You are on page 1of 10

EMPLOYER-EMPLOYEE RELATION Ramil F.

De Jesus Introduction The Constitution of the Philippines provides that the State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.1There must be an employer-employee relationship in order for the provisions of the Labor Code on the Labor Standards to apply. It follows that an individual who renders service outside of the ambit of an employer-employee relationship is not within the coverage of the statutory benefits or labor standards of the Philippine Labor Code; hence, commercial transactions (such as partnership, independent contracts, co-ownership, selfemployment, etc.) are beyond the scope of the Labor Code.2 When can an individual be considered as an employee? How can he prove that he is working for a certain employer? The four fold test to determine the existence of an employer -employee for the relationship: (1) whether the alleged employer has the power of selection and engagement of the employee; (2) whether he has control of the employee with respect to the means and methods by which work is to be accomplished; (3) whether he has the power to dismiss; and (4) whether the employee was paid

1 2

Section 3, Article 8, Philippine COnstitution Philippine Labor Standards by

wages. Of the four elements of the employer-employee relationship, the control test is the most important.3 Objective 1. Explain the four elements that determine the existence of employeremployee relationship. 2. Cite cases involving the four elements that determine the existence of employer-employee relationship. 3. To discuss the difference between an employee and an independent contractor. 4. Explain the different employment relationship. Discussion As mentioned above, the existence of employer-employee relationship can be proven by the four fold test. First is the Power to Hire. In Consolidated Broadcasting Company Incorporated v. Oberioet. al, G.R. No. 168424, where employees of a radio broadcasting company were dismissed by the company contending that they were not employees by the company as talent or project employees, the Supreme Court had occasion to rule that:
Petitioner failed to controvert with substantial evidence the allegation of respondents that they were hired by the former on various dates from 1974 to 1997. If petitioner did not hire respondents and if it was the director alone who chose the talents, petitioner could have easily shown, being in possession of the records, a contract to such effect. However, petitioner merely relied on its contention that respondents were piece rate contractors who were paid by results.[17] Note that under Policy Instruction No. 40, petitioner is obliged to execute the necessary contract specifying the nature of the work to be performed, rates of pay, and the programs in which they will work. Moreover, project or contractual employees are required to be apprised of the project they will undertake under a written contract. This was not complied with by the petitioner, justifying the reasonable conclusion that no such contracts exist and that respondents were in fact regular employees

In the above case, the Supreme Court declared that the employees are regular employees by the employer radio broadcasting company because the
3

Aralar, Reynaldo B., The Labor Code of the Philippines, Annotations and Jurisprudence. Volume 1. 2005 citing Tan v. Lagrama, 387 SCRA 393

company had exercised its power to hire, and they were hired as employees of the company and not as project employees it further provides:
Moreover, the engagement of respondents for a period ranging from 2 to 25 years and the fact that their drama programs were aired not only in Bacolod City but also in the sister stations of DYWB in the Visayas and Mindanao areas, undoubtedly show that their work is necessary and indispensable to the usual business or trade of petitioner. The test to determine whether employment is regular or not is the reasonable connection between the particular activity performed by the employee in relation to the usual business or trade of the employer. Also, if the employee has been performing the job for at least one year, even if the performance is not continuous or merely intermittent, the law deems the repeated and continuing need for its performance as sufficient evidence of the necessity, if not indispensability of that activity to the business. Thus, even assuming that respondents were initially hired as project/contractual employees who were paid per drama or per project/contract, the engagement of their services for 2 to 25 years justify their classification as regular employees, their services being deemed indispensable to the business of petitioner.

The Supreme Court upheld the decision of the Secretary of Labor where it declared the existence of employer-employee relationship applying the four fold test and on the second criteria declared that: On the second factor (payment of wages), while the respondent tried to impress upon us that the drivers/helpers are not in the payroll of the company and, therefore, not receiving salaries from it, this at best is but an administrative arrangement in order to save the respondent from the burden of keeping records and other indirect cost.4 In another case and employee presented the payroll and cash voucher to bolster his evidence that an employer-employee relationship existed between him and the company, the Supreme Court ruled:: It is settled that no particular form of evidence is required to prove the existence of an employeremployee relationship.[29] Any competent and relevant evidence to prove the relationship may be admitted.

M.Y. San Biscuit v. Secretary of Labor, G.R. No. 95011

In this case, the documentary evidence presented by respondent to prove that he was an employee of petitioner are as follows: (a) a document denominated as "payroll" (dated July 31, 2001 to March 15, 2002) certified correct by petitioner,[31] which showed that respondent received a monthly salary of P7,000.00 (P3,500.00 every 15th of the month and another P3,500.00 every 30th of the month) with the corresponding deductions due to absences incurred by respondent; and (2) copies of petty cash vouchers,[32] showing the amounts he received and signed for in the payrolls. The said documents showed that petitioner hired respondent as an employee and he was paid monthly wages of P7,000.00. The third factor, power to discipline or to dismiss is inherent to the employer. Hence, in a case where employees of an independent contractor claimed that they were employees of the company which hired the independent contractor, the Supreme Court ruled that since the power to discipline and the power of dismissal are vested to the independent contractor, no employeremployee relationships existed between them and the company that hired the independent contractor.(Gallego v. Bayer Phils. G. R. No. 179807) It is acknowledged that an employer has free rein and enjoys a wide latitude of discretion to regulate all aspects of employment, including the prerogative to instill discipline on his employees and to impose penalties, including dismissal, if warranted, upon erring employees. This is a management prerogative. Indeed, the manner in which management conducts its own affairs to achieve its purpose is within the managements discretion. The only limitation on the exercise of management prerogative is that the policies, rules, and regulations on work-related activities of the employees must always be fair and reasonable, and the corresponding penalties, when prescribed, commensurate to the offense involved and to the degree of the infraction.5 The fourth test is the power of control, the most determinative of all test. In ruling that no employer-employee relationship exist between a television host

Caong et al v. Regualos,G.R. No. 179428, citing St. Michaels Institute v. Santos

and the network, the Supreme Court quoted a US Supreme Court decision since there is no local precedent on whether a radio and television program host is an employee or an independent contractor, the court refer to foreign case law in analyzing the present case. The United States Court of Appeals, First Circuit, recently held in Alberty-Vlez v. Corporacin De Puerto Rico Para La DifusinPblica ("WIPR")27 that a television program host is an independent contractor. We quote the following findings of the U.S. court:

Several factors favor classifying Alberty as an independent contractor. First, a television actress is a skilled position requiring talent and training not available on-the-job. x xx In this regard, Alberty possesses a masters degree in public communications and journalism; is trained in dance, singing, and modeling; taught with the drama department at the University of Puerto Rico; and acted in several theater and television productions prior to her affiliation with "DesdeMi Pueblo." Second, Alberty provided the "tools and instrumentalities" necessary for her to perform. Specifically, she provided, or obtained sponsors to provide, the costumes, jewelry, and other image-related supplies and services necessary for her appearance. Alberty disputes that this factor favors independent contractor status because WIPR provided the "equipment necessary to tape the show." Albertys argument is misplaced. The equipment necessary for Alberty to conduct her job as host of "DesdeMi Pueblo" related to her appearance on the show. Others provided equipment for filming and producing the show, but these were not the primary tools that Alberty used to perform her particular function. If we accepted this argument, independent contractors could never work on collaborative projects because other individuals often provide the equipment required for different aspects of the collaboration. x xx Third, WIPR could not assign Alberty work in addition to filming "DesdeMi Pueblo." Albertys contracts with WIPR specifically provided that WIPR hired her "professional services as Hostess for the Program DesdeMi Pueblo." There is no evidence that WIPR assigned Alberty tasks in addition to work related to these tapings. x x x28 (Emphasis supplied) Applying the above-cited case the Supreme Court ruled that no employer-employee relationships exist between a talent of tv host and the tv network thus: Applying the control test to the present case, the court finds that SONZA is not an employee but an independent contractor. The control test is the most important test our courts apply in distinguishing an employee from an independent contractor.29 This test is based on the extent of control the hirer exercises over a worker. The greater the supervision and control the

hirer exercises, the more likely the worker is deemed an employee. The converse holds true as well the less control the hirer exercises, the more likely the worker is considered an independent contractor. First, SONZA contends that ABS-CBN exercised control over the means and methods of his work. The court finds SONZAs argument as misplaced. ABS-CBN engaged SONZAs services specifically to co-host the "Mel & Jay" programs. ABS-CBN did not assign any other work to SONZA. To perform his work, SONZA only needed his skills and talent. How SONZA delivered his lines, appeared on television, and sounded on radio were outside ABS-CBNs control. SONZA did not have to render eight hours of work per day. The Agreement required SONZA to attend only rehearsals and tapings of the shows, as well as preand post-production staff meetings.31 ABS-CBN could not dictate the contents of SONZAs script. However, the Agreement prohibited SONZA from criticizing in his shows ABS-CBN or its interests.32 The clear implication is that SONZA had a free hand on what to say or discuss in his shows provided he did not attack ABS-CBN or its interests. The Supreme Court find that ABS-CBN was not involved in the actual performance that produced the finished product of SONZAs work.33 ABS-CBN did not instruct SONZA how to perform his job. ABS-CBN merely reserved the right to modify the program format and airtime schedule "for more effective programming."34 ABS-CBNs sole concern was the quality of the shows and their standing in the ratings. Clearly, ABS-CBN did not exercise control over the means and methods of performance of SONZAs work. SONZA claims that ABS-CBNs power not to broadcast his shows proves ABS-CBNs power over the means and methods of the performance of his work. Although ABS-CBN did have the option not to broadcast SONZAs show, ABS-CBN was still obligated to pay SONZAs talent fees... Thus, even if ABS-CBN was completely dissatisfied with the means and methods of SONZAs performance of his work, or even with the quality or product of his work, ABS-CBN could not dismiss or even discipline SONZA. All that ABS-CBN could do is not to broadcast SONZAs show but ABSCBN must still pay his talent fees in full.35 Clearly, ABS-CBNs right not to broadcast SONZAs show, burdened as it was by the obligation to continue paying in full SONZAs talent fees, did not amount to control over the means and methods of the performance of SONZAs work. ABS-CBN could not terminate or discipline SONZA even if the means and methods of performance of his work - how he delivered his lines and appeared on television - did not meet ABS-CBNs approval. This proves that ABS-CBNs control was limited only to the result of SONZAs work, whether to broadcast the final product or not. In either case, ABS-CBN must still pay SONZAs talent fees in full until the expiry of the Agreement.

The power of control is said to be the most determinative of the four fold test. In South Davao Development Company v. Gamo et al, the Supreme Court clarified that the power of control does not necessarily mean full control and declared that:
As to the most determinative testthe power of control, it is sufficient that the power to control the manner of doing the work exists, it does not require the actual exercise of such power.[26] In this case, it was in the exercise of its power of control when petitioner corporation transferred the copra workers from their previous assignments to work as copraceros. It was also in the exercise of the same power that petitioner corporation put Gamo in charge of the copra workers although under a different payment scheme. Thus, it is clear that an employer-employee relationship has existed between petitioner corporation and respondents since the beginning and such relationship did not cease despite their reassignments and the change of payment scheme.

In ruling in favor for the existence of an employee-employer relationship between San Miguel Corp. and its ____, the Court provides: The question of whether an employer-employee relationship exists in a certain situation continues to bedevil the courts. Some businessmen try to avoid the bringing about of an employer-employee relationship in their enterprises because that judicial relation spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism. (Mafinco Trading Corporation v. Ople, 70 SCRA 139). In determining the existence of an employer-employee relationship, the elements that are generally considered are the following: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee with respect to the means and methods by which the work is to be accomplished. It. is the called "control test" that is the most important element (Investment Planning Corp. of the Phils. v. The Social Security System, 21 SCRA 924; Mafinco Trading Corp. v. Ople, supra, and Rosario Brothers, Inc. v. Ople, 131 SCRA 72). Applying the above criteria, the evidence strongly indicates the existence of an employer-employee relationship between petitioner workers and respondent San Miguel Corporation. The respondent asserts that the petitioners are employees of the Guaranteed Labor Contractor, an independent labor contracting firm.

The facts and evidence on record negate respondent SMC's claim. The existence of an independent contractor relationship is generally established by the following criteria: "whether or not the contractor is carrying on an independent business; the nature and extent of the work; the skill required; the term and duration of the relationship; the right to assign the performance of a specified piece of work; the control and supervision of the work to another; the employer's power with respect to the hiring, firing and payment of the contractor's workers; the control of the premises; the duty to supply the premises tools, appliances, materials and labor; and the mode, manner and terms of payment" (56 CJS Master and Servant, Sec. 3(2), 46; See also 27 AM. Jur. Independent Contractor, Sec. 5, 485 and Annex 75 ALR 7260727) None of the above criteria exists in the case at bar. Highly unusual and suspect is the absence of a written contract to specify the performance of a specified piece of work, the nature and extent of the work and the term and duration of the relationship. The records fail to show that a large commercial outfit, such as the San Miguel Corporation, entered into mere oral agreements of employment or labor contracting where the same would involve considerable expenses and dealings with a large number of workers over a long period of time. Despite respondent company's allegations not an iota of evidence was offered to prove the same or its particulars. Such failure makes respondent SMC's stand subject to serious doubts. Uncontroverted is the fact that for an average of seven (7) years, each of the petitioners had worked continuously and exclusively for the respondent company's shipping and warehousing department. Considering the length of time that the petitioners have worked with the respondent company, there is justification to conclude that they were engaged to perform activities necessary or desirable in the usual business or trade of the respondent, and the petitioners are, therefore regular employees (Phil. Fishing Boat Officers and Engineers Union v. Court of Industrial Relations, 112 SCRA 159 and RJL Martinez Fishing Corporation v. National Labor Relations Commission, 127 SCRA 454). As we have found in RJL Martinez Fishing Corporation v. National Labor Relations Commission (supra): ... [T]he employer-employee relationship between the parties herein is not coterminous with each loading and unloading job. As earlier shown, respondents are engaged in the business of fishing. For this purpose,

they have a fleet of fishing vessels. Under this situation, respondents' activity of catching fish is a continuous process and could hardly be considered as seasonal in nature. So that the activities performed by herein complainants, i.e. unloading the catch of tuna fish from respondents' vessels and then loading the same to refrigerated vans, are necessary or desirable in the business of respondents. This circumstance makes the employment of complainants a regular one, in the sense that it does not depend on any specific project or seasonable activity. (NLRC Decision, p. 94, Rollo). so as it with petitioners in the case at bar. In fact, despite past shutdowns of the glass plant for repairs, the petitioners, thereafter, promptly returned to their jobs, never having been replaced, or assigned elsewhere until the present controversy arose. The term of the petitioners' employment appears indefinite. The continuity and habituality of petitioners' work bolsters their claim of employee status vis-a-vis respondent company. In the same decision the Court had occasion to rule that: Section 8, Rule VIII, Book III of the Implementing Rules of the Labor Code provides: Job contracting. There is job contracting permissible under the Code if the following conditions are met: (1) The contractor carries on an independent business and undertakes the contract work on his own account under his own responsibility according to his own manner and method, free from the control and direction of his employer or principal in all matters connected with the performance of the work except as to the results thereof; and (2) The contractor has substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials which are necessary in the conduct of his business. We find that Guaranteed and Reliable Labor contractors have neither substantial capital nor investment to qualify as an independent contractor under the law. The premises, tools, equipment and paraphernalia used by the petitioners in their jobs are admittedly all supplied by respondent company. It is only the manpower or labor force which the alleged contractors supply, suggesting the existence of a "labor only" contracting scheme prohibited by law (Article 106, 109 of the Labor Code; Section 9(b), Rule VIII, Book III, Implementing Rules and Regulations of the Labor Code). In fact, even the alleged contractor's office, which consists of a space at respondent company's warehouse, table, chair, typewriter and cabinet, are provided for by respondent

SMC. It is therefore clear that the alleged contractors have no capital outlay involved in the conduct of its business, in the maintenance thereof or in the payment of its workers' salaries. The payment of the workers' wages is a critical factor in determining the actuality of an employer-employee relationship whether between respondent company and petitioners or between the alleged independent contractor and petitioners. It is important to emphasize that in a truly independent contractor-contractee relationship, the fees are paid directly to the manpower agency in lump sum without indicating or implying that the basis of such lump sum is the salary per worker multiplied by the number of workers assigned to the company. This is the rule in Social Security System v. Court of Appeals (39 SCRA 629, 635). The alleged independent contractors in the case at bar were paid a lump sum representing only the salaries the workers were entitled to, arrived at by adding the salaries of each worker which depend on the volume of work they. had accomplished individually. These are based on payrolls, reports or statements prepared by the workers' group leader, warehousemen and checkers, where they note down the number of cartons, wooden shells and bottles each worker was able to load, unload, pile or pallet and see whether they tally. The amount paid by respondent company to the alleged independent contractor considers no business expenses or capital outlay of the latter. Nor is the profit or gain of the alleged contractor in the conduct of its business provided for as an amount over and above the workers' wages. Instead, the alleged contractor receives a percentage from the total earnings of all the workers plus an additional amount corresponding to a percentage of the earnings of each individual worker, which, perhaps, accounts for the petitioners' charge of unauthorized deductions from their salaries by the respondents. Conclusion The determination of the existence of employer-employee relation must be tilted in favor of the employee since any doubt in the interpretation of the provision of the Labor Code shall be construed in favor of labor. The determination of the existence of an employer-employee must follow, not only because of the statutory provision but by humanitarian reason as the employee is almost or most of the time at the disadvantage situation and the law must protect the disadvantaged.