FACTS:

In 1977, brothers Rodrigo and Ernesto Ruiz entered into agency agreements with Grepalife. In 1981, Ernesto was designated as the district manager, but he was later dismissed in 1983. The dismissal was attributed to his delayed remittance of premium collections and misappropriation of funds. Following Ernesto's dismissal, Grepalife named Rodrigo as the officer-in-charge to take over Ernesto's responsibilities. However, Rodrigo also engaged in similar infractions and was terminated in 1984.

Subsequently, both Rodrigo and Ernesto filed illegal dismissal cases. The labor arbiter determined that they were indeed employees of Grepalife and were dismissed without proper due process. The National Labor Relations Commission (NLRC) affirmed the labor arbiter's findings but altered the reinstatement order. Instead, the NLRC granted separation pay due to Grepalife's failure to uphold proper due process. Discontented with the NLRC's decision, Grepalife filed a petition questioning it.

The main issues raised in Grepalife's petition were whether Rodrigo and Ernesto could be considered employees of Grepalife and whether the NLRC made an error in awarding separation pay despite finding just cause for their dismissal.

ISSUES:

1. Whether or not there was grave abuse of discretion on the part of public respondent in holding that Ernesto and Rodrigo are employees of Grepalife.

2. Whether or not there was grave abuse of discretion on the part of public respondent in ordering the award of separation pay to private respondents as sanction for Grepalife's failure to accord them due process even though there was a finding of just cause for their dismissal.

RULING:

1. The Court finds no grave abuse of discretion in holding that Ernesto and Rodrigo are employees of Grepalife. The basis for their employment is the agency agreements they entered into with Grepalife, their designation as district manager and officer-in-charge, and their receipt of commissions and bonuses. The relationship between Grepalife and the Ruiz brothers is one of employer-employee, not principal-agent.

2. The Court finds no grave abuse of discretion in awarding separation pay to the private respondents as a sanction for Grepalife's failure to observe due process in their dismissal. While there was a finding of just cause for their dismissal, Grepalife failed to provide timely notice in writing of the grounds for dismissal as required by law. As a result, separation pay equivalent to one-half month's salary for every year of service was awarded to the private respondents.

PRINCIPLES:

• The relationship between an employer and an employee may be established through various factors such as agency agreements, designation, receipt of commissions and bonuses, and exercise of control over work hours.

• In cases of dismissal, due process requires that the employer provide timely notice in writing of the grounds for dismissal to the employee. Failure to observe due process may result in the award of separation pay as a sanction.