of this memorandum, the Central Cordillera Agricultural Programme (CECAP) was launched under the supervision of the Department of Agriculture (DA).
On 22 May 1989, the DA contracted Travers Morgan International Ltd. (TMI) to deliver the required technical assistance services for the CECAP project.

On 1 July 1989, TMI and Sycip, Gorres, Velayo & Company (SGV) entered into a Sub-Consultancy Agreement for SGV to provide a portion of the technical assistance services.
Under the Sub-Consultancy Agreement, SGV was responsible for proposing and appointing qualified consultants as specified in the Terms of Reference, subject to unanimous approval by TMI, the DA, and the Commission.
SGV initially proposed Felino Lorente for the Sociologist position; however, a challenge to Lorente’s qualifications was raised by Thomas Gimenez of the DA.

Following Gimenez’s dispute over Lorente’s qualifications, Martin Tull of TMI indicated that De Raedt could be considered as an alternative.
The DA, after consultation with SGV, advised that De Raedt’s nomination, among others, had been approved by both the Commission and the DA, expecting her to start on 3 July 1989.
De Raedt expressed her conformity to the consultancy arrangement on 6 July 1989 and signed the contract on 14 July 1989, with her actual start date eventually moved to 15 August 1989 due to her prior commitments abroad.

During the implementation of CECAP, both verbal and written complaints regarding De Raedt’s performance and her interpersonal relations with project staff were raised with TMI.
An investigation by TMI confirmed that retaining De Raedt would be counterproductive due to the reported difficulties among project staff.
Acting on TMI’s directive, SGV facilitated De Raedt’s withdrawal from the project.

De Raedt filed a case for illegal dismissal and damages before the Arbitration Branch of the NLRC.
The Labor Arbiter rendered a decision in her favor, affirming that she was an employee of SGV and that her dismissal was illegal, awarding various monetary reliefs including unpaid salaries, moral, exemplary, and attorney’s fees.
SGV appealed the Labor Arbiter’s decision to the NLRC, which reversed the ruling by finding that no employer-employee relationship existed between SGV and De Raedt, emphasizing that:

The selection of De Raedt was made by TMI upon recommendation from the DA.
Payment of her service fee, as well as other benefits, did not accord with those of an ordinary employee.
SGV had only a monitoring role with regard to her attendance and submission of reports.

The Court of Appeals reversed the NLRC’s decision by partially reinstating the Labor Arbiter’s ruling, citing the terms of the letter-agreement that:

Engaged De Raedt on a contract basis for full-time services, precluding her from other employment and allowing SGV considerable control including a right of termination.
Required her to adhere to strict reporting and time-record protocols.

SGV’s motion for reconsideration was denied by the Court of Appeals, prompting De Raedt to file a petition for review with the Supreme Court.

Whether, by the substance of the contractual arrangements and operational conduct, De Raedt was properly classified as an employee of SGV rather than an independent contractor.
Whether the elements inherent in the relationship—involving selection, engagement, payment, control, and termination—contribute to or negate the existence of an employer-employee relationship.

If an employer-employee relationship is established, whether the withdrawal (dismissal) of De Raedt from the CECAP project was valid or illegal.
Whether personality differences and compliance with contractual termination provisions provide a lawful basis for termination under labor law.