G.R. No. 217575, June 15, 2016
South Cotabato Communications Corporation and Gauvain J. Benzonan, Petitioners, vs. Hon. Patricia Sto. Tomas, Secretary of Labor and Employment, Rolando Fabrigar, Merlyn Velarde, Vince Lamboc, Felipe Galindo, Leonardo Miguel, Julius Rubin, Edel Roderos, Merlyn Coliao, and Edgar Jopson, Respondents.

FACTS

On January 19, 2004, the Department of Labor and Employment (DOLE) Region-XII conducted a complaint inspection at the premises of DXCP Radio Station, owned by petitioner South Cotabato Communications Corporation. The inspection found violations of labor standards provisions involving the nine private respondents, including underpayment of wages, 13th month pay, non-payment of service incentive leave, rest day and holiday premium pays, and non-remittance of SSS contributions. A Notice of Inspection Result was issued directing petitioners to effect restitution. Petitioners failed to comply. A summary investigation was scheduled on March 3, 2004, but petitioners failed to appear. Another hearing was set for April 1, 2004; petitioners’ counsel failed to attend, and his secretary’s request for a resetting was denied by the DOLE Hearing Officer. Consequently, in an Order dated May 20, 2004, the DOLE Regional Director directed petitioners to pay the private respondents the aggregate amount of ₱759,752.00 for various monetary claims.
Petitioners appealed to the Secretary of Labor, arguing denial of due process (due to the refusal to reset the hearing) and lack of factual and legal basis for the Order, specifically pointing out the absence of a finding on the existence of an employer-employee relationship necessary for DOLE jurisdiction. The Secretary of Labor, in an Order dated November 8, 2004, affirmed the Regional Director’s Order, noting petitioners’ failure to question the violations or submit proof of compliance, and adopted the labor inspector’s findings as substantial evidence.
Petitioners elevated the case to the Court of Appeals (CA) via a Petition for Certiorari. The CA, in its Decision dated November 28, 2014, upheld the Secretary of Labor, ruling that petitioners could not claim denial of due process as their failure to present evidence was due to their own negligence. Petitioners’ motion for reconsideration, which cited a related NLRC case (NLRC No. MAC-01-010053-2008) where the NLRC found no employer-employee relationship between petitioners and three of the private respondents (Fabrigar, Jopson, and Velarde), was denied by the CA in a Resolution dated March 5, 2015. Hence, this petition.

ISSUE

Whether the Court of Appeals erred in upholding the Orders of the Secretary of Labor and the DOLE Regional Director, specifically concerning: (1) the alleged denial of due process to petitioners; and (2) the lack of a proper determination on the existence of an employer-employee relationship, which is a jurisdictional prerequisite for the DOLE’s exercise of power.

RULING

The Supreme Court GRANTED the petition. The Court of Appeals’ Decision and Resolution were SET ASIDE, and the Orders of the Secretary of Labor and the DOLE Regional Director were NULLIFIED.
1. On the Issue of Employer-Employee Relationship and DOLE Jurisdiction: The Supreme Court held that the existence of an employer-employee relationship is a jurisdictional prerequisite for the DOLE to exercise its power under Article 128 of the Labor Code to issue compliance orders for labor standards violations. The DOLE Regional Director’s Order dated May 20, 2004, which was affirmed by the Secretary of Labor and the CA, contained no categorical finding on the existence of such a relationship. This omission was a fatal defect. The Court emphasized that while the DOLE can make a preliminary determination of this relationship based on inspection findings, such a determination is not conclusive. When the existence of an employer-employee relationship is seriously contested, as it was by petitioners who consistently raised the issue, the DOLE must conduct a hearing to receive evidence and make a definitive ruling on this jurisdictional question. The failure to do so rendered the assailed Orders void for having been issued without jurisdiction.
2. On the Issue of Due Process: The Court found that petitioners were indeed denied due process. Their failure to present evidence during the summary investigation was not solely due to negligence. The Hearing Officer’s denial of the request for a resetting, coupled with the DOLE’s subsequent reliance solely on the inspection results without affording petitioners a meaningful opportunity to contest the foundational issue of employer-employee relationship, constituted a violation of procedural due process. The constitutional guarantee requires a hearing where a party can present evidence on the very issue that confers jurisdiction upon the tribunal.
Conclusion: The DOLE Regional Director and the Secretary of Labor acted with grave abuse of discretion amounting to lack or excess of jurisdiction by issuing and affirming the compliance order without first making a definitive, evidence-based finding on the existence of an employer-employee relationship, which is essential for their jurisdiction. Consequently, all proceedings stemming from the void Order were likewise null and void. The private respondents’ proper recourse for their monetary claims, should they choose to pursue them, is to file the appropriate action with the National Labor Relations Commission (NLRC) where the issue of employer-employee relationship can be fully threshed out.