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MARIETTA N. PORTILLO v. RUDOLF LIETZ

FACTS:

The petitioner, Marietta N. Portillo, was hired by the respondent, Rudolf Lietz, Inc., under an employment contract that included a "Goodwill Clause." The clause stated that after the termination of Portillo's employment, she could not engage in similar or competitive business directly or indirectly for a period of three years, and failure to comply would result in payment of liquidated damages. Three years after her resignation, Portillo declared her intention to engage in a rice dealership business. The respondent reminded her of the "Goodwill Clause," and Portillo claimed that the latest contract she signed did not contain such a clause. The respondent clarified that the clause remains in effect regardless of the absence in the latest contract. Later, the respondent discovered that Portillo had been hired by a direct competitor. Portillo filed a complaint with the NLRC for non-payment of salary and commissions, and the Labor Arbiter ruled in favor of Portillo. The NLRC and the Court of Appeals affirmed the Labor Arbiter's decision. The respondent argued for legal compensation, claiming that Portillo's money claims should be offset against her liability for alleged breach of the "Goodwill Clause."

The petitioner, Portillo, filed a petition for certiorari before the Supreme Court to question the decision of the Court of Appeals. The Court of Appeals modified its previous decision by allowing legal compensation or set-off of Portillo's monetary claims for unpaid salary, commission, and 13th-month pay against the respondents' claim for liquidated damages. Portillo's motion for reconsideration was denied, prompting her to file the petition. The issues raised revolve around the Court of Appeals' alleged grave abuse of discretion in evading the recognition of the respondents' defective petition, overstepping its appellate jurisdiction, modifying its previous decision based on an issue not raised in the trial court, and evading its duty to uphold relevant laws. The main question is whether Portillo's money claims may be offset against the respondents' claim for liquidated damages. Moreover, the Supreme Court notes the procedural error committed by Portillo in filing a petition for certiorari instead of a petition for review on certiorari. Although this procedural error should have warranted the outright dismissal of the petition, the Supreme Court, for the purpose of attaining substantial justice, decided to hear the case on its merits. The Court of Appeals based its modified ruling on the causal connection between Portillo's claims and the respondents' claim for liquidated damages, citing the "Goodwill Clause" in their employment contract. However, the Supreme Court is not convinced by this reasoning and acknowledges that this reliance stems from paragraph 4 of Article 217 of the Labor Code, which provides for the jurisdiction of labor arbiters and the commission over claims for damages arising from the employer-employee relationship.

This case involves a dispute between the petitioner, an employer, and the private respondent, an employee. The petitioner claims damages arising from the employee's alleged abandonment of his job and violation of the terms and conditions of a training course agreement. The petitioner argues that the claim for damages is not a labor case but falls within the jurisdiction of civil courts. The petitioner asserts that the employee's failure to report for duty despite repeated notices of the disapproval of his application for leave of absence without pay was done with wanton failure and refusal and maliciously and with bad faith. The petitioner emphasizes that the complaint is not about the abandonment per se but the manner and consequent effects of such abandonment, which caused damages to the petitioner. The petitioner relies on a previous ruling that distinguished between the abandonment itself and its effects and held that the latter constitutes a civil law case. Hence, the petitioner argues that the present controversy should be under the jurisdiction of civil law.

ISSUES:

  1. Whether the complaint filed by the petitioner against the private respondent falls within the purview of the Labor Code.

  2. Whether the primary relief sought by the petitioner is for liquidated damages for breach of a contractual obligation.

  3. Whether the "Goodwill Clause" in this case falls within the realm of Civil Law or Labor Law.

  4. Whether the regular courts or the labor arbiter has jurisdiction over Lietz Inc.'s claim against Portillo for violation of the goodwill clause.

  5. Whether Article 217 of the Labor Code applies to the claim of an employer for actual damages against its dismissed employee.

  6. Whether the claim for damages by the employer should be entered as a counterclaim in the illegal dismissal case.

  7. Whether or not the appellate court committed an error in reconsidering the original decision.

  8. Whether or not the application of compensation is barred by Article 113 of the Labor Code.

RULING:

  1. The complaint filed by the petitioner does not fall within the purview of the Labor Code. The complaint is not anchored on the abandonment of employment by the private respondent, but rather on the manner and consequent effects of such abandonment of work, particularly the damages suffered by the petitioner. Thus, the present controversy is governed by civil law and not the Labor Code.

  2. The primary relief sought by the petitioner is for liquidated damages for breach of a contractual obligation. The other items demanded are not labor benefits generally demanded in labor disputes, but are the natural consequences flowing from the breach of an obligation, making this intrinsically a civil dispute.

  3. The "Goodwill Clause" or the "Non-Compete Clause" is a contractual undertaking effective after the cessation of the employment relationship. The breach of such undertaking is a civil law dispute, not a labor law case.

  4. The regular courts have jurisdiction over Lietz Inc.'s claim against Portillo for violation of the goodwill clause. While Portillo's claim for unpaid salaries is within the jurisdiction of the labor arbiter, Lietz Inc.'s claim is based on an act done after the cessation of the employment relationship and therefore falls within the jurisdiction of the regular courts.

  5. Yes, Article 217 of the Labor Code applies to the claim of an employer for actual damages against its dismissed employee, where the basis for the claim arises from or is necessarily connected with the fact of termination.

  6. No, the claim for damages by the employer should not be entered as a counterclaim in the illegal dismissal case.

  7. The Court granted the petition and set aside the appellate court's resolution. The original decision, which ruled in favor of the petitioners, should not have been reconsidered.

  8. The Court held that the application of compensation in this case is effectively barred by Article 113 of the Labor Code, which prohibits wage deductions except in specific circumstances. The Court reinstated the appellate court's decision which denied the application for compensation.

PRINCIPLES:

  • Civil law consists of precepts that regulate relations between members of society for the protection of private interests.

  • The right of an employer to dismiss an employee should not be confused with the manner in which the right is exercised and the effects flowing therefrom.

  • Acts of oppression by either capital or labor against the other are prohibited under Article 1701 of the Civil Code.

  • Article 21 of the Civil Code holds a person liable for damages if they willfully cause loss or injury to another in a manner contrary to morals, good customs, or public policy.

  • Jurisdiction of labor arbiters and the NLRC under Article 217 of the Labor Code is limited to cases or disputes arising out of or in connection with an employer-employee relationship.

  • Money claims of workers falling within the jurisdiction of labor arbiters must have a reasonable causal connection with the employer-employee relationship.

  • Article 217(a) of the Labor Code grants the labor arbiter original and exclusive jurisdiction over claims for damages arising from employer-employee relations, including damages governed by the Civil Code.

  • Jurisdiction over a case is determined based on the allegations in the complaint, regardless of the defendant's defenses.

  • Compensation between claims can only be applied if the nature of the credits or debts is the same and they can be enforced in the same forum.

  • The jurisdiction of regular courts over claims for damages arising from or connected with unfair labor practices committed by a union is null and void. Such claims fall under the exclusive jurisdiction of the Court of Industrial Relations. (Republic Act No. 875 and National Federation of Labor v. Eisma)

  • Claims for damages incurred as a consequence of a strike or picketing by a union are deeply rooted from the labor dispute between the parties and should be dismissed by ordinary courts for lack of jurisdiction. (National Federation of Labor v. Eisma)

  • The absence of a reasonable causal connection between the tortious damage and the damage arising from the employer-employee relationship deprives the labor arbiter of jurisdiction. (Yusen Air and Sea Services Phils., Inc. v. Villamor)

  • Jurisdiction over claims for damages based on a breach of the contract of employment belongs to the regular courts as it falls within the realm of civil law. (Yusen Air and Sea Services Phils., Inc. v. Villamor)

  • The question of jurisdiction cannot depend almost entirely upon the defendant.

  • Article 113 of the Labor Code prohibits wage deductions except in cases where the worker is insured with their consent, for union dues with the worker's consent, or if authorized by law or regulations.