1A. Employer-employee relationship

Atty. Jericho Del Puerto

Atty. Jericho Del Puerto

Lawyer, Author, Mentor

1. Employer-employee relationship

Question of fact. The issue of whether or not an employer-employee relationship exists in a given case is essentially a question of fact. (Marsman & Company, Inc. v. Sta. Rita, G.R. No. 194765, 23 April 2018)

Finding of ER-EE relationship must be based on substantial evidence. Although no particular form of evidence is required to prove the existence of an employer-employee relationship, and any competent and relevant evidence to prove the relationship may be admitted, a finding that the relationship exists must nonetheless rest on substantial evidence. (South Cotabato Communications Corporation v. Sta. Tomas, G.R. No. 217575, 15 June 2016)

Same; Substantial evidence. Substantial evidence – is such relevant evidence which a reasonable mind might accept as adequate to support a conclusion, even if other minds equally reasonable might conceivably opine differently. (Fajardo v. Corral, G.R. No. 212641, 05 July 2017)

2. Test to determine existence

a. Control test (a.k.a. Four-fold test)

Elemements of control test:
1) The selection and engagement of the employee;
2) The payment of wages;
3) The power of dismissal; and
4) The power to control the employee’s conduct, or the so-called “control test.”

Control – most crucial and determinative. Of these four, the last one is the most important. The so-called “control test” is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end. (Atok Big Wedge Company, Inc. v. Gison, G.R. No. 169510, 08 August 2011)

Same; NLRC and DOLE – allowed to use. The use of the control test is not solely limited to the NLRC. The DOLE Secretary, or his or her representatives, can utilize the same test, even in the course of inspection, making use of the same evidence that would have been presented before the NLRC. (People’s Broadcasting Service [Bombo Radyo Phils. Inc.] v. The Secretary of the Department of Labor and Employment, En Banc, G.R. No. 179652, 06 March 2012)

Same; Any competent evidence to prove elements. There is no hard and fast rule designed to establish the aforesaid elements. Any competent and relevant evidence to prove the relationship may be admitted. Identification cards, cash vouchers, social security registration, appointment letters or employment contracts, payrolls, organization charts, and personnel lists, serve as evidence of employee status. (Marsman & Company, Inc. v. Sta. Rita, G.R. No. 194765, 23 April 2018)

b. Economic-reality test

Economic-reality test. Aside from the control test, the Supreme Court has also used the economic reality test in determining whether an employer-employee relationship exists between the parties. Under this test, the economic realities prevailing within the activity or between the parties are examined, taking into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate when, as in this case, there is no written agreement or contract on which to base the relationship. In our jurisdiction, the benchmark of economic reality in analyzing possible employment relationships for purposes of applying the Labor Code ought to be the economic dependence of the worker on his employer. (Reyes v. Glaucoma Research Foundation, Inc., G.R. No. 189255, 17 June 2015)

Same; When control test in insufficient, and due to complexity of relationship. In certain cases, the control test is not sufficient to give a complete picture of the relationship between the parties, owing to the complexity of such a relationship where several positions have been held by the worker. There are instances when, aside from the employer’s power to control the employee with respect to the means and methods by which the work is to be accomplished, economic realities of the employment relations help provide a comprehensive analysis of the true classification of the individual, whether as employee, independent contractor, corporate officer or some other capacity. (Francisco v. NLRC, G.R. No. 170087, 31 August 2006)

Circumstances of the whole economic activity
The determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as:
1) The extent to which the services performed are an integral part of the employer’s business;
2) The extent of the worker’s investment in equipment and facilities;
3) The nature and degree of control exercised by the employer;
4) The worker’s opportunity for profit and loss;
5) The amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise;
6) The permanency and duration of the relationship between the worker and the employer; and
7) the degree of dependency of the worker upon the employer for his continued employment in that line of business. (Ibid.)

Economic dependency. The proper standard of economic dependence is whether the worker is dependent on the alleged employer for his continued employment in that line of business. Thus, the benchmark of economic reality in analyzing possible employment relationships for purposes of the Labor Code ought to be the economic dependence of the worker on his employer. (Ibid.)

Francisco v. NLRC (2006)
Under the broader economic reality test, the petitioner can likewise be said to be an employee of respondent corporation because she had served the company for six years before her dismissal, receiving check vouchers indicating her salaries/wages, benefits, 13th month pay, bonuses and allowances, as well as deductions and Social Security contributions from August 1, 1999 to December 18, 2000. When petitioner was designated General Manager, respondent corporation made a report to the SSS signed by Irene Ballesteros. Petitioner’s membership in the SSS as manifested by a copy of the SSS specimen signature card which was signed by the President of Kasei Corporation and the inclusion of her name in the on-line inquiry system of the SSS evinces the existence of an employer-employee relationship between petitioner and respondent corporation…. It is therefore apparent that petitioner is economically dependent on respondent corporation for her continued employment in the latter’s line of business.
Orozco v. CA, Philippine Daily Inquirer (2008)
Petitioner’s main occupation is not as a columnist for respondent [Philippine Daily Inquirer] but as a women’s rights advocate working in various women’s organizations. Likewise, she herself admits that she also contributes articles to other publications. Thus, it cannot be said that petitioner was dependent on respondent PDI for her continued employment in respondent’s line of business…. The inevitable conclusion is that petitioner was not respondent PDI’s employee but an independent contractor, engaged to do independent work.

c. Specific cases

1) Jeepney drivers under boundary system

Employer-employee relationship, not lessor-lessee. The relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-employee and not of lessor-lessee. The fact that the drivers do not receive fixed wages but only get the amount in excess of the so-called “boundary” that they pay to the owner/operator is not sufficient to negate the relationship between them as employer and employee. (Caong, Jr. v. Regualos, G.R. No. 179428, 26 January 2011)

Gabriel v. Bilon (2007)
The relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-employee and not of lessor-lessee because in the lease of chattels the lessor loses complete control over the chattel leased although the lessee cannot be reckless in the use thereof, otherwise he would be responsible for the damages to the lessor. In the case of jeepney owners/operators and jeepney drivers, the former exercises supervision and control over the latter. The fact that the drivers do not receive fixed wages but get only that in excess of the so-called “boundary” that they pay to the owner/operator is not sufficient to withdraw the relationship between them from that of employer and employee. Thus, the jeepney drivers were employees because they had been engaged to perform activities which were usually necessary or desirable in the usual business or trade of the employer.

2) Bus conductors

3) Auto-calesa drivers

4) Taxi drivers

The Supreme Court has applied by analogy the abovestated doctrine to the relationships between bus owner/operator and bus conductor, auto-calesa owner/operator and driver, and recently between taxi owners/operators and taxi drivers. Hence, petitioners are undoubtedly employees of private respondent because as taxi drivers they perform activities which are usually necessary or desirable in the usual business or trade of their employer. (Jardin v. NLRC, G.R. No. 119268, 23 February 2000)

5) Truck drivers

Felicilda v. Uy (2016)
[Four-fold test was applied.]
First. It is undisputed that respondent hired petitioner to work as a truck driver for his private enterprise, GPT.
Second. Petitioner received compensation from respondent for the services he rendered. Contrary to the findings of the CA, while the wages paid was determined on a “per trip” or commission basis, it has been constantly ruled that such does not negate employment relationship. Article 97 (f) of the Labor Code broadly defines the term “wage” as “the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done, or for services rendered or to be rendered x x x.” That petitioner was paid on a “per trip” or commission basis is insignificant as this is merely a method of computing compensation and not a basis for determining the existence or absence of an employer­-employee relationship.
Third. Respondent’s power to dismiss was inherent in the selection and engagement of petitioner as truck driver.
Fourth. The presence of the element of control, which is the most important element to determine the existence or absence of employment relationship, can be safely deduced from the fact that: (a) respondent owned the trucks that were assigned to petitioner; (b) the cargoes loaded in the said trucks were exclusively for respondent’s clients; and (c) the schedule and route to be followed by petitioner were exclusively determined by respondent. The latter’s claim that petitioner was permitted to render service to other companies was not substantiated and there was no showing that he indeed worked as truck driver for other companies. Given all these considerations, while petitioner was free to carry out his duties as truck driver, it cannot be pretended that respondent, nonetheless, exercised control over the means and methods by which the former was to accomplish his work. To reiterate, the power of control refers merely to the existence of the power. It is not essential for the employer to actually supervise the performance of duties of the employee, as it is sufficient that the former has a right to wield the power, as in this case.

•••••

BAR EXAM QUESTION

(Question A.3, Part I, Labor Law, 2019 Bar Exam)

A, B, and C were hired as resident-doctors by MM Medical Center, Inc. In the course of their engagement, A, B, and C maintained specific work schedules as determined by the Medical Director. The hospital also monitored their work through supervisors who gave them specific instructions on how they should perform their respective tasks, including diagnosis, treatment, and management of their patients.

One day A, B, and C approached the Medical Director and inquired about the non-payment of their employment benefits. In response, the Medical Director told them that they are not entitled to any because they are mere “independent contractors” as expressly stipulated in the contracts which they admittedly signed. As such, no employer-employee relationship exists between them and the hospital.

(a) What is the control test in determining the existence of an employer-employee? (2%)

(b) Is the Medical Director’s reliance on the contracts signed by A, B, and C to refute the existence of an employer-employee relationship correct? If not, are A, B, and C employees of MM Medical Center, Inc.? explain. (3%)

SUGGESTED ANSWER:

(a) The control test, which is also known as the four-fold test, is used to ascertain the existence of an employer-employee relationship, using these factors: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-called “control test.” Of these four, the last one is the most important.

The so-called “control test” is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship.

(b) No. Answer

Under labor law jurisprudence, it is the law which determines the nature of employment, and not the parties. Further, under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control not only the end achieved, but also the manner and means to be used in reaching that end. Rule

In the case at bar, there are indications of control exercised on A, B, and C, to wit: (a)the Medical director determined their work schedules; (b) they maintained these specific work schedules; (c) the hospital monitored their work through supervisors who gave them specific instructions on how they should perform their respective tasks, including diagnosis, treatment, and management of their patients. Apply

Thus, the Medical Director’s reliance on the contracts signed by A, B, and C to refute the existence of an employer-employee relationship, is not correct. There is an employer-employee relationship between A, B, and C, and the employer MM Medical Center, Inc. Conclusion

•••••

BAR EXAM QUESTION

(Question I[A], Labor Law, 2017 Bar Exam)

What are the accepted tests to determine the existence of an employer-employee relationship? (5%)

SUGGESTED ANSWER:

There are two accepted tests as follows:

1) The control test, which is also known as the four-fold test, is used to ascertain the existence of an employer-employee relationship, using these factors: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-called “control test.” Of these four, the last one is the most important.

The so-called “control test” is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship.

2) Under this economic reality test, the economic realities prevailing within the activity or between the parties are examined, taking into consideration the totality of circumstances surrounding the true nature of the relationship between the parties. This is especially appropriate when there is no written agreement or contract on which to base the relationship.

Thus, the determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as: (1) the extent to which the services performed are an integral part of the employer’s business; (2) the extent of the worker’s investment in equipment and facilities; (3) the nature and degree of control exercised by the employer; (4) the worker’s opportunity for profit and loss; (5) the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise; (6) the permanency and duration of the relationship between the worker and the employer; and (7) the degree of dependency of the worker upon the employer for his continued employment in that line of business.

•••••

BAR EXAM QUESTION

(Question I[B], Labor Law, 2017 Bar Exam)

Applying the tests to determine the existence of an employer-employee relationship, is a jeepney driver operating under the boundary system an employee of his jeepney operator or a mere lessee of the jeepney? Explain your answer. (3%)

SUGGESTED ANSWER:

The relationship between jeepney owners/operators and jeepney drivers under the boundary system is that of employer-employee and not of lessor-lessee. The fact that the drivers do not receive fixed wages but only get the amount in excess of the so-called “boundary” that they pay to the owner/operator is not sufficient to negate the relationship between them as employer and employee. Jeepney drivers are employees because they are engaged to perform activities which were usually necessary or desirable in the usual business or trade of the employer.

•••••

3. Employee vs. independent contractor

a. Independent contractor

Independent contractors. Independent contractors are individuals with unique talents and skills, and there is lack of control over the means and methods in the performance of their work. (Samonte v. La Salle Greenhills, Inc., G.R. No. 199683, 10 February 2016)

Sonza v. ABS-CBN Broadcasting Corporation (2004)
Independent contractors often present themselves to possess unique skills, expertise or talent to distinguish them from ordinary employees. The specific selection and hiring of SONZA, because of his unique skills, talent and celebrity status not possessed by ordinary employees, is a circumstance indicative, but not conclusive, of an independent contractual relationship. If SONZA did not possess such unique skills, talent and celebrity status, ABS-CBN would not have entered into the Agreement with SONZA but would have hired him through its personnel department just like any other employee.
SONZA’s talent fees, amounting to ₱317,000 monthly in the second and third year, are so huge and out of the ordinary that they indicate more an independent contractual relationship rather than an employer-employee relationship. ABS-CBN agreed to pay SONZA such huge talent fees precisely because of SONZA’s unique skills, talent and celebrity status not possessed by ordinary employees. Obviously, SONZA acting alone possessed enough bargaining power to demand and receive such huge talent fees for his services. The power to bargain talent fees way above the salary scales of ordinary employees is a circumstance indicative, but not conclusive, of an independent contractual relationship.
Individuals with special skills, expertise or talent enjoy the freedom to offer their services as independent contractors. The right to life and livelihood guarantees this freedom to contract as independent contractors. The right of labor to security of tenure cannot operate to deprive an individual, possessed with special skills, expertise and talent, of his right to contract as an independent contractor. An individual like an artist or talent has a right to render his services without any one controlling the means and methods by which he performs his art or craft. This Court will not interpret the right of labor to security of tenure to compel artists and talents to render their services only as employees. If radio and television program hosts can render their services only as employees, the station owners and managers can dictate to the radio and television hosts what they say in their shows. This is not conducive to freedom of the press.
Fuji Television Network, Inc. v. Espiritu
In Orozco v. Court of Appeals, Wilhelmina Orozco was a columnist for the Philippine Daily Inquirer. This court ruled that she was an independent contractor because of her “talent, skill, experience, and her unique viewpoint as a feminist advocate.” In addition, the Philippine Daily Inquirer did not have the power of control over Orozco, and she worked at her own pleasure.
Semblante v. Court of Appeals involved a masiador and a sentenciador. The Court ruled that “petitioners performed their functions as masiador and sentenciador free from the direction and control of respondents” and that the masiador and sentenciador “relied mainly on their ‘expertise that is characteristic of the cockfight gambling.’” Hence, no employer-employee relationship existed.
Bernarte v. Philippine Basketball Association involved a basketball referee. This court ruled that “a referee is an independent contractor, whose special skills and independent judgment are required specifically for such position and cannot In these cases, the workers were found to be independent contractors because of their unique skills and talents and the lack of control over the means and methods in the performance of their work.possibly be controlled by the hiring party.”

b. Bilaleral relationshiop

No trilateral relationship – instead bilateral. There is no trilateral relationship in this case because the independent contractor himself or herself performs the work for the principal. In other words, the relationship is bilateral. (Fuji Television Network, Inc. v. Espiritu, G.R. No. 204944-45, supra.)

c. Test of independent contractorship

According to his own methods and without being controlled, except only as to the results. The test of independent contractorship is whether one claiming to be an independent contractor has contracted to do the work according to his own methods and without being subject to the control of the employer, except only as to the results of the work. (Convoy Marketing Corporation v. Albia, G.R. No. 194969, 07 October 2015)

d. Principal’s liability as an indirect employer

Liability as indirect employer. The provisions on legitimate job contracting shall likewise apply to any person, partnership, association or corporation which, not being an employer, contracts with an independent contractor for the performance of any work, task, job or project. (Article 107, Labor Code)

•••••

BAR EXAM QUESTION

(Question VII, Labor Law, 2017 Bar Exam)

Dr. Crisostomo entered into a retainer agreement with AB Hotel and Resort whereby he would provide medical services to the guests and employees of AB Hoteland Resort, which, in turn, would provide the clinic premises and medical supplies. He received a monthly retainer fee of ₱60,000.00, plus a 70% share in the service charges from AB Hotel and Resort’s guests availing themselves of the clinic’s services. The clinic employed nurses and allied staff, whose salaries, SSS contributions and other benefits he undertook to pay. AB Hotel and Resort issued directives giving instructions to him on the replenishment of emergency kits and forbidding the clinic staff from receiving cash payments from the guests.

In time, the nurses and the clinic staff claimed entitlement to rights as regular employees of AB Hoteland Resort, but the latter refused on the ground that Dr. Crisostomo, who was their employer, was an independent contractor. Rule, with reasons. (4%)

SUGGESTED ANSWER:

The nurses and the clinic staff are employees of Dr. Crisostomo. Answer

Under labor law jurisprudence, the four-fold test is used to ascertain the existence of an employer-employee relationship, using these factors: (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct, or the so-called “control test.” Of these four, the last one is the most important. Rule

In the case at bar, the nurses and the clinic staff were selected and engaged by Dr. Crisostomo. Their salaries and SSS contributions were being paid by Dr. Crisostomo. As the one who hired them, Dr. Crisostomo has the power to dismiss them. More importantly, Dr. Crisostomo exercised control over them in the performance of their work. Apply

Thus, it was incorrect for the clinic and staff to claim that they were regular employees of AB Hoteland Resort. Conclusion

•••••

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Subjects

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