DEVELOPMENT BANK OF THE PHILIPPINES, PETITIONER, VS. HONORABLE NATIONAL LABOR RELATIONS COMMISSION, EDILBERTO SALAYON, RICARDO ARINDUQUE, GLORIA AUREA, MANUEL DIZON, RODOLFO ENC…

Development Bank of the Philippines versus National Labor Relations Commission

The Case

This is a petition for certiorari brought by the Development Bank of the Philippines against the National Labor Relations Commission and a group of sugar mill workers led by Edilberto Salayon. The workers sued for unpaid salaries and wages, allowances, and separation pay after the sugar mill where they worked shut down. The labor arbiter and the Commission held the bank liable as their employer. The bank came to the Supreme Court insisting it never was. The case matters because it is the Court's cleanest statement of the four elements of an employer-employee relationship and of the rule that a buyer at a foreclosure sale does not inherit the old owner's labor liabilities unless he expressly assumes them or buys in bad faith.

Procedural History

The workers filed their complaint for money claims with the labor arbiter against the bank and the Consolidated Sugar Corporation. Labor Arbiter Andres Palumbarit sustained the complaint and ordered the bank to pay allowances, unpaid salaries and wages, separation pay, and attorney's fees. The bank appealed to the National Labor Relations Commission, which affirmed the arbiter and dismissed the appeal for lack of merit. The bank then came to the Supreme Court on a petition for certiorari, assigning as errors the findings that it had stepped into the shoes of the old corporation, that the workers became its employees, and that the mill operations were for its account.

Facts

In 1967, CAREBI secured a loan from the bank, mortgaging its sugar mill and refinery in Botolan, Zambales. CAREBI failed to pay, and in July 1977 the bank foreclosed the mortgage, itself bidding highest at the sale. CAREBI continued to operate the mill until it ceased operations on April 30, 1978, laying off its workers that same day without paying separation benefits.

Meanwhile, CAREBI's president, Dr. Pacifico Marcos, together with four others, organized the Consolidated Sugar Corporation, which proposed a management contract with the bank over the same mill. In August 1978 the bank agreed to continue the business under the management and operation of the new corporation, and the laid-off workers were recalled. Under the contract, the bank funded rehabilitation and repair, designated a comptroller and assistant comptroller to monitor operations and draw checks for operating expenses, and approved all monthly budgets. The new corporation handled operational revenues, out of which expenses were deducted, and bound itself to hold the bank free from all liabilities arising from the use, management, and operation of the mill. The bank also held six of the eleven seats on the new corporation's board.

After two years and one month, the bank's Board of Governors resolved to terminate the management contract and to assume payment of back salaries, allowances, and separation pay of CAREBI employees entitled thereto. The bank terminated the contract effective September 30, 1981. One group of seventy-seven employees filed claims and settled by compromise, receiving an average of 2,137 pesos and 63 centavos each and signing quitclaims. A second group of eighteen employees, later joined by sixteen more, filed the present complaint. The new corporation and the claimants imputed liability to the bank, claiming they had become its employees. The bank filed no position paper.

Issues

• Whether or not an employer-employee relationship existed between the bank and the private respondents.
• Whether or not the bank stepped into the shoes of CAREBI and assumed its liabilities to the employees.
• Whether or not the new corporation, as private respondents' employer, is obliged to pay their money claims.

Applicable Provisions

The decision does not quote a statute; it applies the settled common-law test for employment, which the Court states as follows:

In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; (4) the power to control the employee's conduct - although the latter is the most important element.

This four-element test is the measure against which the bank's liability rises or falls.

The Court also states the control test in these words:

The right of control test "where the person for whom the services are performed reserves a right to control not only the end to be achieved but also the means to be used in reaching such end" belonging to respondent CSC is determinative of the existence of an employer-employee relationship.

Control over the means and methods of the work, not mere supervision of the result, is what creates the employment relation.

On the transfer of liabilities, the Court lays down the rule:

Anent the finding of NLRC that petitioner DBP stepped into the shoes of Carebi and assumed its liabilities insofar as the employees are concerned, the said ruling appears implausible since the liabilities incurred by the old owner of the establishment to his employees prior to the sale will not be enforceable against the transferee unless the latter expressly assumed the same, or the sale was made in bad faith.

This governs whether the bank inherited CAREBI's obligations to the workers.

Ruling

On the first issue, the Court ruled that no employer-employee relationship existed between the bank and the private respondents. The Court acknowledged that the existence of such a relationship is a question of fact and that findings of the Commission are generally accorded respect and finality if supported by substantial evidence. But it held that the circumstances belied the finding. The workers' services had been terminated by CAREBI's president in April 1978; the new corporation agreed to use, manage, and operate the mill; that corporation was an independent contractor with substantial capital, which provided the manning requirements and funded operating expenses such as salaries, social security, medicare, and emergency allowances; and it was the new corporation that exercised the right of control over the conduct of the workers, the bank never having had a hand in their supervision. Absent the power to control the employees with respect to the means and methods by which their work was to be accomplished, there was no employer-employee relationship, and hence no basis for any award against the bank.

On the second issue, the Court rejected the finding that the bank stepped into the shoes of CAREBI. The liabilities incurred by the old owner to his employees before the sale are not enforceable against the transferee unless the latter expressly assumed them or the sale was made in bad faith, and neither circumstance obtained. The bank's resolution to assume payment of back salaries and separation pay did not, in the Court's view, amount to such an express assumption of the old owner's liabilities.

On the third issue, the Court held that the new corporation, which was apparently the private respondents' employer, is obliged to pay the claims.

Doctrine

First, an employer-employee relationship is determined by four elements: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the power to control the employee's conduct, the last being the most important. Second, the control test asks whether the person for whom services are performed reserves the right to control not only the end to be achieved but also the means to be used in reaching that end. Third, a buyer at a foreclosure sale does not inherit the old owner's labor liabilities unless he expressly assumes them or the sale was made in bad faith. Fourth, findings of fact of the National Labor Relations Commission are accorded respect and finality only if supported by substantial evidence.

Disposition

The petition was granted, the decision of the National Labor Relations Commission was reversed and set aside, and the complaint against the bank was dismissed.

Remember This

Memorize the four elements of employment with control as the most important, and the rule that a transferee at a foreclosure sale assumes the old owner's labor liabilities only by express assumption or bad faith. Examiners use this case to test the control test and the non-assumption of labor liabilities by a mortgagee who buys at the foreclosure sale.