Cosmopolitan Funeral Homes, Inc. vs. NLRC

A worker paid on a commission basis is nonetheless an employee where the employer reserves and exercises the right to control not only the end to be achieved but also the manner and means of accomplishing it; however, an employee validly dismissed for dishonesty is not entitled to separation pay as a measure of social justice, because compassion for the underprivileged does not extend to condoning wrongdoing.

Cosmopolitan Funeral Homes, Inc. is a corporation engaged in the funeral services business. In 1962, it engaged Noli Maalat as a "supervisor" to handle solicitation of mortuary arrangements, sales, and collections, compensating him on a 3.5% commission basis of amounts actually collected and remitted. The dispute concerns whether Maalat's status was that of an employee or an independent commission agent, and whether his dismissal for dishonesty nonetheless entitled him to separation pay under the doctrine of social and compassionate justice then prevailing in certain NLRC rulings.

Sometime in 1962, Cosmopolitan Funeral Homes, Inc. engaged the services of Noli Maalat as a "supervisor" to handle the solicitation of mortuary arrangements, sales, and collections. The funeral services he sold covered the taking of the corpse, embalming, casketing, viewing, and delivery. Maalat was compensated on a commission basis at 3.5% of the amounts actually collected and remitted.

On January 15, 1987, Maalat was dismissed by the company for several violations committed despite previous warnings. These violations included understatement of reported contract prices against actual prices charged to customers; misappropriation of funds through non-remittance of collections and non-issuance of official receipts; charging customers additional amounts for medicines, linen, and security services without issuing official receipts and pocketing the same; non-reporting of embalming and re-embalming charges and pocketing the proceeds without issuing official receipts; and engaging in tomb-making and including the price of the tomb in the package price without prior knowledge of the customers or the company.

Maalat filed a complaint for illegal dismissal and non-payment of commissions. Labor Arbiter Newton R. Sancho, on the basis of the parties' position papers, rendered a decision declaring the dismissal illegal and ordering the petitioner to pay separation pay, commission, interests, and attorney's fees totaling ₱205,571.52. On appeal, the NLRC reversed the Labor Arbiter on May 31, 1988, declaring the dismissal justified and with lawful cause, but awarding separation pay equivalent to one-half month average income for every year of service as equitable relief, citing social and compassionate justice and the employee's 24 years of service. The NLRC found that Maalat had been dishonest in the discharge of his functions but nonetheless granted partial separation pay, distinguishing the case from Soco and Firestone on the ground that the misconduct involved infractions of company rules rather than more serious offenses.

Maalat did not appeal from the NLRC decision, thereby impliedly accepting the validity of his dismissal. On remand, the Labor Arbiter computed separation pay at ₱76,064.40, unpaid commissions at ₱39,344.80, and 2% attorney's fees at ₱2,308.18, for a total of ₱117,717.38. Neither party appealed from that computation. The petitioner had earlier filed a motion for reconsideration of the NLRC decision, which was denied, prompting the present petition for review.

• Independent Contractor Status: Petitioner argued that Maalat was never its employee but merely a commission agent whose work was not subject to its control, citing Investment Planning Corporation of the Philippines vs. Social Security System for the proposition that the agent's work approximated that of an independent contractor since the agent was not under control as to the means and methods employed, but only as to results.
• Impropriety of Separation Pay: Petitioner impugned the NLRC's award of separation pay equivalent to one-half month average income per year of service, arguing that an employee validly dismissed for dishonesty should not be rewarded with financial assistance.

• Employer-Employee Relationship: Whether the NLRC erred in ruling that an employment relationship existed between the parties.
• Separation Pay: Whether there was equitable basis for the award of one-half month separation pay for every year of service.

• Employer-Employee Relationship: No. The NLRC did not err; an employer-employee relationship existed under the right-of-control test, the company having reserved and exercised control over both the end and the means of Maalat's work.
• Separation Pay: No. The award of separation pay was not justified, Maalat having been validly dismissed for dishonesty, which is serious misconduct reflecting on moral character; under the PLDT doctrine, social justice does not condone such offenses.

• Employer-Employee Relationship: The prevailing test for determining whether a person performing work for another is an employee or an independent contractor is the "right of control" test, under which an employer-employee relationship exists where the person for whom services are performed reserves the right to control not only the end to be achieved but also the manner and means used in reaching that end. Several facts satisfied this test. The company imposed and applied rules prohibiting supervisors from engaging in other funeral business it considered inimical to company interests, proving it had the right of control and actually exercised it; Maalat worked exclusively for the company. He was prohibited from engaging in part-time embalming business outside the company, and violations were cause for dismissal. Absences without leave were subject to disciplinary action—reprimand for the first offense, one-week suspension for the second, and dismissal for the third. Company rules required that negotiation and making of contracts with customers be done inside the office and that signing of contracts be made immediately before the cadaver was placed in the casket, belying the claim of no control over means and methods. Maalat was not allowed to issue his own receipts or directly deduct his commission, as truly independent salesmen practice. The company reported him to the Social Security System as a covered employee. The fact that compensation was paid by commission did not militate against employee status, since Article 97 of the Labor Code defines "wage" as remuneration capable of being expressed in terms of money, whether fixed or ascertained on a time, task, pace, or commission basis. The non-observance of regular office hours did not negate employment, as a supervisor compensated on commission basis was exempt from normal hours, his compensation being measured by the number of sales; people die at all times of the day or night. The petitioner's reliance on Investment Planning Corporation was misplaced, as the majority of the commission agents in that case were regularly employed elsewhere—a circumstance absent here. Maalat's job description indicated he attended to the needs of clientele and arranged funeral services, requiring him to be on the job most of the time. The NLRC's factual findings, supported by substantial evidence, were not disturbed on appeal.

• Separation Pay: The NLRC found that Maalat was dishonest in the discharge of his functions, a finding sufficiently supported by the evidence on record and not disturbed by the Court. Maalat did not appeal from the NLRC decision, thereby impliedly accepting the validity of his dismissal. The Court took exception to the grant of separation pay. In PLDT vs. NLRC, the Court had re-examined and abandoned the doctrine in Firestone and Soco that employees dismissed for cause are nevertheless entitled to separation pay on the ground of social and compassionate justice. The Court held that henceforth separation pay shall be allowed as a measure of social justice only where the employee is validly dismissed for causes other than serious misconduct or those reflecting on moral character. Where the reason for valid dismissal involves moral turpitude, such as theft, the employer may not be required to give separation pay. A contrary rule would reward rather than punish the erring employee. The policy of social justice is not intended to countenance wrongdoing simply because it is committed by the underprivileged; compassion for the poor is imperative but only when the recipient is not a rascal claiming an undeserved privilege. Subsequent decisions abided by this pronouncement. Conformably, the grant of separation pay to Maalat, validly terminated for dishonesty, was not justified. The Labor Arbiter's computation of separation pay was set aside, but his computation of unclaimed commissions amounting to ₱39,344.80 was upheld, with attorney's fees recomputed at 2% of that amount, or ₱786.89.

• Right of Control Test — An employer-employee relationship exists where the person for whom services are performed reserves the right to control not only the end to be achieved but also the manner and means to be used in reaching that end. The Court applied this test by examining company rules prohibiting Maalat from engaging in outside business, requiring negotiations inside the office, disciplining absences without leave, and prohibiting issuance of his own receipts—collectively demonstrating actual exercise of control over means and methods, not merely results.
• Commission-Based Compensation Does Not Negate Employment — Under Article 97 of the Labor Code, "wage" includes remuneration ascertained on a commission basis. Payment by commission alone does not convert an employee into an independent contractor where the control test is otherwise satisfied.
• No Separation Pay for Dismissal Due to Serious Misconduct or Moral Turpitude (PLDT Doctrine) — Separation pay as a measure of social justice is allowed only where the employee is validly dismissed for causes other than serious misconduct or those reflecting on moral character. Where the valid dismissal is for an offense involving moral turpitude, such as theft or dishonesty, the employer is not required to give separation pay, financial assistance, or any equivalent, because social justice does not countenance wrongdoing and a contrary rule would reward rather than punish the erring employee.

• "The policy of social justice is not intended to countenance wrongdoing simply because it is committed by the underprivileged. At best it may mitigate the penalty but it certainly will not condone the offense. Compassion for the poor is an imperative of every humane society but only when the recipient is not a rascal claiming an undeserved privilege." — This passage, quoted from PLDT vs. NLRC, articulates the canonical formulation of the doctrine limiting separation pay to employees validly dismissed for causes other than serious misconduct or moral turpitude.
• "The fact that the petitioner imposed and applied its rule prohibiting superiors from engaging in other funeral business which it considered inimical to company interests proves that it had the right of control and actually exercised its control over the private respondent." — This statement demonstrates the application of the control test to company rules restricting the worker's outside activities, establishing the employer-employee relationship.
• "The payment of compensation by way of commission does not militate against the conclusion that private respondent was an employee." — This passage clarifies that commission-based compensation is encompassed by the Labor Code's definition of wage and does not, by itself, convert a worker into an independent contractor.

• Investment Planning Corporation of the Philippines vs. Social Security System, 21 SCRA 924 (1967) — Cited by petitioner to argue that commission agents approximate independent contractors. Distinguished by the Court, as the majority of the commission agents in that case were regularly employed elsewhere, a circumstance absent in Maalat's case.
• Social Security System vs. Court of Appeals, 156 SCRA 383 (1987) — Cited in support of the conclusion that the control test was satisfied.
• PLDT vs. NLRC, 164 SCRA 671 (1988) — Controlling precedent. The Court re-examined and abandoned the doctrine that employees dismissed for cause are entitled to separation pay on social justice grounds, holding that separation pay is unavailable where dismissal is for serious misconduct or acts reflecting on moral character.
• Soco vs. Mercantile Corporation, G.R. No. 53364-65, March 16, 1987 — Cited by the NLRC as basis for granting separation pay; effectively overturned by PLDT.
• Firestone vs. Lariosa, G.R. No. 70479, February 27, 1987 — Cited by the NLRC as basis for granting separation pay; effectively overturned by PLDT.
• Philippine National Construction Corporation vs. NLRC, 170 SCRA 207 (1989) — Cited as a subsequent decision abiding by the PLDT pronouncement.
• Eastern Paper Mills, Inc. vs. NLRC, 170 SCRA 597 (1989) — Cited as a subsequent decision abiding by the PLDT pronouncement.

• Article 97, Labor Code — Defines "wage" as the remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, pace, or commission basis. Applied to show that commission-based compensation falls within the statutory definition of wage and does not negate employee status.

Feliciano, Bidin, and Cortes, JJ., concurred. Fernan, C.J., was on leave.