Daguinod v. Southgate Foods and Generation One Resource Service and Multi-Purpose Cooperative, G.R. No. 227795, Feb. 20, 2019

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G.R. No.

227795 (Formerly UDK-15556), February 20, 2019

SECOND DIVISION
G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

MARVIN O. DAGUINOD, PETITIONER, V. SOUTHGATE


FOODS, INC., REPRESENTED BY MAUREEN O. FERRER AND
GENERATION ONE RESOURCE SERVICE AND MULTI-
PURPOSE COOPERATIVE,[*] REPRESENTED BY RESTY CRUZ,
RESPONDENTS.
DECISION

CAGUIOA, J:

Before the Court is a petition for review[1] (Petition) under Rule 45 of the Rules of
Court assailing the Court of Appeals (CA) Decision[2] dated January 28, 2016 and
Resolution[3] dated March 18, 2016 in CA-G.R. SP No. 129296.

Facts

Petitioner Marvin O. Daguinod (Daguinod) was assigned as counter crew/cashier of a


Jollibee franchise located in Alphaland Southgate Mall, Makati City (Jollibee
Alphaland) pursuant to a Service Agreement[4] between Generation One Resource
Service and Multi-Purpose Cooperative (Generation One) and the franchise operator
Southgate Foods, Inc. (Southgate) (collectively respondents). Under the Service
Agreement, Generation One was contracted by Southgate to provide "specified non-
core functions and operational activities"[5] for its Jollibee Alphaland branch.

Daguinod also executed a Service Contract[6] dated September 9, 2010 with


Generation One which stated that Generation One was contracted by Southgate to
perform "specified peripheral and support services." In the Service Contract,
Daguinod was referred to as a "service provider" and "member" of Generation One
cooperative. The specific work responsibilities to be performed by Daguinod were left
blank. The period of Daguinod's services was stated as "beginning September 9, 2010
until the end of the project." To become a member of Generation One, Daguinod
completed an application form[7] dated September 8, 2010, which required him to pay
a membership fee of P250.00, and participate in "capital build-up and savings
program" which obligated him to acquire 150 paid-up shares in Generation One,
valued at P1,500.00. Prior to his employment/membership in Generation One
cooperative, Daguinod was employed directly by Southgate from March 12, 2010 to
August 26, 2010 as counter crew.[8]

Petitioner's version of events

Daguinod alleges that on April 10, 2011, he reported for work at 6:00 A.M. as a
counter crew/cashier in Jollibee Alphaland. He was given a cash fund of P5,000.00.
After serving one of the customers, Security Guard Jaime Rivero (Rivero) approached
him and asked for the receipt of the last customer who had ordered a longanisa
breakfast meal. Daguinod realized that he had put the customer's payment inside the
cash register without the corresponding receipt so he had it "punched in." Thereafter,
Rivero took the receipt and told Daguinod that he had committed a "pass out" of
transaction. Rivero asked for assistance from the manager on duty, Jane[9] Geling
(Geling). The latter conducted an audit and verification of the sales which revealed
that the cash in the register was in excess of P106.00.[10]

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Daguinod was then brought into a function room inside Jollibee Alphaland with
Rivero keeping guard over him. Geling went into the room and accused Daguinod of
theft. Daguinod reasoned that he did not commit any theft as in fact there was an
overage of cash in the register. Geling did not believe him and told him that if he
confessed, he would be forgiven and he could continue working. Daguinod was given
two Notices to Explain (NTE). In the first NTE, he was made to explain the overage in
the cash register. In the second NTE, he was charged with using the manager's swipe
card without authority. Daguinod was directed to immediately answer the two NTEs.
[11]
In the first NTE, Daguinod alleges that he was instructed to write the sentence:
"Opo Mam, inaamin ko na po na nagpassout po ako, 2nd week po ng March, [P]
5,500.00."[12] In the second NTE, Daguinod wrote: "Di kopo alam, mam, nalito na po
ako kaya di ko nabilang ang 50's. Nakita ko po yung [unintelligible] ni S' Aldrin tapos
ginamit ko po. Isang buwan ko na pong ginagamit."[13]

Daguinod was then brought to the Makati Police Station, Bangkal Precinct, where he
was accused of Qualified Theft and put in jail. Daguinod was able to contact his sister,
Maribeth D. Pacheco (Maribeth), to ask for help. At around 4:00 P.M., Daguinod was
brought to the Ospital ng Makati for a medical check-up but he was brought back to
the Makati Police Station where he was imprisoned until April 13, 2011. He was made
to write a confession letter in exchange for his release from jail. He did not want to
write the confession but he acceded as he had already spent two days in jail. On April
13, 2011, he was brought to the Makati City Prosecutor's Office for inquest before
Assistant City Prosecutor Carolina J. Esguerra (Prosecutor Esguerra). Prosecutor
Esguerra ordered Daguinod's release as the allegations against Daguinod were
deficient and preliminary investigation was scheduled on April 19 and 26, 2011.[14]
Daguinod alleges that during the second meeting for the preliminary investigation, he
inquired with Geling as to the status of his employment. Geling told Daguinod to ask
Resty Cruz (Cruz), Generation One's Resource Area Coordinator, who told Daguinod
via phone call that his employment was terminated effective May 13, 2011.[15]

Daguinod's sister, Maribeth, corroborated his testimony. In her Affidavit[16] dated July
5, 2011, Maribeth alleged that on April 10, 2011 at around 1:30 P.M., she received a
text message from her brother, asking for help as he was put in jail for alleged theft.
She went to Jollibee Southgate and was able to talk to store managers Geling and
Julius Paul Penafuerte, and Atty. Jay Sangalang (Atty. Sangalang), legal counsel of
Southgate, who told her that Daguinod would be released if he confessed to the theft.
She immediately went to the Makati Police Station to relay the same to her brother.
She was shocked to see her brother in jail. She informed him of the instructions of
Atty. Sangalang. At first, Daguinod refused to write a confession but after a while, he
decided to comply as he was scared and wanted to be released from the jail. Thus,
Daguinod wrote an apology/confession letter which Maribeth gave to Atty. Sangalang.
However, Atty. Sangalang refused to accept the letter as it did not mention a date and
amount. Upon Atty. Sangalang's instructions, Daguinod made a revised letter[17]
containing the amount of P10,000.00, with a promise that Daguinod would pay back
the amount in installments.[18]

Respondents' counter-allegations

Generation One admitted that Daguinod was its employee. The cooperative alleged
that Southgate had discovered the attempted act of dishonesty of Daguinod on April
10, 2011. Generation One asserted that the filing of the complaint was premature as
the cooperative's investigation of the incident was still ongoing when Daguinod filed
the complaint before the Labor Arbiter (LA).[19]

For its part, Southgate asserted that Daguinod was an employee of Generation One
and not Southgate. Southgate further alleged that the complaint for illegal dismissal

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was merely retaliatory as it was Southgate employees who discovered that Daguinod
was attempting to steal funds from Southgate.[20]

Southgate denied that Daguinod was coerced into signing the confession. On the issue
of labor-only contracting, both Generation One and Southgate averred that Generation
One is a legitimate labor contractor and that the Service Agreement between the two
companies was valid.[21]

Ruling of the labor tribunals

In a Decision[22] dated June 28, 2012, Labor Arbiter Romelita N. Rioflorido (LA) held
that Generation One is a legitimate labor contractor and Daguinod was a regular
employee of Generation One. On the issue of illegal dismissal, the LA held that
Daguinod was unable to prove that he was illegally dismissed, or even dismissed from
service. The LA gave credence to Generation One's averment that its investigation of
the allegations against Daguinod was still ongoing, and even Daguinod admitted that
he did not receive a formal notice of termination.

Daguinod appealed the case to the National Labor Relations Commission (NLRC)
which affirmed the LA's Decision. In its Decision[23] dated December 12, 2012, the
NLRC agreed with the LA that Generation One was a legitimate labor contractor as it
is a registered cooperative with substantial capital, investment, or equipment to
perform its business. It also has its own office where its members meet and conduct
activities. The NLRC also affirmed the LA's findings that Daguinod was not illegally
dismissed; rather, it was Daguinod who prematurely concluded that he had been
dismissed.[24] The NLRC denied Daguinod's motion for reconsideration (MR) in its
Resolution[25] dated January 25, 2013.

Thus, Daguinod filed a petition for certiorari[26] under Rule 65 before the CA alleging
that the NLRC committed grave abuse of discretion amounting to lack or excess of
jurisdiction in affirming the LA's Decision.

The CA Decision

The CA dismissed Daguinod's petition for certiorari and affirmed the NLRC
Decision. The CA held that aside from Daguinod's mere assertions, there was no
corroborative and competent evidence to substantiate his claim that he had been
dismissed; if there is no dismissal, there can be no question as to its legality or
illegality. The fact of dismissal must be established by positive and overt acts of the
employer indicating the intention to dismiss the employee.[27]

The CA further ruled that Generation One is a legitimate labor contractor as it was
issued a Certificate of Registration by the Department of Labor and Employment
(DOLE). The Service Agreement between Generation One and Southgate clearly
states that the former was to provide specific non-core functions and operational
activities which included management and supervision of the food chain system,
assistance in food preparation and quality control, cleaning of the dining area, comfort
room, and other areas of the restaurant, assistance in cash control activities and
warehouse and utilities management.[28]

Daguinod filed an MR which the CA denied in its Resolution[29] dated March 18,
2016.

Thus, Daguinod filed the instant Petition assailing the CA Decision and Resolution.
Southgate filed its Comment[30] dated August 17, 2017. Generation One failed to file a
Comment despite the grant of its motion for extension to file the same.[31]

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Issues

1. Whether Generation One is a legitimate labor contractor.

2. Whether Daguinod's dismissal was valid.

The Court's Ruling

The Petition is meritorious.

Ordinarily, the Court will not disturb the findings of the CA in labor cases especially if
they are consistent with the findings of the NLRC and LA, in recognition of the
expertise of administrative agencies whose jurisdiction is limited to specific fields of
law.[32] Rule 45 petitions should raise only questions of law, as the Court is not duty-
bound to analyze and re-examine the evidence already passed upon by the courts or
tribunals below.[33]

However, there are recognized exceptions to this rule, as enunciated in New City
Builders Inc. v. National Labor Relations Commission:[34]

x x x (1) [W]hen the findings are grounded entirely on speculation,


surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when in making its
findings the Court of Appeals went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the respondent; (10)
when the findings of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record; and (11) when the
Court of Appeals manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly considered, would justify a
different conclusion.[35] (Emphasis supplied)

In the instant case, the CA committed grave and serious error in affirming the findings
of the NLRC, which had, in turn, affirmed the findings of the LA. The appellate court
misappreciated relevant and undisputed facts which if it had correctly considered,
would have resulted in the reversal of the erroneous decisions of the labor tribunals.
After a judicious review of the facts of the case as borne out by evidence on record,
the Court resolves to overturn the CA Decision.

Generation One is not a


legitimate labor contractor;
Daguinod is a regular employee
of Southgate

The outsourcing of services is not prohibited in all instances. In fact, Article 106[36] of
the Labor Code of the Philippines[37] provides the legal basis for legitimate labor
contracting. This provision is further implemented by DOLE Order No. 18, Series of
2002[38] (DO 18-02).

Under Section 4(a) of DO 18-02, legitimate labor contracting or subcontracting refers


to an arrangement whereby a principal agrees to put out or farm out with a contractor
or subcontractor the performance or completion of a specific job, work or service
within a definite or predetermined period, regardless of whether such job, work or

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service is to be performed or completed within or outside the premises of the


principal. The "principal" refers to any employer who puts out or farms out a job,
service or work to a contractor or subcontractor.[39]

Meanwhile, labor-only contracting is prohibited and defined under Section 5 of DO


18-02:

Section 5. Prohibition against labor-only contracting. Labor-only


contracting is hereby declared prohibited. For this purpose, labor-only
contracting shall refer to an arrangement where the contractor or
subcontractor merely recruits, supplies, or places workers to perform
a job, work or service for a principal, and any of the following
elements [is] present:

i) The contractor or subcontractor does not have substantial capital


or investment which relates to the job, work or service to be
performed and the employees recruited, supplied or placed by
such contractor or subcontractor are performing activities which
are directly related to the main business of the principal; or

ii) The contractor does not exercise the right to control over the
performance of the work of the contractual employee.

The foregoing provisions shall be without prejudice to the application of


Article 248 (c) of the Labor Code, as amended.

"Substantial capital or investment" refers to capital stocks and subscribed


capitalization in the case of corporations, tools, equipment, implements,
machineries and work premises, actually and directly used by the
contractor or subcontractor in the performance or completion of the job,
work or service contracted out.

The "right to control" shall refer to the right reserved to the person for
whom the services of the contractual workers are performed, to determine
not only the end to be achieved, but also the manner and means to be used
in reaching that end. (Emphasis supplied)

When there is labor-only contracting, Section 7 of DO 18-02 describes the


consequences thereof:

Section 7. Existence of an employer-employee relationship. The contractor or


subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social legislation.
The principal, however, shall be solidarity liable with the contractor in the event of
any violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of
the following case, as declared by a competent authority:

(a) where there is labor-only contracting; or

(b) where the contracting arrangement falls within the prohibitions


provided in Section 6 (Prohibitions) hereof. (Emphasis supplied)

In Garden of Memories Park and Life Plan, Inc., v. National Labor Relations
Commission,[40] the Court summarized the above rules accordingly:

x x x [I]n determining the existence of an independent contractor


relationship, several factors may be considered, such as, but not necessarily

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confined to, whether or not the contractor is carrying on an independent


business; the nature and extent of the work; the skill required; the term and
duration of the relationship; the right to assign the performance of
specified pieces of work; the control and supervision of the work to
another; the employer's power with respect to the hiring, firing and
payment of the contractor's workers; the control of the premises; the duty
to supply premises, tools, appliances, materials and labor; and the mode,
manner and terms of payment.

On the other hand, there is labor-only contracting where: (a) the person
supplying workers to an employer does not have substantial capital or
investment in the form of tools, equipment, machineries, work
premises, among others; and (b) the workers recruited and placed by
such person are performing activities which are directly related to the
principal business of the employer.[41] (Emphasis supplied)

Based on the foregoing, one of the factors in determining whether there is labor-only
contracting is the nature of the employee's job, i.e., whether the work he performs is
necessary and desirable to the business of the principal.

In this particular case, it was established that Daguinod was assigned as a counter
crew/cashier in Jollibee Alphaland. The Service Contract of Daguinod with
Generation One does not disclose the specific tasks and functions that he was assigned
to do as counter crew/cashier. Thus, the Court must refer to Annex "A"[42] of the
Service Agreement between Generation One and Southgate which lists the “non-core"
functions contracted out by Southgate. The Service Agreement states:

Each of the non-core functions identified cover specific tasks that include,
but are not limited to the following:

A. Peripheral activities related to the management and


supervision of the food chain system.

B. Assistance in food preparation and quality control.


1. Prepare food ingredients
2. Wrap burgers, rice, cake and other food products

C. Peripheral activities related to orderliness, cleanliness and


upkeep of dining area, comfort room, glass panels, and
other areas.

xxxx

D. Assistance in cash control activities


1. Gathers orders
2. Assemble food on tray/take-out

E. Assistance in warehouse and utilities management[43]

Daguinod was assigned to perform cash control activities which entails gathering of
orders and assembling food on the tray for dine-in customers or for take-out. As
cashier, Daguinod was also tasked to receive payments and give change. These tasks
are undoubtedly necessary and desirable to the business of a fast food restaurant such
as Jollibee. The service of food to customers is the main line of business of any
restaurant. It is not merely a non-core or peripheral activity as Generation One and
Southgate claim. It is in the interest of Southgate, franchise owner of Jollibee, that its

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customers be served food in a timely manner. Respondents' position that the gathering
of orders and service of food to customers are "non-core" functions or peripheral
activities is simply preposterous and is contrary to the basic business model of a fast
food restaurant. These circumstances lead to no other conclusion than that Daguinod
was a regular employee of Southgate and that Generation One was a mere agent of
Southgate.

The ownership of substantial capital in the form of tools, equipment, machineries,


work premises, and other properties, by the contractor is another factor in establishing
whether it is legitimate. The NLRC held that Generation One was able to prove that it
had substantial capital, proving that it was a legitimate labor contractor. The Court
disagrees.

Generation One submitted only one Income Tax Return (ITR) for the year ended
December 2010 showing a gross income of P9,564,065.00.[44] The submission of one
ITR for one fiscal year can hardly be considered substantial evidence to prove that the
cooperative has substantial capital. Furthermore, the Court cannot give credence to the
ITR as it does not appear to have been submitted to the Bureau of Internal Revenue.
Generation One likewise did not submit any Audited Financial Statements (AFS) to
show its assets, liabilities, and equity. It only submitted the Notes to the AFS[45] for
the year ended 2010 which does not show a complete picture of its financial standing.
In fine, the documents submitted are insufficient to prove that Generation One
possesses substantial capital to be considered a legitimate labor contractor.

In arriving at its Decision, the CA also relied on the Certificate of Registration[46] as


an independent contractor issued by the DOLE to Generation One. However, the
Court has previously ruled that said registration is not conclusive evidence of
legitimate status. In San Miguel Corporation v. Semillano,[47] the Court ruled:

Petitioner cannot rely either on AMPCO's Certificate of Registration as an


Independent Contractor issued by the proper Regional Office of the DOLE
to prove its claim. It is not conclusive evidence of such status. The fact of
registration simply prevents the legal presumption of being a mere
labor-only contractor from arising. In distinguishing between
permissible job contracting and prohibited labor-only contracting, the
totality of the facts and the surrounding circumstances of the case are
to be considered.[48] (Emphasis supplied)

Thus, registration with DOLE as an independent contractor does not automatically


vest it with the status of a legitimate labor contractor, it is merely presumptive proof.
In the instant case, the totality of circumstances reveals that Generation One, despite
its DOLE registration, is not a legitimate labor contractor.

As astutely noted by Associate Justice Estela M. Perlas-Bernabe during the


deliberations of this case, Section 5 of DO 18-02 speaks of a second instance, where
the "right to control" must be exercised by the contractor, otherwise, the arrangement
shall be considered to be labor only contracting.

The Court notes that on April 10, 2011, the administrative investigation was
conducted by Jollibee Alphaland's manager-on-duty Geling, in the presence of
security guard Rivero. The handwritten NTEs, although bearing the header and name
of Generation One were served upon Daguinod by Southgate manager Geling. Thus,
Southgate took it upon itself to discipline Daguinod for an alleged violation of its
company rules, regulations, and policies, validating the presence of its right to control
Daguinod.

A perusal of Daguinod's Service Contract shows that the specific work responsibilities
were unspecified, leaving the "[o]ther requirements to perform the services [to] be part
of the orientation at the designated place of assignment,"[49] thus, suggesting that the

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right to determine not only the end to be achieved, but also the manner and means to
achieve that end, was reposed in Southgate. Consequently, Southgate shall be deemed
as the direct employer of Daguinod.

The CA also relied heavily on the Service Agreement between Generation One and
Southgate which provided for the scope of the agreement as well as the proviso that
there would be no employer-employee relationship between Southgate and Generation
One's employees.

The Court holds that it was erroneous for the CA to place reliance on the contracts as
the provisions therein are not the sole determining factor in ascertaining the true
nature of the relationship between the principal, contractor, and employees. As held in
Petron v. Caberte:[50]

x x x [T]he character of the business, whether as labor-only contractor or


as a job contractor, should be determined by the criteria set by statute and
the parties cannot dictate by the mere expedience of a unilateral declaration
in a contract the character of their business.[51]

In the instant case, the badges of labor-only contracting are too blatant to ignore and
the Court cannot blindly rely on the contractual declarations of respondents.

With the finding that Generation One is a labor-only contractor, Daguinod is


considered a regular employee of Southgate, as provided under Section 7[52] of DO 18-
02.

Daguinod was illegally dismissed

The employer must comply with substantive and procedural due process in the
dismissal of an employee. Substantive due process pertains to the just and authorized
causes for dismissal as provided under Articles 297,[53] 298,[54] and 299[55] of the
Labor Code.

Procedural due process pertains to the twin requirements of notice and hearing, as
explained by the Court in Noblado v. Alfonso:[56]

x x x The employer must furnish the employee with two written notices
before the termination of employment can be effected: (1) the first notice
apprises the employee of the particular acts or omissions for which his
dismissal is sought; and (2) the second notice informs the employee of the
employer's decision to dismiss him. Before the issuance of the second
notice, the requirement of a hearing must be complied with by giving the
worker an opportunity to be heard. It is not necessary that an actual hearing
be conducted.[57]

In King of Kings Transport, Inc. v. Mamac,[58] the Court expounded on the


requirements of procedural due process:

(1) The first written notice to be served on the employees should contain
the specific causes or grounds for termination against them, and a directive
that the employees are given the opportunity to submit their written
explanation within a reasonable period. "Reasonable opportunity" under
the Omnibus Rules means every kind of assistance that management must
accord to the employees to enable them to prepare adequately for their
defense. This should be construed as a period of at least five (5) calendar
days from receipt of the notice to give the employees an opportunity to
study the accusation against them, consult a union official or lawyer,
gather data and evidence, and decide on the defenses they will raise against
the complaint. Moreover, in order to enable the employees to intelligently

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prepare their explanation and defenses, the notice should contain a detailed
narration of the facts and circumstances that will serve as basis for the
charge against the employees. A general description of the charge will not
suffice. Lastly, the notice should specifically mention which company
rules, if any, are violated and/or which among the grounds under Art. 282
is being charged against the employees.

(2) After serving the first notice, the employers should schedule and
conduct a hearing or conference wherein the employees will be given the
opportunity to: (1) explain and clarify their defenses to the charge against
them; (2) present evidence in support of their defenses; and (3) rebut the
evidence presented against them by the management. During the hearing or
conference, the employees are given the chance to defend themselves
personally, with the assistance of a representative or counsel of their
choice. Moreover, this conference or hearing could be used by the parties
as an opportunity to come to an amicable settlement.

(3) After determining that termination of employment is justified, the


employers shall serve the employees a written notice of termination
indicating that: (1) all circumstances involving the charge against the
employees have been considered; and (2) grounds have been established to
justify the severance of their employment.[59] (Emphasis supplied)

In this case, there was non-compliance with procedural due process as the NTEs did
not contain the specific information required under the law. Moreover, Daguinod was
not given a reasonable opportunity to submit his written explanation as he was ordered
to immediately answer the NTEs.

The CA and labor tribunals no longer discussed the above requirements as it accepted
Generation One's assertion that Daguinod was not dismissed from service as its
investigation of the incident was ongoing and it was Daguinod who wrongly presumed
that he was dismissed and prematurely filed the complaint.[60]

The Court cannot countenance such a simplistic explanation. It was reasonable for
Daguinod to believe that he had been dismissed from service due to the events of
April 10, 2011. On the said date, Daguinod was accused of theft after having an
overage in the cash register of P106.00. He was served two NTEs which he had to
answer on the same day. He was not given time to prepare a proper defense or was not
informed of his right to seek representation and counsel. He was, to the contrary,
immediately arrested and imprisoned without warrant from April 10 to April 13, 2011.
Thereafter, when he called Generation One to inquire about the status of his
employment and his back pay, he was told by Cruz, Generation One's Resource Area
Coordinator, that his employment was terminated effective May 13, 2011. Thus,
Daguinod cannot be faulted for believing that his employment had been terminated.

Generation One claimed that it was conducting an investigation of the incident but did
not submit any proof of the investigation or the results thereof. The Court notes that
Generation One did not deny the phone call between Cruz and Daguinod but merely
posited Cruz to be a mere employee of Generation One who has no part in the
recruitment process. Again, the Court is unconvinced. Cruz does not appear to be an
ordinary employee of Generation One as he was the signatory of Daguinod's Service
Contract. As well, Generation One did not send a Return-to-Work Order to Daguinod
if indeed it still considered him an employee.

In the similar case of Robinsons Galleria/Robinsons Supermarket Corp. v. Ranchez,


[61]
the Court held that the employee was illegally dismissed, thus:

In the instant case, based on the facts on record, petitioners failed to accord
respondent substantive and procedural due process. The haphazard manner
in the investigation of the missing cash, which was left to the

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determination of the police authorities and the Prosecutor's Office, left


respondent with no choice but to cry foul. Administrative investigation was
not conducted by petitioner Supermarket. On the same day that the missing
money was reported by respondent to her immediate superior, the company
already pre-judged her guilt without proper investigation, and instantly
reported her to the police as the suspected thief, which resulted in her
languishing in jail for two weeks.

xxxx

Respondent was constructively dismissed by petitioner Supermarket


effective October 30, 1997. It was unreasonable for petitioners to charge
her with abandonment for not reporting for work upon her release in jail. It
would be the height of callousness to expect her to return to work after
suffering in jail for two weeks. Work had been rendered unreasonable,
unlikely, and definitely impossible, considering the treatment that was
accorded respondent by petitioners.[62]

The haphazard way in which the accusations were thrown against Daguinod and how
the investigation was conducted shows bad faith on the part of Southgate and
Generation One. Daguinod spent three days in jail for an alleged attempted theft of
P106.00. There was a pre-judgment of guilt without a proper investigation. Thus,
Daguinod was constructively dismissed effective on April 10, 2011.

Daguinod is entitled to full


backwages, separation pay,
moral and exemplary damages,
and attorney's fees

Article 294 of the Labor Code provides that an employee who is unjustly dismissed
from work shall be entitled to reinstatement without loss of seniority rights and other
privileges, full backwages, inclusive of allowances, and to his other benefits or their
monetary equivalent computed from the time his compensation was withheld from
him up to the time of his actual reinstatement.[63] When reinstatement is no longer
viable such as when the parties have strained relations, separation pay may be awarded
as an alternative.[64]

In Aliling v. Feliciano[65] (Aliling), citing Golden Ace Builders v. Talde,[66] the Court
awarded both backwages and separation pay:

The basis for the payment of backwages is different from that for the
award of separation pay. Separation pay is granted where reinstatement is
no longer advisable because of strained relations between the employee
and the employer. Backwages represent compensation that should have
been earned but were not collected because of the unjust dismissal. The
basis for computing backwages is usually the length of the employee's
service while that for separation pay is the actual period when the
employee was unlawfully prevented from working.[67]

Undeniably, reinstatement is no longer feasible due to the strained relations of the


parties and considering as well the length of time that has passed since the filing of
this case. Thus, separation pay is awarded in lieu thereof.

Daguinod is likewise entitled to moral and exemplary damages as his dismissal was
attended with bad faith. Moral damages are awarded in illegal termination cases when
the employer acted (a) in bad faith or fraud; (b) in a manner oppressive to labor; or (c)
in a manner contrary to morals, good customs, or public policy.[68] In addition to
moral damages, exemplary damages may be imposed by way of example or correction

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

for the public good.[69] In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner.[70]

In the instant case, Southgate and Generation One clearly acted in bad faith. The
respondents created a subterfuge of legitimate labor contracting to avoid the
regularization of Daguinod. More significantly, respondents haphazardly accused
Daguinod of theft without sufficient proof which resulted in his incarceration for three
days. Thus, Daguinod is entitled to moral and exemplary damages of P200,000.00 and
P100,000.00, respectively.[71]

The Court also awards Daguinod attorney's fees of 10% of the total monetary award.
In Aliling, citing Rutaquio v. NLRC,[72] the Court held:

It is settled that in actions for recovery of wages or where an employee was


forced to litigate and, thus, incur expenses to protect his rights and interest,
the award of attorney's fees is legally and morally justifiable.[73]

Daguinod was compelled to litigate to enforce his rights which had been unjustly and
blatantly violated by Generation One and Southgate, thus, he is entitled to attorney's
fees.

Finally, the monetary award herein granted shall earn legal interest of 12% per annum
from April 10, 2011, the date of constructive dismissal, until June 30, 2013 in line
with the Court's ruling in Nacar v. Gallery Frames.[74] From July 1, 2013 until full
satisfaction of the award, the interest rate shall be at 6%. The total amount of the
foregoing shall, in turn, earn interest at the rate of 6% per annum from finality of this
Decision until full payment.[75] The liability of Generation One and Southgate shall be
joint and solidary.

WHEREFORE, premises considered, the Petition is GRANTED. The Court further


RESOLVES to:

1. REVERSE and SET ASIDE the assailed Decision dated January 28,
2016 and Resolution dated March 18, 2016 of the Court of Appeals in
CA-G.R. SP No. 129296;

2. AWARD petitioner Marvin O. Daguinod the following:

(a) full backwages, inclusive of allowances, and to his other benefits


or their monetary equivalent from April 10, 2011 until finality of
this judgment;

(b) separation pay in lieu of reinstatement computed from April 10,


2011 until finality of this judgment,

(c) moral damages of P200,000.00;

(d) exemplary damages of P100,000.00; and

(e) attorney's fees of 10% of the monetary award

which shall be the JOINT AND SOLIDARY LIABILITY of


Generation One Resource Service and Multi-Purpose Cooperative and
Southgate Foods, Inc.;

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

3. The monetary award shall earn legal interest of 12% per annum from
April 10, 2011 until June 30, 2013, and 6% from July 1, 2013 until
full satisfaction of the award. The total amount of the foregoing shall,
in turn, earn interest at the rate of 6% per annum from finality of this
Decision until full payment; and

4. REMAND the case to the Labor Arbiter for the proper computation
of backwages and separation pay and for execution of the award.

SO ORDERED.

Carpio (Chairperson), Perlas-Bernabe, J. Reyes, Jr., and Hernando,[**] JJ., concur.

[*]
Also referred to as "Generation One Service Cooperative" and "Generation One
Resource Service Cooperative" in some parts of the records.

[**]
Designated additional Member per Special Order No. 2630 dated December 18,
2018.

[1]
Rollo, pp. 2-18.

[2]
Id. at 20-29. Penned by Associate Justice Ma. Luisa C. Quijano-Padilla, with the
concurrence of Associate Justices Normandie B. Pizarro and Samuel H. Gaerlan.

[3]
Id. at 31-32.

[4]
CA rollo, pp. 130-134.

[5]
Id. at 130.

[6]
Id. at 124.

[7]
Id. at 123.

[8]
See id. at 36, 123 and 135.

[9]
Also referred to as "Mary Jean" in some parts of the records.

[10]
CA rollo, pp. 44, 94 and 219-220.

[11]
Id. at 221-222.

[12]
Id. at 37.

[13]
Id. at 38.

[14]
Id. at 44-45. Resolution dated April 13, 2011 of the Office of the City Prosecutor,
Makati.

[15]
Id. at 223-225.

[16]
Id. at 39-42.

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

[17]
Id. at 43.

[18]
Id. at 39-40.

[19]
Id. at 208-210.

[20]
Id. at 90.

[21]
See id. at 102-104.

[22]
Id. at 268-277.

[23]
Id. at 23-32.

[24]
Id. at 23-32.

[25]
Id. at 33-35.

[26]
Id. at 2-22.

[27]
Id. at 25-26.

[28]
Id. at 27.

[29]
Id. at 31-33.

[30]
Rollo, pp. 81-113.

[31]
See Resolution dated August 1, 2018 granting Generation One's motion for
extension of time to file Comment within 10 days; id. at 231.

[32]
See Sarona v. National Labor Relations Commission, 679 Phil. 394, 414 (2012).

[33]
See Sps. Garrido v. Court of Appeals, 421 Phil. 872, 881 (2001).

[34]
499 Phil. 207 (2005).

[35]
Id. at 213, citing The Insular Life Assurance Co., Ltd. v. Court of Appeals, 472
Phil. 11, 22-23 (2004).

[36]
ART. 106. Contractor or Subcontractor. — Whenever an employer enters into a
contract with another person for the performance of the former's work, the employees
of the contractor and of the latter's subcontractor, if any, shall be paid in accordance
with the provisions of this Code.

In the event that the contractor or subcontractor fails to pay the wages of his
employees in accordance with this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such employees to the extent of the work
performed under the contract, in the same manner and extent that he is liable to
employees directly employed by him.

The Secretary of Labor and Employment may, by appropriate regulations, restrict or


prohibit the contracting-out of labor to protect the rights of workers established under
this Code. In so prohibiting or restricting, he may make appropriate distinctions
between labor-only contracting and job contracting as well as differentiations within
these types of contracting and determine who among the parties involved shall be

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

considered the employer for purposes of this Code, to prevent any violation or
circumvention of any provision of this Code.

There is "labor-only" contracting where the person supplying workers to an


employer does not have substantial capital or investment in the form of tools,
equipment, machineries, work premises, among others, and the workers
recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. In such cases, the person or
intermediary shall be considered merely as an agent of the employer who shall be
responsible to the workers in the same manner and extent as if the latter were
directly employed by him. (Emphasis supplied)

[37]
Amended and renumbered by DOLE Department Advisory No. 01, series of 2015
issued on July 21, 2015.

[38]
Rules Implementing Articles 106 to 109 of the Labor Code, as amended.

[39]
DO 18-02, Sec. 4(d).

[40]
681 Phil. 299 (2012).

[41]
Id. at 310-311.

[42]
CA rollo, p. 134.

[43]
Id.

[44]
Id. at 257-258.

[45]
Id. at 259-267.

[46]
Rollo, p. 125.

[47]
637 Phil. 115 (2010).

[48]
Id. at 129-130.

[49]
CA rollo, p. 124.

[50]
759 Phil. 353 (2015).

[51]
Id. at 367.

[52]
Section 7. Existence of an employer-employee relationship. The contractor or
subcontractor shall be considered the employer of the contractual employee for
purposes of enforcing the provisions of the Labor Code and other social legislation.
The principal, however, shall be solidarity liable with the contractor in the event of
any violation of any provision of the Labor Code, including the failure to pay wages.

The principal shall be deemed the employer of the contractual employee in any of
the following cases, as declared by a competent authority:

(a) where there is labor-only contracting; or


(b) where the contracting arrangement falls within the prohibitions
provided in Section 6 (Prohibitions) hereof. (Emphasis supplied)

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

[53]
ART. 297. [282] Termination by Employer. — An employer may terminate an
employment for any of the following causes:

(a) Serious misconduct or willful disobedience by the employee of the


lawful orders of his employer or representative in connection with his
work;
(b) Gross and habitual neglect by the employee of his duties;
(c) Fraud or willful breach by the employee of the trust reposed in him by
his employer or duly authorized representative;
(d) Commission of a crime or offense by the employee against the person
of his employer or any immediate member of his family or his duly
authorized representatives; and
(e) Other causes analogous to the foregoing.

[54]
ART. 298. [283] Closure of Establishment and Reduction of Personnel. — The
employer may also terminate the employment of any employee due to the installation
of labor-saving devices, redundancy, retrenchment to prevent losses or the closing or
cessation of operation of the establishment or undertaking unless the closing is for the
purpose of circumventing the provisions of this Title, by serving a written notice on
the workers and the Ministry of Labor and Employment at least one (1) month before
the intended date thereof. In case of termination due to the installation of labor-saving
devices or redundancy, the worker affected thereby shall be entitled to a separation
pay equivalent to at least his one (1) month pay or to at least one (1) month pay for
every year of service, whichever is higher. In case of retrenchment to prevent losses
and in cases of closures or cessation of operations of establishment or undertaking not
due to serious business losses or financial reverses, the separation pay shall be
equivalent to one (1) month pay or at least one-half (1/2) month pay for every year of
service, whichever is higher. A fraction of at least six (6) months shall be considered
one (1) whole year.

[55]
ART. 299. [284] Disease as Ground for Termination. — An employer may
terminate the services of an employee who has been found to be suffering from any
disease and whose continued employment is prohibited by law or is prejudicial to his
health as well as to the health of his co-employees: Provided, That he is paid
separation pay equivalent to at least one (1) month salary or to one-half (1/2) month
salary for every year of service, whichever is greater, a fraction of at least six (6)
months being considered as one (1) whole year.

[56]
773 Phil. 271 (2015).

[57]
Id. at 282.

[58]
553 Phil. 108 (2007).

[59]
Id. at 115-116.

[60]
See Generation One's Position Paper dated December 6, 2011, CA rollo, p. 210.

[61]
655 Phil. 133 (2011).

[62]
Id. at 140-141.

[63]
ART. 294. [279] Security of Tenure. — In cases of regular employment, the
employer shall not terminate the services of an employee except for a just cause or
when authorized by this Title. An employee who is unjustly dismissed from work shall
be entitled to reinstatement without loss of seniority rights and other privileges and to
his full backwages, inclusive of allowances, and to his other benefits or their monetary

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G.R. No. 227795 (Formerly UDK-15556), February 20, 2019

equivalent computed from the time his compensation was withheld from him up to the
time of his actual reinstatement.

[64]
Peak Ventures Corp. v. Heirs of Nestor B. Villareal, 141 Phil. 320, 335 (2014).

[65]
686 Phil. 889 (2012).

[66]
634 Phil. 364, 369 (2010).

[67]
Aliling v. Feliciano, supra note 65, at 916.

[68]
Montinola v. PAL, 742 Phil. 487, 505 (2014).

[69]
Id. at 510.

[70]
CIVIL CODE, Art. 2232.

[71]
See San Miguel Properties, Philippines, Inc. v. Gucaban, 669 Phil. 288 (2011).

[72]
375 Phil. 405, 418 (1999).

[73]
Aliling v. Feliciano, supra note 65, at 922.

[74]
716 Phil. 267 (2013). Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six
percent (6%) per annum shall be the prevailing rate of interest when applicable. Id. at
281.

[75]
See id. at 281.

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