CASE DIGEST IN LABOR LAW

SEPTEMBER 15, 2022

G.R. No. 79182 September 11, 1991

PNOC-ENERGY DEVELOPMENT CORPORATION, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION (Third Division) and DANILO MERCADO, respondents.

FACTS

Private respondent Mercado was first employed by herein petitioner Philippine National Oil Company-Energy Development
Corporation (PNOC-EDC for brevity) on August 13, 1979. On June 30, 1985, private respondent Mercado was dismissed.

The grounds for the dismissal of Mercado are allegedly serious acts of dishonesty.

On September 23, 1985, private respondent Mercado filed a complaint for illegal dismissal, retirement benefits, separation pay,
unpaid wages, etc. against petitioner PNOC-EDC.

Petitioner PNOC-EDC filed its Position Paper/Motion to Dismiss praying for the dismissal of the case on the ground that the
Labor Arbiter and/or the NLRC had no jurisdiction over the case.

ISSUES

1. Whether or not matters of employment affecting the PNOC-EDC, a government-owned and controlled corporation,
are within the jurisdiction of the Labor Arbiter and the NLRC.

2. Assuming the affirmative, whether or not the Labor Arbiter and the NLRC are justified in ordering the reinstatement
of private respondent, payment of his savings, and proportionate 13th month pay and payment of damages as well as
attorney's fee.

RULING

1.

Court ruled that the doctrine that employees of government-owned and/or con controlled corporations, whether created by
special law or formed as subsidiaries under the General Corporation law are governed by the Civil Service Law and not by the
Labor Code, has been supplanted by the present Constitution. "Thus, under the present state of the law, the test in determining
whether a government-owned or controlled corporation is subject to the Civil Service Law are the manner of its creation, such
that government corporations created by special charter are subject to its provisions while those incorporated under the General
Corporation Law are not within its coverage."

Specifically, the PNOC-EDC having been incorporated under the General Corporation Law was held to be a government owned
or controlled corporation whose employees are subject to the provisions of the Labor Code ( Ibid.).

The fact that the case arose at the time when the 1973 Constitution was still in effect, does not deprive the NLRC of jurisdiction
on the premise that it is the 1987 Constitution that governs because it is the Constitution in place at the time of the decision.

In the case at bar, the decision of the NLRC was promulgated on July 3, 1987. Accordingly, this case falls squarely under the
rulings of the aforementioned cases.

2.

Indisputably, the requirements of due process are satisfied when the parties are given an opportunity to submit position papers.
What the fundamental law abhors is not the absence of previous notice but rather the absolute lack of opportunity to ventilate a
party's side. There is no denial of due process where the party submitted its position paper and flied its motion for
reconsideration. Petitioner's subsequent Motion for Reconsideration and/or Appeal has the effect of curing whatever irregularity
might have been committed in the proceedings below.

Furthermore, it has been consistently held that findings of administrative agencies which have acquired expertise because their
jurisdiction is confined to specific matters are accorded not only respect but even finality (Asian Construction and Development
Corporation vs. NLRC, 187 SCRA 784 [July 27, 1990]; Lopez Sugar Corporation vs. Federation of Free Workers, 189 SCRA 179
[August 30, 1990]). Judicial review by this Court does not go so far as to evaluate the sufficiency of the evidence but is limited to
issues of jurisdiction or grave abuse of discretion (Filipinas Manufacturers Bank vs. NLRC, 182 SCRA 848 [February 28, 1990]).
A careful study of the records shows no substantive reason to depart from these established principles.

While it is true that loss of trust or breach of confidence is a valid ground for dismissing an employee, such loss or breach of trust
must have some basis. As found by the Labor Arbiter, the accusations of petitioner PNOC-EDC against private respondent
Mercado have no basis. Mrs. Leonardo Nodado, from whom the nipa shingles were purchased, sufficiently explained in her
affidavit that the total purchase price of P1,680.00 was paid by respondent Mercado as agreed upon. The alleged discount given
by Mrs. Nodado is not supported by evidence as well as the alleged appropriation of P8.66 from the cost of fabrication of rubber
stamps. The Labor Arbiter, likewise, found no evidence to support the alleged violation of company rules. On the contrary, he
found respondent Mercado's explanation in his affidavit (Rollo, pp. 38-40) as to the alleged violations to be satisfactory.
Moreover, these findings were never contradicted by petitioner petitioner PNOC-EDC.

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G.R. No. 111722 May 27, 1997

ALPHA INVESTIGATION AND SECURITY AGENCY, INC. (AISA), petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION, THIRD DIVISION, and WILLIAM GALIMBA, NESTOR LOLOQUISEN,
NESTOR IBUYAT, CARLITO CASTRO, JOSE PERDIDO, FELIPE TOLENTINO, LEONARDO IBUYAT, FELINO CULANNAY
RONIE NINO, ROMAN NALUNDASAN, JAIME FONTANILLA, WILFRED BUTAY, JOSE ACIO, EDISON VALDEZ, CRESENCIO
AGRES, RODRIGO LUIS, MARIO SUGUI, BENEDICTO SUGUI, ROGER RAMBAUD, respondents.

ISSUE

May the principal of a security service agreement be held jointly and severally liable with the contractor for non-payment of the
minimum wage?

FACTS

Petitioner (AISA) is a private corporation engaged in the business of providing security services to its clients, one of whom is the
(DMMSU).

Five months later, 43 security guards filed before the Regional Office of the (DOLE) a complaint against AISA for non-
compliance with the current minimum wage order. The remaining 19 security guards filed their individual amended complaints
impleading DMMSU as party-respondent.

Private respondents have been receiving a monthly salary of P900.00 although the security service agreement between AISA
and DMMSU 1 provided a monthly pay of P1,200.00 for each security guard. AISA made representations with DMMSU for an
increase in the contract rates of the security guards to enable them to pay the mandated minimum wage rates without
compromising its administrative and operational expenses. DMMSU, however, replied that, being a government corporation, it
cannot grant said request due to budgetary constraints.

The NLRC rendered a decision affirming the solidary liability of AISA and DMMSU and remanding the records of the case to the
arbitration branch of origin for computation of the salary differentials awarded by the Labor Arbiter.

The judgment against DMMSU, finding it jointly and severally liable with AISA for the payment of increase in wages, became final
and executory after it failed to file a petition for certiorari with this Court within a reasonable time. "Although Rule 65 does not
specify any period for the filing of a petition for certiorari and mandamus, it must, nevertheless, be filed within a reasonable time.
In certiorari cases, the definitive rule now is that such reasonable time is within three months from the commission of the
complained act." 3

In this petition, AISA alleges that payment of the wage increases under the current minimum wage order should be borne
exclusively by DMMSU.

RULING

AISA's solidary liability for the amounts due the security guards finds support in Articles 106, 107 and 109 of the Labor Code, to
wit:

Art. 106. Contractor or Sub-Contractor. 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 sub-contractor, if any, shall be paid in accordance with the
provisions of this code.
In the event that the contractor or sub-contractor 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 sub-contractor 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. . . .

Art. 107. Indirect employer. The provisions of the immediately preceding Article shall likewise apply to any person, partnership,
association or corporation which, not being an employer, contracts with an independent contractor for the performance of any
work, task, job or project.

Art. 109. Solidary Liability. The provisions of existing laws to the contrary notwithstanding, every employer or indirect employer
shall be held responsible with his contractor or sub-contractor for any violation of any provision of this Code. For purposes of
determining the extent of their civil liability under the Chapter, they shall be considered as direct employers.

The joint and several liability of the contractor and the principal is mandated by the Labor Code to ensure compliance with its
provisions, including the statutory minimum wage. 7 The contractor is made liable by virtue of his status as direct employer, while
the principal becomes the indirect employer of the former's employees for the purpose of paying their wages in the event of
failure of the contractor to pay them. This gives the workers ample protection consonant with the labor and social justice
provisions of the 1987 Constitution. 8

In the case at bar, it is not disputed that private respondents are the employees of AISA. Neither is there any question that they
were assigned to guard the premises of DMMSU pursuant to the latter's security service agreement with AISA and that these two
entities paid their wage increases.

It is to be borne in mind that wage orders, being statutory and mandatory, cannot be waived. AISA cannot escape liability since
the law provides for the joint and solidary liability of the principal and the contractor to protect the laborers. 9 

Section 6 of RA 6727 merely provides that in case of wage increases resulting in a salary differential, the liability of the principal
and contractor shall be joint and several. The same liability attaches under Articles 106, 107 and 109 of the Labor Code, which
refer to the prevailing standard minimum wage.

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G.R. No. 163269             April 19, 2006

ROLANDO C. RIVERA, Petitioner,
vs.
SOLIDBANK CORPORATION, Respondent.

FACTS

Petitioner had been working for Solidbank Corporation. He was initially employed as an Audit Clerk, then as Credit Investigator,
Senior Clerk, Assistant Accountant, and Assistant Manager. Prior to his retirement, he became the Manager of the Credit
Investigation and Appraisal Division of the Consumer’s Banking Group. In the meantime, Rivera and his brother-in-law put up a
poultry business in Cavite.

Deciding to devote his time and attention to his poultry business in Cavite, Rivera applied for retirement. Solidbank approved the
application and Rivera was entitled to receive the net amount of P963,619.28. Rivera received the amount and confirmed his
separation from Solidbank.

Subsequently, Solidbank required Rivera to sign an undated Release, Waiver and Quitclaim AND UNDERTAKING.

When Rivera refused to return the amount demanded within the given period, Solidbank filed a complaint for Sum of Money with
Prayer for Writ of Preliminary Attachment 14 before the Regional Trial Court (RTC) of Manila on June 26, 1995. Solidbank, as
plaintiff, alleged therein that in accepting employment with a competitor bank for the same position he held in Solidbank before
his retirement, Rivera violated his Undertaking under the SRP. Considering that Rivera accepted employment with Equitable
barely three months after executing the Undertaking, it was clear that he had no intention of honoring his commitment under said
deed.

ISSUES (1) whether the parties raised a genuine issue in their pleadings, affidavits, and documents, that is, whether the
employment ban incorporated in the Undertaking which petitioner executed upon his retirement is unreasonable, oppressive,
hence, contrary to public policy; and (2) whether petitioner is liable to respondent for the restitution of P963,619.28 representing
his retirement benefits, and interest thereon at 12% per annum as of May 23, 1995 until payment of the full amount.

RULING

The petition is meritorious.

A genuine issue is an issue of fact which requires the presentation of evidence as distinguished from an issue which is a sham,
fictitious, contrived or a false claim. The trial court can determine a genuine issue on the basis of the pleadings, admissions,
documents, affidavits or counteraffidavits submitted by the parties. When the facts as pleaded appear uncontested or
undisputed, then there is no real or genuine issue or question as to any fact and summary judgment called for. On the other
hand, where the facts pleaded by the parties are disputed or contested, proceedings for a summary judgment cannot take the
place of a trial.29 The evidence on record must be viewed in light most favorable to the party opposing the motion who must be
given the benefit of all favorable inferences as can reasonably be drawn from the evidence. 30

In this case, there is no dispute between the parties that, in consideration for his availment of the SRP, petitioner executed the
Release, Waiver and Quitclaim, and the Undertaking as supplement thereto, and that he received retirement pay amounting
to P963,619.28 from respondent. Within the one-year ban and without prior knowledge of respondent, petitioner was employed
by Equitable as Manager of its Credit Investigation and Appraisal Division, Consumers’ Banking Group. Despite demands,
petitioner failed to return the P963,619.28 to respondent on the latter’s allegation that he had breached the one-year ban by
accepting employment from Equitable, which according to respondent was a competitor bank.

We agree with petitioner’s contention that the issue as to whether the post-retirement competitive employment ban incorporated
in the Undertaking is against public policy is a genuine issue of fact, requiring the parties to present evidence to support their
respective claims.

As gleaned from the records, petitioner made two undertakings. The second undertaking is incorporated in the Undertaking
following petitioner’s execution of the Release, Waiver and Quitclaim which reads:

4. That as a supplement to the Release and Quitclaim, I executed in favor of Solidbank on  FEBRUARY 28, 1995, I hereby
expressly undertake that I will not seek employment with any competitor bank or financial institution within one (1) year from
February 28, 1995.41

In the Release, Waiver and Quitclaim, petitioner declared that respondent may bring "an action for damages which may include,
but not limited to the return of whatever sums he may have received from respondent under said deed if he breaks his
undertaking therein."42 On the other hand, petitioner declared in the Undertaking that "any breach on his part of said Undertaking
or the terms and conditions of the Release, Waiver and Quitclaim will entitle respondent to a cause of action against [petitioner]
for protection before the appropriate courts of law." 43

Article 1306 of the New Civil Code provides that the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public
policy. The freedom of contract is both a constitutional and statutory right. 44 A contract is the law between the parties and courts
have no choice but to enforce such contract as long as it is not contrary to law, morals, good customs and against public policy.

The well-entrenched doctrine is that the law does not relieve a party from the effects of an unwise, foolish or disastrous contract,
entered into with full awareness of what he was doing and entered into and carried out in good faith. Such a contract will not be
discarded even if there was a mistake of law or fact. Courts have no jurisdiction to look into the wisdom of the contract entered
into by and between the parties or to render a decision different therefrom. They have no power to relieve parties from obligation
voluntarily assailed, simply because their contracts turned out to be disastrous deals. 45

On the other hand, retirement plans, in light of the constitutional mandate of affording full protection to labor, must be liberally
construed in favor of the employee, it being the general rule that pension or retirement plans formulated by the employer are to
be construed against it.46 Retirement benefits, after all, are intended to help the employee enjoy the remaining years of his life,
releasing him from the burden of worrying for his financial support, and are a form of reward for being loyal to the employer. 47

In the present case, the trial court ruled that the prohibition against petitioner accepting employment with a competitor bank or
financial institution within one year from February 28, 1995 is not unreasonable. The appellate court held that petitioner was
estopped from assailing the post-retirement competitive employment ban because of his admission that he signed the
Undertaking and had already received benefits under the SRP.

The rulings of the trial court and the appellate court are incorrect.

There is no factual basis for the trial court’s ruling, for the simple reason that it rendered summary judgment and thereby
foreclosed the presentation of evidence by the parties to prove whether the restrictive covenant is reasonable or not. Moreover,
on the face of the Undertaking, the post-retirement competitive employment ban is unreasonable because it has no geographical
limits; respondent is barred from accepting any kind of employment in any competitive bank within the proscribed period.
Although the period of one year may appear reasonable, the matter of whether the restriction is reasonable or unreasonable
cannot be ascertained with finality solely from the terms and conditions of the Undertaking, or even in tandem with the Release,
Waiver and Quitclaim.

Undeniably, petitioner retired under the SRP and received P963,619.28 from respondent. However, petitioner is not proscribed,
by waiver or estoppel, from assailing the post-retirement competitive employment ban since under Article 1409 of the New Civil
Code, those contracts whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy are
inexistent or void from the beginning. Estoppel cannot give validity to an act that is prohibited by law or one that is against public
policy.51

Respondent, as employer, is burdened to establish that a restrictive covenant barring an employee from accepting a competitive
employment after retirement or resignation is not an unreasonable or oppressive, or in undue or unreasonable restraint of trade,
thus, unenforceable for being repugnant to public policy.

Thus, in determining whether the contract is reasonable or not, the trial court should consider the following factors: (a) whether
the covenant protects a legitimate business interest of the employer; (b) whether the covenant creates an undue burden on the
employee; (c) whether the covenant is injurious to the public welfare; (d) whether the time and territorial limitations contained in
the covenant are reasonable; and (e) whether the restraint is reasonable from the standpoint of public policy. 62

Not to be ignored is the fact that the banking business is so impressed with public interest where the trust and interest of the
public in general is of paramount importance such that the appropriate standard of diligence must be very high, if not the highest
degree of diligence.63

We are not impervious of the distinction between restrictive covenants barring an employee to accept a post-employment
competitive employment or restraint on trade in employment contracts and restraints on post-retirement competitive employment
in pension and retirement plans either incorporated in employment contracts or in collective bargaining agreements between the
employer and the union of employees, or separate from said contracts or collective bargaining agreements which provide that an
employee who accepts post retirement competitive employment will forfeit retirement and other benefits or will be obliged to
restitute the same to the employer. The strong weight of authority is that forfeitures for engaging in subsequent competitive
employment included in pension and retirement plans are valid even though unrestricted in time or geography. The raison d’etre
is explained by the United States Circuit Court of Appeals in Rochester Corporation v. W.L. Rochester, Jr.: 64

x x x The authorities, though, generally draw a clear and obvious distinction between restraints on competitive employment in
employment contracts and in pension plans. The strong weight of authority holds that forfeitures for engaging in subsequent
competitive employment, included in pension retirement plans, are valid, even though unrestricted in time or geography. The
reasoning behind this conclusion is that the forfeiture, unlike the restraint included in the employment contract, is not a prohibition
on the employee’s engaging in competitive work but is merely a denial of the right to participate in the retirement plan if he does
so engage. A leading case on this point is Van Pelt v. Berefco, Inc., supra, 208 N.E.2d at p. 865, where, in passing on a forfeiture
provision similar to that here, the Court said:

"A restriction in the contract which does not preclude the employee from engaging in competitive activity, but simply provides for
the loss of rights or privileges if he does so is not in restraint of trade." (emphasis added) 65

A post-retirement competitive employment restriction is designed to protect the employer against competition by former
employees who may retire and obtain retirement or pension benefits and, at the same time, engage in competitive employment. 66

We have reviewed the Undertaking which respondent impelled petitioner to sign, and find that in case of failure to comply with
the promise not to accept competitive employment within one year from February 28, 1995, respondent will have a cause of
action against petitioner for "protection in the courts of law." The words "cause of action for protection in the courts of law" are so
broad and comprehensive, that they may also include a cause of action for prohibitory and mandatory injunction against
petitioner, specific performance plus damages, or a damage suit (for actual, moral and/or exemplary damages), all inclusive of
the restitution of the P963,619.28 which petitioner received from respondent. The Undertaking and the Release, Waiver and
Quitclaim do not provide for the automatic forfeiture of the benefits petitioner received under the SRP upon his breach of said
deeds. Thus, the post-retirement competitive employment ban incorporated in the Undertaking of respondent does not, on its
face, appear to be of the same class or genre as that contemplated in Rochester.

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G.R. No. 163512             February 28, 2007

DAISY B. TIU, Petitioner
vs.
PLATINUM PLANS PHIL., INC., Respondent.

The relevant facts are as follows:

Respondent Platinum Plans Philippines, Inc. is a domestic corporation engaged in the pre-need industry. From 1987 to 1989,
petitioner Daisy B. Tiu was its Division Marketing Director.
On January 1, 1993, respondent re-hired petitioner of its Hongkong and Asean operations. The parties executed a contract of
employment valid for five years.4

On September 16, 1995, petitioner stopped reporting for work. In November 1995, she became the Vice-President for Sales of
Professional Pension Plans, Inc., a corporation engaged also in the pre-need industry.

Consequently, respondent sued petitioner for damages. Respondent alleged, among others, that petitioner’s employment with
Professional Pension Plans, Inc. violated the non-involvement clause in her contract of employment.

Petitioner countered that the non-involvement clause was unenforceable for being against public order or public policy: First, the
restraint imposed was much greater than what was necessary to afford respondent a fair and reasonable protection. Petitioner
contended that the transfer to a rival company was an accepted practice in the pre-need industry. Since the products sold by the
companies were more or less the same, there was nothing peculiar or unique to protect. Second, respondent did not invest in
petitioner’s training or improvement. At the time petitioner was recruited, she already possessed the knowledge and expertise
required in the pre-need industry and respondent benefited tremendously from it. Third, a strict application of the non-
involvement clause would amount to a deprivation of petitioner’s right to engage in the only work she knew.

Trial court ruled that a contract in restraint of trade is valid provided that there is a limitation upon either time or place. In the case
of the pre-need industry, the trial court found the two-year restriction to be valid and reasonable.

On appeal, the Court of Appeals affirmed the trial court’s ruling. It reasoned that petitioner entered into the contract on her own
will and volition. Thus, she bound herself to fulfill not only what was expressly stipulated in the contract, but also all its
consequences that were not against good faith, usage, and law. The appellate court also ruled that the stipulation prohibiting
non-employment for two years was valid and enforceable considering the nature of respondent’s business.

ISSUE

whether the non-involvement clause is valid.

RULING

As early as 1916, we already had the occasion to discuss the validity of a non-involvement clause. In Ferrazzini v. Gsell, 8 we
said that such clause was unreasonable restraint of trade and therefore against public policy. In  Ferrazzini, the employee was
prohibited from engaging in any business or occupation in the Philippines for a period of five years after the termination of his
employment contract and must first get the written permission of his employer if he were to do so. The Court ruled that while the
stipulation was indeed limited as to time and space, it was not limited as to trade. Such prohibition, in effect, forces an employee
to leave the Philippines to work should his employer refuse to give a written permission.

In G. Martini, Ltd. v. Glaiserman, 9 we also declared a similar stipulation as void for being an unreasonable restraint of trade.
There, the employee was prohibited from engaging in any business similar to that of his employer for a period of one year. Since
the employee was employed only in connection with the purchase and export of abaca, among the many businesses of the
employer, the Court considered the restraint too broad since it effectively prevented the employee from working in any other
business similar to his employer even if his employment was limited only to one of its multifarious business activities.

However, in Del Castillo v. Richmond,10 we upheld a similar stipulation as legal, reasonable, and not contrary to public policy. In
the said case, the employee was restricted from opening, owning or having any connection with any other drugstore within a
radius of four miles from the employer’s place of business during the time the employer was operating his drugstore. We said
that a contract in restraint of trade is valid provided there is a limitation upon either time or place and the restraint upon one party
is not greater than the protection the other party requires.

Finally, in Consulta v. Court of Appeals, 11 we considered a non-involvement clause in accordance with Article 1306 12 of the Civil
Code. While the complainant in that case was an independent agent and not an employee, she was prohibited for one year from
engaging directly or indirectly in activities of other companies that compete with the business of her principal. We noted therein
that the restriction did not prohibit the agent from engaging in any other business, or from being connected with any other
company, for as long as the business or company did not compete with the principal’s business. Further, the prohibition applied
only for one year after the termination of the agent’s contract and was therefore a reasonable restriction designed to prevent acts
prejudicial to the employer.

Conformably then with the aforementioned pronouncements, a non-involvement clause is not necessarily void for being in
restraint of trade as long as there are reasonable limitations as to time, trade, and place.

In this case, the non-involvement clause has a time limit: two years from the time petitioner’s employment with respondent ends.
It is also limited as to trade, since it only prohibits petitioner from engaging in any pre-need business akin to
respondent’s.1awphi1.net
More significantly, since petitioner was the Senior Assistant Vice-President and Territorial Operations Head in charge of
respondent’s Hongkong and Asean operations, she had been privy to confidential and highly sensitive marketing strategies of
respondent’s business. To allow her to engage in a rival business soon after she leaves would make respondent’s trade secrets
vulnerable especially in a highly competitive marketing environment. In sum, we find the non-involvement clause not contrary to
public welfare and not greater than is necessary to afford a fair and reasonable protection to respondent. 13

In any event, Article 1306 of the Civil Code provides that parties to a contract may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public
policy.

Article 115914 of the same Code also provides that obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. Courts cannot stipulate for the parties nor amend their agreement
where the same does not contravene law, morals, good customs, public order or public policy, for to do so would be to alter the
real intent of the parties, and would run contrary to the function of the courts to give force and effect thereto. 15 Not being contrary
to public policy, the non-involvement clause, which petitioner and respondent freely agreed upon, has the force of law between
them, and thus, should be complied with in good faith. 16

Thus, as held by the trial court and the Court of Appeals, petitioner is bound to pay respondent ₱100,000 as liquidated damages.
While we have equitably reduced liquidated damages in certain cases, 17 we cannot do so in this case, since it appears that even
from the start, petitioner had not shown the least intention to fulfill the non-involvement clause in good faith.