CESAR C. LIRIO, DOING BUSINESS UNDER THE NAME AND STYLE OF CELKOR AD SONICMIX, PETITIONER, VS. WILMER D. GENOVIA, RESPONDENT.

Lirio versus Genovia

The Case

This is a labor case about the existence of an employer-employee relationship. Cesar Lirio, doing business under the name Celkor Ad Sonicmix Recording Studio, petitions the Supreme Court to reverse the Court of Appeals, which had found that Wilmer Genovia was his employee and had been illegally dismissed. Lirio insists that Genovia was not an employee at all but his informal partner in producing a music album. The case matters because it gathers in one place the four elements of employment, the rule on the employer's power of control, the burden of proof in dismissal cases, and the deference owed to the factual findings of the Labor Arbiter and the Court of Appeals over those of the National Labor Relations Commission.

Procedural History

Wilmer Genovia filed a complaint for illegal dismissal, unpaid commission, and damages before the Labor Arbiter. The Labor Arbiter, Renaldo Hernandez, ruled that an employer-employee relationship existed, that Genovia was a regular employee, and that he was illegally dismissed. The Labor Arbiter ordered the payment of backwages, separation pay in lieu of reinstatement, unpaid commission, and moral and exemplary damages.

Cesar Lirio appealed to the National Labor Relations Commission. The Commission reversed and set aside the Labor Arbiter's decision and dismissed the complaint, holding that Genovia failed to prove his employment by substantial evidence. Genovia's motion for reconsideration was denied.

Genovia then filed a petition for certiorari before the Court of Appeals. The Court of Appeals reversed the Commission, reinstated the Labor Arbiter's decision, but deleted the awards of commission and moral and exemplary damages for lack of substantiation. Lirio's motion for reconsideration was denied. Lirio then came to the Supreme Court by petition for review on certiorari.

Facts

In July 2001, Cesar Lirio, owner of Celkor Ad Sonicmix Recording Studio, was introduced to Wilmer Genovia, an amateur composer and arranger. Lirio wanted to produce an album for his daughter, Celine Mei Lirio. According to Genovia, he was hired as studio manager on August 15, 2001, with a monthly salary of 7,000 pesos and a commission of 100 pesos per hour whenever he worked as recording technician. He reported from Monday to Friday, nine in the morning to six in the evening, and half-day on Saturdays. He also composed and arranged songs for the album during his spare time, on Lirio's promise that a contract would assure his compensation.

By mid-November 2001, the compositions and arrangements were finished, and the vocals were recorded. From December 2001 to January 2002, Genovia did the digital editing, mixing, and sound engineering as studio manager. By early February 2002, the album was in its manufacturing stage, and its carrier single was aired over the radio on February 22, 2002.

On February 26, 2002, Genovia again asked about his compensation as composer and arranger. Lirio told him he was practically a nobody in the music industry and deserved only 20 percent of the net profit, from which his salaries would be deducted. Genovia objected. On March 14, 2002, Lirio verbally terminated his services and told him not to report for work. Lirio's defense was that no employment existed, since the studio had no personnel but himself, and that their arrangement was an informal partnership under Article 1767 of the Civil Code, with Lirio taking 60 percent of net profits and Genovia and Celine each taking 20 percent, against which Genovia's monthly draws of 7,000 pesos would be charged.

Issues

• Whether or not the Court of Appeals could review the factual findings of the National Labor Relations Commission in a petition for certiorari under Rule 65.
• Whether or not an employer-employee relationship existed between Cesar Lirio and Wilmer Genovia.
• Whether or not Wilmer Genovia was illegally dismissed and entitled to backwages and separation pay in lieu of reinstatement.

Applicable Provisions

Article 1767 of the Civil Code, which Lirio invoked to claim a partnership, provides:

By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

Lirio's whole defense rested on this provision, and its failure for want of proof is what left the employment relationship standing.

Article 277, paragraph (b) of the Labor Code, which fixes the burden of proof in dismissal cases, provides:

The burden of proving that the termination of an employee was for a valid or authorized cause shall rest on the employer.

This provision placed on Lirio the duty to show a lawful cause and due process, which he did not discharge.

Ruling

On the first issue, the Court held that Genovia correctly sought judicial review of the Commission's decision through a petition for certiorari under Rule 65 filed with the Court of Appeals, following the doctrine of St. Martin Funeral Home versus National Labor Relations Commission. Grave abuse of discretion means capricious and whimsical exercise of judgment equivalent to lack of jurisdiction. The Court of Appeals may grant the petition if the Commission capriciously, whimsically, or arbitrarily disregarded evidence material to or decisive of the controversy, and it cannot make that determination without looking into the evidence of the parties. Hence, the Court of Appeals could review the Commission's factual findings.

On the second issue, the Court laid down the four elements of an employment relationship: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the employer's power to control the employee's conduct. The most important is control, not only as to the result but also as to the means and methods. No particular form of evidence is required. Here, the payroll certified correct by Lirio and the petty cash vouchers showed that Genovia was hired and paid monthly wages of 7,000 pesos, with deductions for absences. Lirio wielded the power to dismiss, since Genovia was verbally dismissed. As to control, the Court held that the power of control refers merely to the existence of the power, and it is not essential that the employer actually supervise the employee's duties. Lirio himself admitted that he would teach Genovia how to use the studio equipment, so he certainly had the power to check on his progress and work. Against this, Lirio's claim of partnership was unsupported by any written agreement, and the deductions for absences negated his claim that the wages were mere advances against profits. The Court applied the rule that doubts between the evidence of the employer and the employee must be tilted in favor of the latter.

On the third issue, the Court held that in termination cases the burden is on the employer to show by substantial evidence that the termination was for a lawful cause and validly made. For a dismissal to be valid, it must be for a valid cause and the employee must be afforded due process, which requires two written notices: one apprising the employee of the acts or omissions charged, and another informing him of the dismissal after he has been given a reasonable opportunity to answer and be heard. Lirio complied with neither. The Court of Appeals therefore correctly affirmed the finding of illegal dismissal and the award of backwages and separation pay in lieu of reinstatement.

Doctrine

An employer-employee relationship is established by four elements: selection and engagement, payment of wages, the power of dismissal, and the employer's power of control over the employee's conduct as to the means and methods of the work. The power of control refers merely to the existence of the power; actual supervision is not required. No particular form of evidence is needed to prove employment, and any competent and relevant evidence may be admitted. A claim of partnership, like that under Article 1767 of the Civil Code, must be proved and cannot rest on a self-serving assertion; deductions from wages for absences negate the claim that such wages were advances against profits. In dismissal cases, Article 277, paragraph (b) of the Labor Code places the burden on the employer to prove a valid cause by substantial evidence, and procedural due process requires two written notices. Doubts arising from the evidence must be resolved in favor of the employee. Finally, the Court of Appeals may, in a Rule 65 petition, examine the evidence to determine whether the Commission gravely abused its discretion in disregarding evidence material to the controversy.

Disposition

The petition was denied, and the decision and resolution of the Court of Appeals were affirmed, with the result that Genovia won as an illegally dismissed employee entitled to backwages and separation pay in lieu of reinstatement.

Remember This

Memorize the line that the power of control refers merely to the existence of the power, not its actual exercise, and that the employer bears the burden of proving a lawful dismissal. Examiners use this case to test the four elements of employment, the two-notice rule of due process, and the scope of Rule 65 review of the Commission's factual findings.