On labor The existence of an employer-employee relationship is a condition sine qua non.

-Without such relationship, the law on labor standards will not apply.

The Four-Fold Test

a. SELECTION and ENGAGEMENT of the employees (South)

b. payment of WAGES (West)

c. power of DISMISSAL (Disaster)

d. power to CONTROL the employees’ conduct (Control)

(SWDC the acronym by Dean Abad)

The element of control is the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. (Great Pacific Life Assurance Corp. vs. NLRC)

However, one must distinguish between rules that merely serve as guidelines and rules that fix the methodology and bind or restrict the party hired to the use of such means of methods. The former does not produce an employer-employee relationship while the latter does.

Not every form of control will have the effect of establishing an employer-employee relationship. (Insular Life vs. NLRC)

Cases where the employer-employee relationship exits:

a. Jeepney drivers on boundary system

-The relationship that exists between jeepney owners/operators and jeepney drivers is that of an employer-employee and not one of a lessor-lessee. (Jardin vs. NLRC)

-In the lease of chattels, the lessor completely loses control over the chattel leased.

Jeepney operators exercise supervision and control over the jeepney drivers. Such operators see to it that the driver follows a route prescribed by the franchising authority and the rules promulgated as regards its operation. Jeepney drivers also perform activities which are usually necessary or desirable in the usual business or trade of the employer.

By analogy, the doctrine also applies to the relationship between bus owner/operator and the bus conductor, auto-calesa owner/operator and driver, taxi owner/operator and taxi drivers.

(Jardin vs. NLRC on taxi drivers)

Difference between an employee and independent contractor (Tan vs. Lagrama):

Independent contractor-one who carries on a distinct and INDEPENDENT BUSINESS, undertakes to perform the job, work, or service on his own account, under his own RESPONSIBILITY according to his OWN MANNER or METHOD, free from the control of the principal in all matters connected to the performance of the work except as to the results thereof

-enjoys independence and freedom from the control and supervision of the principal

Employee- subject to the employer’s  power to control the means and methods by which the employee’s work is to be performed and accomplished

When a worker possesses some attributes of an employee and others of an independent contractor, which may make him fall within an intermediate area, he may be classified under the category of an employee when the economic facts of the relations make it more nearly one of employment than one of independent business enterprise with respect to the ends sought to be accomplished. (Social Security System v. CA)

-The doubt to be resolved in favor of the category which is most beneficial to the worker.

Labor-only contracting

1) the person supplying workers to an employer does NOT have substantial capital or investment in the form of Tools, Equipment, Machineries, Work premises among others (TEM Work)

2) the workers recruited and placed by such person are performing activities which are directly related to the principal business of such employer (Baguio et al. vs. NLRC)

 Job-contracting

1) The contractor carries on an independent business 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 related with the performance of the work except as to the results thereof

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 (Baguio et al. vs. NLRC)

Permissible job contracting or subcontracting

-refers to an arrangement whereby a principal agrees to put out or farm out with a contractor or subcontractor the performance or completion of a specific job, work, or service within a definite or predetermined period, regardless of whether such job, work, or service is to be performed or completed within or outside the premises of the principal (Vinoya vs. NLRC)

Conditions that must occur for a person to be considered as engaged in LEGITIMATE job contracting or subcontracting

(Art. 106 Labor Code; Department Order No. 10 [May 1997], amending Rule VIII-A Book III, Implementing Rules; Department Order No. 18-02 [21 Feb 2002])

a) The contractor or subcontractor carries on a distinct and independent business and undertakes to perform the job, work, or service on his own account, under his own responsibility, according to his own manner and method, free from the control of the principal in all matters in the performance of the work except as to the results thereof

b) Contractor or subcontractor has substantial capital or investment

c) The agreement between the principal and the contractor or subcontractor assures the contractual employees entitlement to all labor and occupational safety and health standards, free exercise of the right to self-organization, security of tenure, and social and welfare benefits

In addition to substantial capital-ization or investment in the form of tools, equipment, machinery or work premises, the following factors must be considered:

a) Whether the contractor is carrying on an independent business

b) Nature or extent or the work

c) Skill required

d) Term and duration of the relationship

e) Right to assign the performance of specified pieces of work

f) Control and supervision of the workers

g) Power of the employer with respect to hiring, firing, and payment of workers of the contractor

h) Control of the premises

i) Duty to supply premises, tools, appliances, materials and labor

j) Mode, manner, terms of payment

(Alexander Vinoya v. NLRC, Regent Food Corp and/or Ricky See; Rolando E. Escario et al vs. NLRC; Osias Corporal Sr. et al. vs. NLRC, Lao Enteng Co. Inc. and/or Trinidad Lao Ong)

In legitimate job contracting, NO employer-employee relationship exists between the owner and the employees of his contractor. (Baguio, et. al. vs. NLRC)

The owner of the project is not the direct employer but merely an INDIRECT employer, by operation of law, of his contractor’s employees.

However, as an indirect employer, the owner of the project is JOINTLY AND SEVERALLY liable with the contractor with respect to money claims of the contractor’s employees pursuant to Article 109 of the Labor Code. (DBP vs. NLRC)

The principal, as indirect employer, is also JOINTLY AND SEVERALLY liable with the contractor for violation of labor standard laws and unfair labor practice. (Deferia vs. NLRC)

It must be noted that the liability of the principal in legitimate job contracting to the employees us for a limited purpose only, e.g., unpaid wages only.

-This is to ensure that the employees are paid their wages.

The principal becomes jointly and severally with the contractor only for the payment of the employees’ wages whenever the contractor fails to pay the same. Other than that, the principal employer is NOT responsible for any claim made by the employees. (San Miguel Corp. vs. MAERC Integrated Services)

Effect of finding that a contractor is a labor-only contractor

-It is equivalent to declaring that there is an employer-employee relationship between the principal and the employees of the labor-only contractor.

(Associated Anglo-American Tobacco Corp. vs. Clave; Industrial Timber Corp. vs. NLRC)

In such cases, the person or intermediary shall be considered merely as an AGENT of the employer. The latter shall be responsible to the workers in the manner and extent as if such workers were directly employed by the employer.

(Sandoval Shipyards Inc. vs. Prisco Pepito et. al)

-The liability of the principal to the employees of the labor-only contractor is responsible not only for unpaid wages but also for all the claims under the Labor Code and auxiliary laws.

The contractor is considered as an agent of the principal employer and the latter becomes solidarily liable WITH the labor-only contractor for all the rightful claims of the employees. (San Miguel Corp. vs. MAERC Integrated Services)

Effect for failure of owner of project to require the contractor to post a bond (in accordance with Article 108 of the Labor Code)

-the owner of project must answer for whatever the liabilities the contractor may have incurred to his employees; without prejudice on the part of the project owner to seek reimbursement from the contractor. (Baguio et. al. vs. NLRC)