Case Summary (G.R. No. 159333)
Petitioner
Arsenio T. Mendiola, designated President and resident agent of Pacfor Phils., with an annual dollar salary initially set at $65,000—later revised to $78,000—and claiming entitlement to a 50% equity stake, profit commissions, reimbursement of office expenses, and separation benefits.
Respondents
- Pacific Forest Resources, Phils., Inc. (Pacfor-USA)
- Cellmark AB (corporate affiliates)
- Court of Appeals
- National Labor Relations Commission (NLRC)
Key Dates
• May 1, 1995 – Side Agreement executed establishing Pacfor-Phils. and appointing Mendiola President
• July 14, 1995 – Securities and Exchange Commission grants license to transact business
• January 1, 1997 – Revised Operating and Profit Sharing Agreement effective date
• December 2000 – Pacfor-USA issues directives stripping Mendiola of records, funds, and client communications
• February 15, 2001 – Mendiola files complaint for illegal dismissal before NLRC
• July 30, 2001 – Labor Arbiter renders decision in favor of Mendiola
• December 20, 2001 – NLRC reverses Labor Arbiter for lack of employer-employee relationship
• January 30 and July 30, 2003 – Court of Appeals affirms NLRC
• July 31, 2006 – Supreme Court Decision
Applicable Law
• 1987 Philippine Constitution (decision post-1990)
• Labor Code of the Philippines (employer-employee relationship, constructive dismissal, separation pay)
• New Civil Code (Partnership Law, co-ownership principles)
Factual Background
Mendiola and Pacfor-USA entered a Side Agreement to form a Philippine representative office—Pacfor Phils.—with equal funding obligations and profit sharing. Mendiola was designated resident agent to manage local marketing. A 1997 amendment increased his salary and re-affirmed equal partnership funding. In July 2000, Mendiola sought confirmation of his 50% equity; Pacfor-USA denied any legal co-ownership, describing Pacfor Phils. as a “theoretical company” for profit division. Mendiola then demanded unpaid commissions, reimbursements, and office equipment rentals exceeding US$1 million, prompting Pacfor-USA to demand surrender of records, funds, and company car. Pacfor-USA further instructed clients not to deal with Mendiola, effectively sidelining him.
Procedural History
– Labor Arbiter finds constructive dismissal, awards separation pay, moral and exemplary damages, and attorney’s fees.
– NLRC reverses for absence of employer-employee relationship.
– Court of Appeals affirms NLRC.
– Mendiola petitions Supreme Court.
Issue
Whether an employer-employee relationship existed between Mendiola and Pacfor-USA, and if he was constructively dismissed, entitling him to separation pay and damages under the Labor Code.
Analysis
- Partnership vs. Employment
– Partnership requires community of property and mutual agency. Here, no co-ownership of assets existed; profit sharing alone does not establish a partnership. Corporations cannot join partnerships absent express statutory or charter authorization. - Employer-Employee Relationship
– Four elements: selection and engagement, payment of wages, power of dismissal, and power to control means and methods. Pacfor-USA selected Mendiola, paid his salary in U.S. dollars, exercised disciplinary control (preventive suspension, show-cause orders), and retained authority to direct operations (records turnover, fund remittance, client communications). The right to
Case Syllabus (G.R. No. 159333)
Nature of the Case and Procedural History
- Petition for certiorari and review on appeal from the Court of Appeals’ Decision (Jan. 30, 2003) and Resolution (July 30, 2003) in CA-G.R. SP No. 71028.
- Court of Appeals had affirmed the NLRC’s December 20, 2001 ruling setting aside the Labor Arbiter’s July 30, 2001 Decision.
- Labor Arbiter had found petitioner illegally dismissed and awarded separation pay, moral and exemplary damages, and attorney’s fees.
Parties and Status of the Relationships
- Petitioner: Arsenio T. Mendiola (ATM), named President and resident agent of Pacfor Phils. under the Side Agreement.
- Private Respondent: Pacific Forest Resources, Phils., Inc. (Pacfor Phils.), a Philippine “representative office” of Cellmark AB (Sweden) through its California subsidiary.
- Other Respondents: Court of Appeals and National Labor Relations Commission (NLRC) as tribunal respondents.
The “Side Agreement” and Its Amendment
- Side Agreement (effective May 1, 1995) provided that Pacfor-USA and ATM would establish Pacfor Phils. as a representative office, equally funded and sharing overhead and profits 50–50.
- ATM to serve as President; base salary and overhead charged to the representative office.
- March 1997 Revised Operating and Profit Sharing Agreement increased ATM’s salary to US $78,000 p.a., continued 50–50 profit sharing, and made Pacfor-Phils. a “theoretical company” for income division.
Emergence of the Dispute
- July 2000: ATM sought confirmation of his supposed 50% equity; Pacfor President Gleason clarified that Pacfor Phils. was not a separate joint-venture but simply Pacfor-USA’s rep office for tax purposes.
- ATM felt misled, alleged unpaid commissions, equipment rentals, office furniture rentals, and other benefits due.
- October 2000: ATM demanded over US $1 million for unpaid commissions and rentals.
Pacfor’s Directives and Petitioner’s Reaction
- November 27, 2000: Pacfor ordered ATM to turn over all Pacfor-Phils. records, files, and materials.
- December 18, 2000: Pacfor demanded remittance of th