MARIETTA N. PORTILLO, Petitioner, vs. RUDOLF LIETZ, INC., RUDOLF LIETZ and COURT OF APPEALS Respondents.

G.R. No. 196539     October 10, 2012

MARIETTA N. PORTILLO, Petitioner,
vs.
RUDOLF LIETZ, INC., RUDOLF LIETZ and COURT OF APPEALS Respondents.

Facts:  In a letter agreement dated 3 May 1991, signed by individual respondent Rudolf Lietz (Rudolf) and conformed to by Portillo, the latter was hired by the former under the following terms and conditions:

A copy of [Lietz Inc.’s] work rules and policies on personnel is enclosed and an inherent part of the terms and conditions of employment.

We acknowledge your proposal in your application specifically to the effect that you will not engage in any other gainful employment by yourself or with any other company either directly or indirectly without written consent of [Lietz Inc.], and we hereby accept and henceforth consider your proposal an undertaking on your part, a breach of which will render you liable to [Lietz Inc.] for liquidated damages.

If you are in agreement with these terms and conditions of employment, please signify your conformity below.

On her tenth (10th) year with Lietz Inc., specifically on 1 February 2002, Portillo was promoted to Sales Representative and received a corresponding increase in basic monthly salary and sales quota. In this regard, Portillo signed another letter agreement containing a "Goodwill Clause:"

It remains understood and you agreed that, on the termination of your employment by act of either you or [Lietz Inc.], and for a period of three (3) years thereafter, you shall not engage directly or indirectly as employee, manager, proprietor, or solicitor for yourself or others in a similar or competitive business or the same character of work which you were employed by [Lietz Inc.] to do and perform. Should you breach this good will clause of this Contract, you shall pay [Lietz Inc.] as liquidated damages the amount of 100% of your gross compensation over the last 12 months, it being agreed that this sum is reasonable and just.

Three (3) years thereafter, on 6 June 2005, Portillo resigned from Lietz Inc. During her exit interview, Portillo declared that she intended to engage in business—a rice dealership, selling rice in wholesale.

In a subsequent letter dated 21 June 2005, Lietz Inc. wrote Portillo and supposed that the exchange of correspondence between them regarding the "Goodwill Clause" in the employment contract was a moot exercise since Portillo’s articulated intention to go into business, selling rice, will not compete with Lietz Inc.’s products.

Subsequently, Lietz Inc. learned that Portillo had been hired by Ed Keller Philippines, Limited to head its Pharma Raw Material Department. Ed Keller Limited is purportedly a direct competitor of Lietz Inc.

Issue:  Whether Portillo’s money claims for unpaid salaries may be offset against respondents’ claim for liquidated damages.

Ruling:  It is clear, therefore, that while Portillo’s claim for unpaid salaries is a money claim that arises out of or in connection with an employer-employee relationship, Lietz Inc.’s claim against Portillo for violation of the goodwill clause is a money claim based on an act done after the cessation of the employment relationship. And, while the jurisdiction over Portillo’s claim is vested in the labor arbiter, the jurisdiction over Lietz Inc.’s claim rests on the regular courts. Thus:

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages based on the parties' contract of employment as redress for respondent's breach thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so must this be in the present case, what with the reality that the stipulation refers to the postemployment relations of the parties.

In the case at bar, the difference in the nature of the credits that one has against the other, conversely, the nature of the debt one owes another, which difference in turn results in the difference of the forum where the different credits can be enforced, prevents the application of compensation. Simply, the labor tribunal in an employee’s claim for unpaid wages is without authority to allow the compensation of such claims against the post employment claim of the former employer for breach of a post employment condition. The labor tribunal does not have jurisdiction over the civil case of breach of contract. There is no causal connection between the petitioner employees’ claim for unpaid wages and the respondent employers’ claim for damages for the alleged "Goodwill Clause" violation. Portillo’s claim for unpaid salaries did not have anything to do with her alleged violation of the employment contract as, in fact, her separation from employment is not "rooted" in the alleged contractual violation. She resigned from her employment. She was not dismissed. Portillo’s entitlement to the unpaid salaries is not even contested. Indeed, Lietz Inc.’s argument about legal compensation necessarily admits that it owes the money claimed by Portillo. When, as here, the cause of action is based on a quasi-delict or tort, which has no reasonable causal connection with any of the claims provided for in Article 217, jurisdiction over the action is with the regular courts.

As it is, petitioner does not ask for any relief under the Labor Code. It merely seeks to recover damages based on the parties’ contract of employment as redress for respondent’s breach thereof. Such cause of action is within the realm of Civil Law, and jurisdiction over the controversy belongs to the regular courts. More so must this be in the present case, what with the reality that the stipulation refers to the postemployment relations of the parties.

For sure, a plain and cursory reading of the complaint will readily reveal that the subject matter is one of claim for damages arising from a breach of contract, which is within the ambit of the regular court’s jurisdiction.

It is basic that jurisdiction over the subject matter is determined upon the allegations made in the complaint, irrespective of whether or not the plaintiff is entitled to recover upon the claim asserted therein, which is a matter resolved only after and as a result of a trial. Neither can jurisdiction of a court be made to depend upon the defenses made by a defendant in his answer or motion to dismiss. If such were the rule, the question of jurisdiction would depend almost entirely upon the defendant.

The error of the appellate court in its Resolution of 14 October 2010 is basic. The original decision, the right ruling, should not have been reconsidered.1âwphi1

Indeed, the application of compensation in this case is effectively barred by Article 113 of the Labor Code which prohibits wage deductions except in three circumstances:

ART. 113. Wage Deduction. – No employer, in his own behalf or in behalf of any person, shall make any deduction from wages of his employees, except:

(a) In cases where the worker is insured with his consent by the employer, and the deduction is to recompense the employer for the amount paid by him as premium on the insurance;

(b) For union dues, in cases where the right of the worker or his union to check-off has been recognized by the employer or authorized in writing by the individual worker concerned; and

(c) In cases where the employer is authorized by law or regulations issued by the Secretary of Labor.