Tongko vs. The Manufacturers Life Insurance Co. (Phils.) Inc. and Renato Vergel de Dios(2010, Brion)

FACTS (Note: This case is an MR of a previous SC Decision) First phase of contractual relationship between Tongko and Manulife - Career Agent’s Agreement

(1977)o Pertinent clause: ‘It is understood and agreed that the Agent is an independent contractor and

nothing contained herein shall be construed or interpreted as creating an ER-EE rel. between the Company and the Agent.’

Second phase - Tongko became a Unit Manager, then a Branch Manager, and finally a Regional Sales Manager.

Note: Tongko consistently declared himself self-employed in his ITRs. Manulife withheld the corresponding 10% tax on his earnings.

Nov. 2001 - Manulife instituted manpower development programs at the regional sales management level. De Dios wrote to Tongko re: concerns brought up during the Metro North Sales Managers Meeting. o Gist: Tongko’s region was the lowest performer (on a per manager basis) in terms of recruiting

in 2000 and still continues to remain one of the laggards in the area. No Sales Manager confirmed Tongko’s statement that some of the managers are unhappy with their earnings and would want to revert to the position of agents. Moreover, Tongko’s statement that Sales Managers are doing what the company asks them to do but they earn less. De Dios was thus of the opinion that Tongko has not been proactive all these years when it comes to agency growth. He thus directed Tongko to hire at his expense a competent assistant, and told him that the rest of the Agency operations will deal with the North Star Branch in autonomous fashion. ‘The above changes can end at this point, and they need not go any further. This, however, is

entirely dependent upon you. ***’ The following month, De Dios issued a notice of termination of the Agency Agreement with Tongko.

The latter thus filed a complaint for illegal dismissal with the NLRC. Main contention - He was Manulife’s EE before he was illegally dismissed.

TONGKO MANULIFE As Regional Sales Manager, he was given

certain allowances apart from his commissions.

He was tasked with numerous administrative functions and supervisory authority over Manulife’s EEs aside from selling policies and recruiting agents.

He was assigned a definite place in Manulife’s office

He was required to follow at least 3 codes of conduct.

Tongko had no fixed wage or salary; he was paid commissions of varying amounts.

It deducted and withheld a 10% tax from all commissions Tongko received; the latter even declared himself to be self-employed and consistently paid taxes as such.

Tongko is not their EE (citing Carungcong vs. NLRC)

Labor Arbiter - No ER-EE rel.; NLRC - ER-EE rel.; CA - No ER-EE rel. SC (1st Decision) - ER - EE rel.

o SC’s ruling in 1st Insular Life case did not foreclose the possibility of an insurance agent becoming an EE of an insurance company; if evidence exists showing that the company

promulgated rules effectively controlling or restricting an agent’s choice of methods in selling insurance.

o Manulife had power of control over Tongko: Tongko undertook to comply with Manulife’s rules and regulations. Various affidavits of Manulife’s insurance agents and managers, showing that they

performed administrative duties that established employment with Manulife. Tongko was tasked to recruit some agents in addition to his other administrative functions;

his failure to follow this directive led to his termination.

ISSUE/HELD: W/N an ER-EE rel. existed between Tongko and Manulife. NO. SC reversed its Decision.

RULING:

The Insurance and the Civil Codes; the parties’ intent and established industry practices Since the factual antecedents were set in the insurance industry, the Insurance Code (IC) primarily

governs (i.e. agent and broker relationship with the insurance company). But the same Code does not wholly regulate the agency that it speaks of, as agency is a civil law matter governed by the Civil Code (CC).

Sec. 186, IC: No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Phils.

Sec. 299, IC: No insurance company doing business in the Phils., nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as insurance agent of such company or as insurance broker as hereinafter provided. Under the IC, the agent must, as a matter of qualification, be licensed and must also act within

the parameters of the authority granted under the license and under the contract with the principal. Rules regarding the desired results are built-in elements of control specific to an insurance agency and should not and cannot be read as elements of control that attend an employment relationship under the Labor Code (LC).

Art. 1868, CC: An agent is a person who binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. The employer controls the employee both in the results and the means and manner of achieving

such result. The principal in an agency relationship also has the prerogative to exercise control over the agent in undertaking the assigned task based on parameters outlined in pertinent laws.

General law on agency as applied to insurance - agency must be express in light of need for license and designation by the insurance company. o Here, the Agreement fully serves as grant of authority to Tongko as Manulife’s insurance agent.

This is supplemented by the company’s agency practices and usages, duly accepted by the agent in carrying out the agency.

o By authority of the IC (Sec. 299), an insurance agency is for compensation, a matter the CC (Art. 1875) presumes in the absence of proof to the contrary.

Particularly relevant is the provision that in the execution of the agency, the agent shall act in accordance with the instructions of the principal. (Art. 1887)

The Cited Case Carungcong, Grepalife and Second Insular cases dealt with the proper legal characterization of a

subsequent management contract that superseded the original agency contract between the

insurance company and its agent. A determination of the presence of the LC element of control was made on the basis of the stipulations in the subsequent contracts.o Here, the only contract or document extant and submitted as evidence is the Agreement, a pure

agency agreement in the CC context similar to the original contract in the First Insular and AFPBMAI cases. While Tongko was later designated to several positions, no formal contract regarding these undertakings appears in the records of the case.

Analysis of the evidence

1. The Agreement

This Agreement stood for more than 2 decades, and based on the records of the case, was never modified or novated. It assumes primacy because it directly dealt with the nature of the parties’ relationship up to the very end; and both parties never disputed its authenticity or accuracy of its terms.o By its express terms, Tongko served as an insurance agent, NOT as an employee. This

characterization by the parties cannot be brushed aside, because it embodies their intent at the time they entered into the Agreement, and they were governed by this understanding throughout their relationship. This intent is reinforced by the system of compensation which the Agreement provides, which is in accordance with the production-based sales commissions that the IC provides. Moreover, this intent is not illegal or outside the contemplation of law. The IC expressly

envisions a principal-agent relationship between the insurance company and the insurance agent in the sale of insurance to the public. JUDICIAL NOTICE that as a matter of IC based business practice, an agency relationship prevails in the insurance industry for the purpose of selling insurance.

Evidence shows that Tongko’s role as an insurance agent never changed during his relationship with Manulife. He essentially remained an agent, but moved up thru Manulife’s recognition that he could use other agents approved by Manulife, but operating under his guidance and in whose commissions he had a share. (‘lead agent’)o As an agent who was recruiting and guiding other insurance agents, Tongko likewise moved up

in terms of the reimbursement of expenses he incurred in the course of his lead agency, a prerogative he enjoyed pursuant to Art. 1912 (CC).

o What happened was a mere grant of an expanded sales agency role that recognized him as leader amongst agents.

Tongko consistently clung to the view that he was an independent agent selling insurance products since he invariably declared himself a business or self-employed person in his ITS. Never mentioned in the First SC Decision; it would have constituted admissions against his interet.o Estoppel - Tongko’s previous admissions in several years of ITRs as an independent agent, as

against his belated claim that he was all along an employee, are too diametrically opposed to be simply ignored.

Dissent (Velasco) - Tongko had dual roles: (1) agent insofar as he sold insurance, (2) employee in his capacity as a manager.o SC - there is lack of evidentiary support for the conclusion that Manulife exercised control over

Tongko in the sense understood in the LC; it is moreover devoid of jurisprudential basis.

2. Other evidence of alleged control

Prior to De Dios’ letter, Manulife had practically left Tongko alone not only in doing the business of selling insurance, but also in guiding the agents under his wing.

Mere presentation of codes of conduct is not per se indicative of labor law control. o IC imposes obligations on both the insurance company and its agents in the performance of

their respective obligations under the Code. The general law on agency expressly allows the principal an element of control over the agent in a manner consistent with an agency relationship.

o First Insular case: A commitment to abide by the rules and regulations of an insurance company does not ipso facto make the insurance agent an employee. Guidelines indicative of labor law ‘control’ should not merely relate to the mutually desirable result intended by the contractual relationship; they must have the nature of dictating the means or methods to be employed in attaining the result, or of fixing the methodology and of binding or restricting the party hired to the use of these means.

o Results-wise, the principal can impose production quotas and can determine how many agents, with specific territories, ought to be employed to achieve the company’s objectives. These are management policy decisions that the labor law element of control cannot reach.

o Here, Manulife’s codes of conduct, all of which do not intrude into the insurance agents’ means and manner of conducting their sales and only control them as to the desired results and Insurance Code norms, cannot be used as basis for a finding that the labor law concept of control existed between Tongko and Manulife.

Dissent - Imposition of administrative and managerial functions as indicative of labor law control; a substantive alteration of Manulife’s authority over Tongko and the performance of his end of the relationship with Manulife.o SC - Tongko and Manulife never altered the original Agreement. Moreover, the operative words

are the ‘sales target,’ the methodology being left undefined except to the extent of being coordinative. To coordinate is not so much a matter of control by Manulife; it is a statement of a branch manager’s role in relation with his agents from the point of view of Manulife whose business Tongko’s sales group carries.

o The portion of the affidavits suggesting labor law control were highlighted, while some portions were not brought out: ex. - I have no fixed wages since my services are compensated by way of commissions; I employ my own method in soliciting insurance at a time and place I see fit, etc.

o De Dios’ letter indicates the least amount of intrusion into Tongko’s exercise of his role as manager in guiding the sales agents. It contained mere operational guidelines on how Tongko could align his operations with Manulife’s directed goal of being a big league player. This directive cannot strictly be understood as an intrusion into Tongko’s method of

operating and supervising the group of agents within his delineated territory; at most, it was a signal to Tongko that his results were unsatisfactory, and was a suggestion on how his weakness in delivering results could be remedied.

o Tongko was not supervising regular full-time employees of Manulife engaged in the running of the insurance business; he was effectively guiding his corps of sales agents, who are bound to Manulife through the same Agreement that he had with Manulife, all the while sharing in these agents’ commissions through his overrides.

o Company aims and objectives were simply relayed to him through the expansion of non-employee sales force.

Dissent - Any doubt in the existence of an ER-EE rel. should be resolved in favor of its existence.

o SC - Application of Art. 4 (LC) is misplaced, as it applies only when doubt exists in the implementation and application of LC and its IRR; it does not apply where no doubt exists as in a situation where the claimant clearly failed to substantiate his claim of employment relationship by the quantum of evidence that the LC requires.