Case Summary (G.R. No. 170087)
Procedural findings below and divergent outcomes
The Labor Arbiter found petitioner to be an employee and illegally dismissed, ordering reinstatement or, if infeasible, separation pay with extensive monetary awards including backwages, allowances, bonuses and damages. The NLRC modified this by substituting separation pay computed at one month per year of service plus full backwages to a specified date, deleting awards for moral/exemplary damages and profit share, and affirming other monetary items. The Court of Appeals reversed the NLRC and dismissed the complaint, prompting the Supreme Court review which annulled the Court of Appeals’ decision and reinstated the NLRC disposition, remanding for recomputation and ordering separation pay at one-half month per year of service.
Legal issue: existence of employer-employee relationship
The central legal question was whether petitioner was an employee of Kasei Corporation. The Court examined both the traditional control test (right to control the means and methods of the work) and the broader economic-reality test. The Court reiterated precedents recognizing that the control test alone may be insufficient in complex or multi-positional relationships and that economic dependence and inclusion in payroll/SSS registries are important indicia. The two-tiered approach considers (1) the employer’s power of control over means and methods and (2) economic realities such as the integral nature of services, worker’s investment, opportunity for profit/loss, degree of initiative, permanency and dependency.
Application of the control test to the facts
Applying the control test, the Court concluded petitioner was under the direct control and supervision of Sejii Kamura, the corporation’s Technical Consultant, and that her work was subject to the corporation’s direction. Petitioner reported regularly, performed duties integral to the corporation’s operations (accounting, tax liaison, administrative and managerial tasks), and rendered services over an indefinite period. These facts supported the conclusion that the company reserved control not only over the result but also over the means and methods of petitioner’s work.
Application of the economic-reality test to the facts
Under the economic-reality test, several factors supported classification as an employee: prolonged six-year service; regular receipt of salary, housing allowance, bonuses and a percentage profit share evidenced by check vouchers; deductions and employer SSS contributions; inclusion in SSS records and on-line inquiries; and the absence of substantial independent business investment or opportunity for profit/loss characteristic of an independent contractor. The Court regarded these elements as substantial evidence of petitioner’s economic dependence on Kasei Corporation for her continued employment in that line of business.
Evaluation of documentary and testimonial evidence
The Court gave weight to SSS records, cash/check vouchers, and company reports which identified petitioner as an employee or as paid through payroll mechanisms. The Court also considered the affidavit of Sejii Kamura stating that petitioner never functioned as Corporate Secretary in the substantive sense but acted as his direct assistant and liaison, which corroborated the employee characterization. A later purported recantation of that affidavit was treated with caution; the Court emphasized that recanted testimony does not automatically nullify earlier declarations and is subject to credibility testing.
Constructive dismissal analysis and findings
The Court held that the unilateral reduction of petitioner’s salary by ₱2,500 per month from January through September 2001 constituted a diminution of pay that was prejudicial and amounted to constructive dismissal. It applied established doctrine that constructive dismissal occurs when continued employment becomes impossible, unreasonable, or unlikely due to demotion, diminution of pay, or an intolerable work environment—circumstances that compel involuntary resignation. Because the salary reduction materially affected petitioner’s employment conditions and she was subsequently not paid for October 2001, the Court concluded the respondents effectively terminated her employment.
Remedy: separation pay and backwages
Given the finding of constructive dismissal and the position’s nature as a trust-and-confidence post, the Court determined r
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Procedural History
- Petition for review on certiorari under Rule 45 of the Rules of Court seeking to annul and set aside the Court of Appeals Decision (Oct. 29, 2004) and Resolution (Oct. 7, 2005) in CA-G.R. SP No. 78515, which dismissed petitioner Angelina Francisco's complaint for constructive dismissal.
- The Court of Appeals reversed and set aside the NLRC Decision dated April 15, 2003 in NLRC NCR CA No. 032766-02, which had affirmed with modification the Labor Arbiter Decision dated July 31, 2002 in NLRC-NCR Case No. 30-10-0-489-01 finding private respondents liable for constructive dismissal.
- Supreme Court grants certiorari review to resolve conflicting findings between the Labor Arbiter and NLRC on one hand, and the Court of Appeals on the other.
Facts
- In 1995 petitioner was hired by Kasei Corporation during its incorporation stage; designated Accountant and Corporate Secretary and assigned to handle all accounting needs of the company and act as Liaison Officer to the City of Makati for permits and licenses.
- Although designated Corporate Secretary, petitioner was not entrusted with corporate documents, did not attend board meetings, never prepared legal documents, and did not represent the company as Corporate Secretary; she occasionally signed documentation when prevailed upon to do so.
- In 1996 petitioner was designated Acting Manager; company also hired Gerry Nino as accountant in lieu of petitioner.
- As Acting Manager, petitioner handled recruitment, management administration, represented the company before government agencies (BIR, SSS, Makati city), and administered matters pertaining to the operation of Kasei Restaurant.
- Petitioner performed duties of Acting Manager for five years. As of December 31, 2000 her salary was P27,500.00 plus P3,000.00 housing allowance and a 10% share in the profit of Kasei Corporation.
- January 2001 petitioner was replaced by Liza R. Fuentes as Manager; petitioner alleges she was required to sign a prepared resolution but was assured she would still be connected with Kasei Corporation and be Technical Assistant to Seiji Kamura and in charge of BIR matters.
- Beginning January 2001 Kasei Corporation reduced petitioner’s salary by P2,500.00 monthly from January to September 2001, totaling P22,500.00 as of September 2001.
- Petitioner was not paid her mid-year bonus allegedly because the company was not earning well; in October 2001 she did not receive her salary and was later informed (Oct. 15, 2001) that she was no longer connected with the company.
- Petitioner stopped reporting for work and filed an action for constructive dismissal before the Labor Arbiter.
Respondents’ Contentions (Kasei Corporation and private respondents)
- Private respondents averred petitioner was not an employee of Kasei Corporation but a technical consultant on accounting matters who concurrently acted as Corporate Secretary.
- As a technical consultant, petitioner performed work at her own discretion without control and supervision of Kasei Corporation; she had no daily time record and came to the office at will; management only sought her opinions from time to time.
- Petitioner’s services were engaged through a Board Resolution designating her as technical consultant; the remuneration was a professional fee subject to 10% expanded withholding tax for professionals.
- Petitioner was not reported to the BIR or SSS as a company employee; respondents submitted employee lists for 1999 and 2000 received by the BIR showing petitioner was not among reported employees, a list of payees subject to expanded withholding tax which included petitioner, and SSS records showing petitioner’s latest employer was Seiji Corporation.
- Private respondents maintained petitioner’s consultancy depended on management’s will and could be terminated any time because services were temporary and need-dependent.
Labor Arbiter Decision (July 31, 2002)
- Labor Arbiter found petitioner an employee of respondent corporation and declared her dismissal illegal.
- Ordered respondents to reinstate petitioner to her former position without loss of seniority rights and to pay money claims computed as follows:
- Backwages 10/2001 a 07/2002 (27,500 x 10 mos.) — P275,000.00
- Salary Differentials (01/2001 a 09/2001) — P22,500.00
- Housing Allowance (01/2001 a 07/2002) — P57,000.00
- Midyear Bonus 2001 — P27,500.00
- 13th Month Pay — P27,500.00
- 10% share in the profits of Kasei Corp. from 1996-2001 — P361,175.00
- Moral and exemplary damages — P100,000.00
- 10% Attorney’s fees P957,742.50 7,076.50 (as reflected in the record)
- If reinstatement no longer feasible, respondents ordered to pay separation pay with additional backwages accruing up to actual payment of separation pay.
NLRC Decision (April 15, 2003) — Affirmed with Modification
- NLRC modified the Labor Arbiter decision; dispositive holdings:
- Respondents directed to pay complainant separation pay computed at one month per year of service in addition to full backwages from October 2001 to July 31, 2002.
- Awards representing moral and exemplary damages (P100,000.00) and 10% share in profit (P361,175.00) were deleted.
- Award of 10% attorney’s fees was to be based on salary differential award only.
- Awards representing salary differentials, housing allowance, mid-year bonus and 13th month pay were affirmed.
Court of Appeals Ruling (Oct. 29, 2004; Resolution Oct. 7, 2005)
- Court of Appeals granted the petition and reversed and set aside the NLRC Decision dated April 15, 2003.
- A new decision was rendered dismissing the complaint filed by private respondent (petitioner below) against Kasei Corporation, et al. for constructive dismissal.
- Court of Appeals denied petitioner’s motion for reconsideration, prompting thi