G.R. No. 92772 November 28, 1996
SAN MIGUEL JEEPNEY SERVICE and MAMERTO GALACE, petitioners, vs. NATIONAL LABOR RELATIONS COMMISSION, EDELBERTO PADUA and 23 OTHERS, respondents.

FACTS

Petitioner San Miguel Jeepney Service (SMJS) had a contract to provide transportation services for the U.S. Naval Base in Zambales. The 23 complainants, consisting of drivers, dispatchers, and a mechanic, worked for SMJS for two to eight years and were paid on a commission basis. When the contract with the naval base expired, petitioner Mamerto Galace, the owner, opted not to renew it due to alleged financial losses. Consequently, the complainants’ services were terminated. They filed a complaint for various monetary claims, including underpayment of minimum wage, non-payment of 13th month pay, holiday pay, overtime pay, service incentive leave pay, and separation pay.
The Labor Arbiter dismissed most claims, ruling that workers paid purely on commission were not entitled to holiday pay, 13th month pay, and service incentive leave. However, he granted separation pay to the drivers, finding the cessation of operations was not due to serious business losses under Article 283 of the Labor Code. The NLRC modified this, ruling that all complainants were regular employees entitled to separation pay, and ordered its computation based on the minimum wage. Petitioners challenged this, arguing commission-based workers were not regular employees and that closure due to non-renewal of a sole contract constituted serious business losses exempting them from separation pay liability.

ISSUE

The primary issues were: (1) Whether workers paid on a commission basis are regular employees entitled to separation pay; and (2) What constitutes “serious business losses” justifying closure without payment of separation pay under Article 283 of the Labor Code.

RULING

The Supreme Court affirmed the NLRC. On the first issue, the Court held that the complainants were regular employees. The nature of their compensation (commission) does not determine their employment status. Regularity is determined by whether the employee has been engaged to perform activities necessary or desirable in the employer’s usual business. As drivers, dispatchers, and a mechanic integral to SMJS’s transport service, they were regular employees under Article 280 of the Labor Code. Being regular employees, they were entitled to separation pay upon termination due to closure.
On the second issue, the Court ruled that the closure did not result from “serious business losses” as defined by law. The employer bears the burden of proving such losses with clear and convincing evidence, such as audited financial documents showing a sustained downward trend. Petitioners merely alleged losses without submitting audited financial statements or tax returns. The non-renewal of a single contract, without sufficient proof of grave financial reverses, does not constitute the serious business losses required by Article 283 to exempt an employer from paying separation pay. Therefore, the grant of separation pay equivalent to one-half month pay per year of service, computed based on the prevailing minimum wage, was proper.