Almirez vs. Infinite Loop Technology Corporation

The existence of an employer-employee relationship is determined by the four-fold test, with the control test as the most crucial indicator; where the hiring party reserves the right to control only the end achieved but not the manner and means to be used in reaching that end, no employer-employee relationship exists. The designation of payments as "salaries" and the deduction of SSS, Philhealth, and withholding tax from a single payslip do not, by themselves, establish an employer-employee relationship.

Petitioner Corazon Almirez is a professional engineer who was engaged by respondent Infinite Loop Technology Corporation, a company involved in petroleum processing technology, through its General Manager/President Edwin R. Rabino. The engagement was for a specific project — the proposed 1,200,000 BPSD Petroleum Refinery — and was formalized through a letter dated September 30, 1999, which confirmed acceptance of petitioner's "Professional Services" with attached Terms and Conditions. The contract specified a professional fee of US$2,000.00 per month net of tax, a guaranteed minimum of 12 continuous months of service, and enumerated a detailed scope of professional services. The dispute centers on whether this engagement constituted an employment relationship governed by labor laws or a contract for services outside the jurisdiction of labor tribunals.

Petitioner Corazon Almirez was hired by respondent Infinite Loop Technology Corporation through its General Manager/President Edwin R. Rabino as a Refinery Senior Process Design Engineer for a specific project. By letter dated September 30, 1999, Rabino confirmed acceptance of petitioner's professional services, stating that her services "will commence effective October 18, 1999 up to the completion of the scope of services and continuation thereof with a guaranty of 12 continuous months as outlined in the attachment or until a mutually agreed date." The attached Terms and Conditions enumerated a detailed Scope of Professional Services, including preparing the Process Design Terms of Reference for the proposed 1,200,000 BPSD Petroleum Refinery, reviewing and revising the conceptual process block diagram, implementing new process technologies, participating in discussions during solicitation of proposals, reviewing the progress of work, making reports and recommendations to the company management team, representing the company in technical meetings, performing other related works, continuing related works during the construction stage, and serving as technical consultant on other relevant works or projects when required. The Terms of Payment specified a Professional Fee of US$2,000.00 per month net of tax, to be paid 50/50 split in US Dollars or equivalent Peso every 15th and 30th of the month, with a guaranteed minimum of 12 continuous months or up to completion of services. Other benefits included US$300.00 per month as transportation allowance and a project bonus at the end of the contract. The letter and attached documents bore the signatures of both petitioner and Rabino.

For her services, petitioner received amounts totaling P77,000.00 on various dates from November 23, 1999 to January 20, 2000, with the payments designated as "salary" for specific periods. By letter dated February 2, 2000, petitioner conveyed to Infinite Loop through Rabino her disappointment with the "salary" she was receiving, stating that when she agreed with a salary of P30,000.00 monthly, her understanding was that this amount was already net of tax, and requesting that tax not be deducted from the P30,000.00 salary she was supposed to be receiving. She also stated that she was paying her SSS contributions voluntarily and that she was willing to serve as technical consultant to Infinite Loop on other relevant works or projects while waiting for the Masbate refinery project.

Responding, Rabino stated that petitioner's letter "was totally different [from] what [they] verbally agreed [upon]" in her house; that like any other proposed project, the proposed refinery "can be deferred like its present status"; and that since the financial side for the engineering design was not yet available, it would be prudent to suspend her professional services as Senior Process Design Engineer effective February 7, 2000. Rabino assured petitioner that her professional services would be resumed once they were provided with the initial payment requested from the project proponent. By letter dated August 9, 2000, petitioner, through counsel, made a formal demand for compensation of the total amount of her contract, alleging that respondents violated the terms and conditions of the contract by suspending her professional services and paying her only P74,229.17, which was way below the agreed professional fee of US$2,000.00 a month net of tax. Rabino later wrote petitioner by letter of November 15, 2000, explaining that the project proponent, Arrox Resources Corp., had encountered reorganization and had not yet paid them for the project.

On December 12, 2000, petitioner filed a complaint against Infinite Loop and Rabino before the NLRC for "breach of contract of employment." Respondents moved to dismiss on the ground that the NLRC has no jurisdiction over the parties and the subject matter, there being no employee-employer relationship between them as the contract they entered into was one of services and not of employment. The Labor Arbiter found that an employer-employee relationship existed, relying on paragraph No. 6 of the Scope of Professional Services which required petitioner to make reports and recommendations to the company management team. The NLRC affirmed. The Court of Appeals reversed, finding that petitioner was hired to render professional services for a specific project and that her primary cause of action was for a sum of money on account of alleged breach of contractual obligation to pay her agreed professional fee, hence no employer-employee relationship existed and the NLRC and Labor Arbiter had no jurisdiction.

• Inconsistent Ruling: Petitioner contended that the appellate court erred in inconsistently ruling that there was no employer-employee relationship between the parties but at the same time citing that petitioner is a project employee, and that the assailed judgment was based on misappreciation of facts.
• Relief for Payment of Salary: Petitioner argued that the appellate court failed to consider the relief mentioned in her complaint for payment of salary.
• Illegal Dismissal: Petitioner argued that the appellate court erred in ruling that the separation from service of petitioner because of the project's discontinuance did not result in illegal dismissal.
• Control Test: Petitioner drew attention to the pay slips and Infinite Loop's deduction of her SSS, Philhealth, and withholding tax, and to the designation of the payments to her as "salaries," to bolster her contention that an employer-employee relationship existed.

• Lack of Jurisdiction: Respondents argued before the Court of Appeals that the NLRC abused its discretion amounting to lack of jurisdiction and erred in not finding that the Labor Arbiter has no jurisdiction over the causes of action pleaded in the complaint, i.e., non-payment of professional fee and breach of contract.
• No Employee Status: Respondents argued that the NLRC committed grave abuse of discretion amounting to lack of jurisdiction and committed reversible error in not finding that petitioner is not an employee of Infinite Loop.
• Project-Coterminous Engagement: Respondents argued that the NLRC seriously erred in not finding that the envisioned engagement of petitioner as a Refinery Process Engineer is co-terminous with the project, which project did not materialize.

• Employer-Employee Relationship: Whether an employer-employee relationship existed between petitioner and respondent Infinite Loop Technology Corporation.
• Jurisdiction of Labor Tribunals: Whether the Labor Arbiter and the NLRC had jurisdiction over petitioner's complaint for breach of contract of employment.

• Employer-Employee Relationship: No. No employer-employee relationship existed between the parties because the control test — the most crucial and determinative indicator — was not satisfied. The contract of engagement specified what petitioner needed to achieve but not how she was to go about it, and the requirement to make reports and recommendations did not show control over the means and methods of her work.
• Jurisdiction of Labor Tribunals: No. Since no employer-employee relationship existed, the Labor Arbiter and the NLRC had no jurisdiction over petitioner's complaint, which was for breach of contract and recovery of professional fees, not for labor disputes.

• Employer-Employee Relationship: The Court applied the four-fold test to ascertain the existence of an employer-employee relationship: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. Of these four, the control test is commonly regarded as the most crucial and determinative indicator. 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. From the scope of petitioner's professional services, there was no showing of a power of control over petitioner — the services specified what she needed to achieve but not how she was to go about it. Contrary to the Labor Arbiter's finding, paragraph No. 6 of the Scope of Professional Services requiring petitioner to make reports and recommendations to the company management team does not show that the company exercises control over the means and methods in the performance of her duties. Having hired petitioner's professional services on account of her expertise and qualifications, the company naturally expected to be updated regularly of her work progress on the project for which she was specifically hired.
• Effect of Pay Slips and Deductions: The deduction from petitioner's remuneration of amounts representing SSS premiums, Philhealth contributions, and withholding tax was made in the only payslip issued to petitioner, for the period of January 16-31, 2000, the other amounts of remuneration having been documented by cash vouchers. Such payslip cannot prove the existence of an employer-employee relationship. The cases of Equitable Banking Corp. vs. NLRC and Nagusara vs. NLRC were distinguished, as the employers in those cases did not only regularly make similar deductions from the complainants' remuneration but also registered and declared the complainants with the SSS and Medicare (Philhealth) as their employees.
• Designation as "Salaries": The designation of the payments to petitioner as "salaries" is not determinative of the existence of an employer-employee relationship. "Salary" is a general term defined as "a remuneration for services given." The contract of engagement of services — the letter dated September 30, 1999, together with its attachments — is the law between the parties. Even petitioner conceded rendering service "based on the contract," which is bereft of a showing of power of control, the most crucial and determinative indicator of the presence of an employer-employee relationship.

• Four-Fold Test — The existence of an employer-employee relationship is ascertained through: (1) the manner of selection and engagement; (2) the payment of wages; (3) the presence or absence of the power of dismissal; and (4) the presence or absence of the power of control. The Court applied this test and found that the control test was not satisfied, hence no employer-employee relationship existed.
• 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. The Court held that the contract specified what petitioner needed to achieve but not how she was to go about it, thus failing the control test.
• Contract as Law Between the Parties — The contract of engagement, together with its attachments, is the law between the parties. Since the contract was bereft of any showing of power of control, the most crucial indicator of an employer-employee relationship, no such relationship existed despite the designation of payments as "salaries."

• "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." — This passage states the canonical formulation of the control test, the most crucial indicator of an employer-employee relationship, and is the ratio decidendi of the decision.
• "From the earlier-quoted scope of petitioner's professional services, there is no showing of a power of control over petitioner. The services to be performed by her specified what she needed to achieve but not on how she was to go about it." — This passage applies the control test to the facts, demonstrating why no employer-employee relationship existed.
• "Having hired petitioner's professional services on account of her 'expertise and qualifications' as petitioner herself proffers in her Position Paper, the company naturally expected to be updated regularly of her 'work progress,' if any, on the project for which she was specifically hired." — This passage explains why the reporting requirement in paragraph No. 6 of the Scope of Professional Services did not constitute control over the means and methods of petitioner's work.
• "As for the designation of the payments to petitioner as 'salaries,' it is not determinative of the existence of an employer-employee relationship. 'Salary' is a general term defined as 'a remuneration for services given.'" — This passage clarifies that the label given to payments does not control the determination of an employer-employee relationship.

• Abante Jr. vs. Lamadrid Bearing & Parts Corp., G.R. No. 159890, May 28, 2004, 430 SCRA 368 — Cited as the source of the four-fold test and the control test formulation; controlling precedent for the standard used to determine the existence of an employer-employee relationship.
• Equitable Banking Corp. vs. NLRC, 339 Phil 541 (1997) — Distinguished from the present case; in that case, the employer not only regularly made deductions from the complainant's remuneration but also registered and declared the complainant with the SSS and Medicare as an employee.
• Nagusara vs. NLRC, 352 Phil 854 (1998) — Distinguished from the present case on the same grounds as Equitable Banking Corp.; the employer there regularly made deductions and registered the complainant with the SSS and Medicare as an employee.

• Article VIII, Section 13, Constitution — Cited in the Certification portion of the decision, certifying that the conclusions in the decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division.

• Quisumbing, J. (Chairman)
• Carpio, J.
• Tinga, J.