MARSMAN & COMPANY, INC., PETITIONER, V. RODIL C. STA. RITA, RESPONDENT.

Marsman versus Sta. Rita

The Case

This is a labor case about who the real employer is. Marsman and Company, Incorporated, now Metro Alliance Holdings and Equities Corporation, asks the Supreme Court to reverse the Court of Appeals, which had found the company guilty of illegally dismissing Rodil Sta. Rita and ordered it to pay backwages, separation pay, moral and exemplary damages, and attorney's fees. The company insists it was never Sta. Rita's employer at the time of his dismissal, because his employment had passed to Consumer Products Distribution Services, Incorporated, the operating company that succeeded to Marsman's distribution business. The case matters because it shows how the Supreme Court weighs the four-fold test of employment against the corporate documents and the actual conduct of the parties, and because it reminds us that a labor arbiter, the labor commission, and the appellate court may reach three different factual conclusions, which is precisely when the Supreme Court will step in and review the facts.

Procedural History

Sta. Rita filed a complaint for illegal dismissal with damages against Marsman before the labor arbiter of the National Labor Relations Commission in Quezon City. Marsman moved to dismiss on the ground that it was not his employer, but the labor arbiter denied the motion and, in a decision in April 2002, declared Sta. Rita illegally dismissed and ordered Marsman to pay backwages and separation pay. Marsman appealed to the National Labor Relations Commission, and Sta. Rita appealed on the denial of his damages and attorney's fees. In July 2008, the labor commission reversed the labor arbiter, vacated his decision, and dismissed the complaint for lack of an employer-employee relationship. It denied Sta. Rita's motion for reconsideration. Sta. Rita then went to the Court of Appeals on a petition for certiorari, imputing grave abuse of discretion. In June 2010, the Court of Appeals annulled the labor commission and found Marsman liable for illegal dismissal, awarding backwages, separation pay, moral damages, exemplary damages, and attorney's fees, and remanding the case to the labor arbiter for computation. Marsman then filed a petition for review on certiorari under Rule 45 before the Supreme Court.

Facts

Marsman was a domestic corporation engaged in the distribution and sale of pharmaceutical and consumer products. It hired Sta. Rita in November 1993 as a warehouse helper on a fixed contract, rehired him as a probationary warehouseman in April 1994, and confirmed him as a regular employee in September 1994. He joined the Marsman Employees Union, the recognized sole and exclusive bargaining representative of the company's rank and file employees. Marsman administered his warehouse assignments, moving him from its own warehouse to the warehouses of Kraft General Foods, Incorporated, and later to its consumer product division warehouse in Parañaque.

In July 1995, Marsman bought Metro Drug Distribution, Incorporated from Metro Pacific, Incorporated. Because the two businesses were similar, their employees were integrated under a Memorandum of Agreement dated June 1996 between Marsman and the union. The agreement acknowledged management's decision to limit Marsman to a holding company and to run Metro Drug as the main operating company, and to transfer all Marsman employees to Metro Drug effective July 1996, with their tenure carried over and no diminution of salaries and benefits. Metro Drug later changed its name to Consumer Products Distribution Services, Incorporated. That company then contracted its logistic services to EAC Distributors, and Sta. Rita was assigned as a warehouseman to the EAC-Libis Warehouse effective October 1997, a move a Marsman letter described as a transfer that is part of a cross-training program.

EAC's use of the Libis warehouse depended on its lease with Valiant Distribution. When Valiant terminated the lease at the end of January 2000, EAC moved its stocks to its own warehouse and ended its logistic service agreement with Consumer Products Distribution Services. Left with no work for those assigned to the Libis warehouse, that company notified Sta. Rita in a letter dated January 14, 2000 that his services would be terminated at the close of business on February 28, 2000 due to redundancy, that it could not accommodate him elsewhere, and that he would receive separation pay and other benefits. It reported the redundancy to the Department of Labor and Employment. Sta. Rita then sued Marsman for illegal dismissal.

Issues

• Whether or not an employer-employee relationship existed between Marsman and Sta. Rita at the time of his dismissal.
• Whether or not Sta. Rita was illegally dismissed, and who is liable for the consequences.

Applicable Provisions

The Labor Code defines an employer in this wise:

Employer means any person, natural or juridical, employing the services of the employee.

The labor arbiter used this definition to test whether Marsman, rather than the operating company, was Sta. Rita's employer.

The Labor Code also provides:

Employer includes any person acting in the interest of an employer directly or indirectly.

The labor arbiter relied on this broader definition to hold that Marsman acted in the interest of the operating company and therefore qualified as the employer.

On termination for redundancy, the Labor Code provides:

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 Code, by serving a written notice on the workers and the Ministry of Labor and Employment at least one month before the intended date thereof.

This provision supplies the standard against which the Court of Appeals measured the redundancy program, and it is the provision the operating company invoked when it gave notice to the Department of Labor and Employment.

Ruling

On the first issue, the Supreme Court ruled in favor of Marsman and held that no employer-employee relationship existed between Marsman and Sta. Rita at the time of his dismissal. The Court began by noting that the existence of an employer-employee relationship is essentially a question of fact, and that it is not a trier of facts, a rule that applies with greater force in labor cases. But it took the case because the factual findings of the labor arbiter, the labor commission, and the Court of Appeals varied, and because the findings below rested on insufficient or insubstantial evidence. Applying the four-fold test of selection and engagement, payment of wages, power of dismissal, and power of control, the Court found that the labor commission had correctly applied it. Marsman and the operating company are separate and distinct corporate entities. The operating company paid Sta. Rita's salaries and benefits, and Sta. Rita never claimed that Marsman still paid them. The operating company issued the termination notice. And the operating company exercised control over the means and methods of his work in carrying out its logistic services to EAC, control being the most decisive factor. The Court thus set aside the appellate court's reliance on Sta. Rita's refusal to sign the Memorandum of Agreement and on the cross-training label, since the agreement and the actual conduct of the parties showed that his employment had passed to the operating company.

On the second issue, because there was no employer-employee relationship between Marsman and Sta. Rita, Sta. Rita had no cause of action for illegal dismissal against Marsman, and the Court found it unnecessary to resolve the other issues, including the validity of the redundancy program. The Court of Appeals had found the redundancy program defective, but that finding could not be sustained against a party who was not the employer.

Doctrine

First, the existence of an employer-employee relationship is a question of fact determined by the four-fold test: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the power of control over the employee's means and methods of work, with the power of control being the most decisive factor. Second, the corporate separateness of a holding company and its operating successor is respected, so that the entity that actually pays the wages, wields the power of dismissal, and exercises control is the employer, and a complaint for illegal dismissal must be brought against that entity. Third, although the Supreme Court is not a trier of facts, it will review the facts when the labor arbiter, the labor commission, and the Court of Appeals reach conflicting findings, or when the findings rest on insufficient evidence, since the quantum of proof in labor cases is substantial evidence.

Disposition

The Supreme Court granted Marsman's petition, reversed the Court of Appeals, and reinstated the labor commission's dismissal of Sta. Rita's complaint for lack of an employer-employee relationship with Marsman.

Remember This

Memorize this line: the power of control is the most decisive factor in the four-fold test, and the employer is the entity that actually pays the wages, dismisses, and controls the work. Examiners use this case to test the four-fold test, the corporate separateness of a holding company from its operating successor, and the exception that lets the Supreme Court review facts when the labor tribunals and the Court of Appeals disagree.