La Suerte Cigar and Cigarette Factory vs. Director of the Bureau of Labor Relations, et al.

Dealers under the La Suerte dealership agreements are independent contractors, not employees, because the company did not control the means and methods of their work; and withdrawals of support from a certification election petition made before its filing are presumed voluntary.

La Suerte Cigar and Cigarette Factory, operated by Telengtan Brothers & Sons, Inc., manufactures and distributes cigarettes through a network of dealers governed by written Dealership Agreements and Dealership Supplementary Agreements. The La Suerte Cigar and Cigarette Factory Provincial (Luzon) and Metro Manila Sales Force Association, a local union affiliated with the National Association of Trade Unions, sought to represent the company's sales personnel. Because labor-law benefits and certification-election support requirements depend on whether the persons in the proposed bargaining unit are employees, the status of the dealers and the validity of union support were central to the dispute.

La Suerte Cigar and Cigarette Factory, operated by Telengtan Brothers & Sons, Inc., manufactured cigarettes and marketed them through a network of dealers across the country under a Dealership Agreement and a Dealership Supplementary Agreement. The agreements appointed the dealer to handle the sale and distribution of La Suerte products in a designated territory; the dealer ordered cigarettes from the factory either in cash or on credit, sold them on his own account, and received a discount rather than a commission. The dealer also posted a surety or cash bond, followed company pricing policy, and could have the contract terminated by either party upon fifteen days' written notice, or immediately by the factory for breach. The fourteen dealers whose status was disputed were among the sales personnel claimed by the local union as members.

On April 7, 1979, the La Suerte Cigar and Cigarette Factory Provincial (Luzon) and Metro Manila Sales Force Association was granted chapter status by the National Association of Trade Unions. On April 16, 1979, thirty-one local union members signed a joint letter withdrawing their membership from NATU. Nonetheless, on April 18, 1979, the local union and NATU filed a petition for direct certification or certification election, alleging that forty-eight of the company's sixty sales personnel were members of the local union, that the petition was supported by no less than seventy-five percent of the sales force, that no recognized labor union represented the sales personnel, that there was no existing collective bargaining agreement, and that no certification election had been held in the preceding twelve months.

The company moved to dismiss the petition on June 13, 1979, asserting that it was not supported by at least thirty percent of the proposed bargaining unit because thirty-one of the forty-eight alleged members had withdrawn before the petition was filed and fourteen of the alleged members were not employees but independent contractors. NATU and the local union opposed the motion, alleging that the fourteen dealers were actually employees of the company because they were subject to its control and supervision. On August 29, 1979, the Med-Arbiter dismissed the petition for lack of merit, holding that the fourteen dealers were independent contractors and should not be counted for the thirty percent requirement, and that the withdrawal of the thirty-one salesmen before the filing of the petition was uncontroverted. On September 24, 1979, the local union, signed only by its president, filed a motion for reconsideration and/or appeal, arguing that the Med-Arbiter's findings were contrary to the facts and that the finding of no employer-employee relationship was not in accord with the factual circumstances.

On January 15, 1980, the Director of the Bureau of Labor Relations reversed and set aside the Med-Arbiter's order. The Director held that the withdrawal of the thirty-one signatories two days before the filing of the petition did not establish that the withdrawal was executed freely and voluntarily, and that the records were replete with company documents showing that the alleged dealers were in fact employees of the company. The company moved to set aside the resolution, contending that the appeal had never been perfected or was jurisdictionally defective because a copy of the motion for reconsideration and/or appeal had not been served on the company, and that the resolution was based solely on the distorted and self-serving allegations of the union. The local union opposed the motion and submitted a memorandum on April 22, 1980.

On May 15, 1980, NATU's legal counsel filed a manifestation stating that the local union's act of engaging another lawyer amounted to disaffiliation and withdrawing from the case. The local union countered that it had not been officially notified of expulsion, that there was no valid ground for expulsion, that the National Executive Council had not approved it, and that it had no objection to the withdrawal of Atty. Marcelino Lontok, Jr. as its counsel. NATU, through its President and legal counsel, then withdrew as petitioner on the ground that the local union was no longer affiliated with it and it was no longer interested in the case. Twelve members of the National Executive Council manifested that they constituted a majority of the Executive Board and affirmed that the local union was still an affiliate of NATU. A counter-manifestation on August 27, 1980 stated that six signatories had no authority because they had resigned from the Executive Board en masse, that the acts of the President may not be reversed by the Executive Council, and that the twelve signatories did not constitute a majority of the sixty members of the Executive Council. The local union replied that the power to expel an affiliate belonged exclusively to the National Executive Council under Section 2, Article V of the NATU Constitution and By-Laws, that expulsion required investigation, hearing, and a two-thirds vote, that disaffiliation is voluntary, and that Atty. Lontok had no personality to file the motion to dismiss-withdraw the petition after he had withdrawn as counsel. On November 18, 1980, the Director denied the company's motion for reconsideration and directed that the certification election be conducted immediately.

The Med-Arbiter found that the fourteen dealers were independent contractors and that the thirty-one withdrawals before filing were uncontroverted. The Director found that the records contained company documents showing the dealers were employees and that the withdrawals were not shown to be voluntary.

• Independent Contractorship: Petitioner argued that the fourteen dealers are independent contractors, not employees, because the Dealership Agreement and Dealership Supplementary Agreement establish a buyer-and-seller relationship and contain none of the elements of an employer-employee relationship.
• Control Test: Petitioner maintained that the powers reserved to the company—territory allocation, credit limits, pricing policy, bond, substitute designation, credit determination, and termination—are standard dealership provisions and control only the result of the dealers' work, not the means and methods by which it is performed.
• Parol Evidence and Extrinsic Evidence: Petitioner argued that evidence varying the written agreements, as well as evidence from other cases such as the Limarez case and appendages first raised on appeal, should be rejected.
• Thirty Percent Support: Petitioner moved to dismiss the certification election petition on the ground that it was not supported by at least thirty percent of the proposed bargaining unit because thirty-one of the forty-eight alleged members had withdrawn before filing and fourteen were independent contractors.
• Jurisdictional Defect: Petitioner contended that the appeal to the Director was never perfected or was jurisdictionally defective because a copy of the motion for reconsideration and/or appeal was not served on the Company, and that the Director's resolution was based solely on distorted and self-serving allegations.

• Employee Status: Respondent local union and NATU opposed the motion to dismiss, alleging that the fourteen dealers are actually employees of the Company because they are subject to its control and supervision.
• Disguised Employment: They claimed that the dealership arrangement is essentially a legal cover, cloak, or disguise to hide the continuing employer-employee relationship established prior to 1964.
• Actual Practice and Control: They argued that there are essential differences between the written dealership agreement and actual practice and operation, and that the totality of powers expressly reserved to the Company establishes control over the manner and details of the dealers' sales operations.
• Withdrawal of NATU Petition: The local union maintained that NATU's withdrawal of the petition was ineffective because it had not been officially notified of expulsion, there was no valid ground for expulsion, the National Executive Council had not approved it, and disaffiliation is voluntary; expulsion requires investigation, hearing, and a two-thirds vote of the National Executive Council. It also argued that Atty. Lontok had no personality after withdrawing as counsel and that engaging another lawyer was not a ground for expulsion.
• Appeal Grounds: In its motion for reconsideration and/or appeal, the local union argued that the Med-Arbiter's findings of fact were contrary to the facts and that the finding of no employer-employee relationship was not in accord with the factual circumstances.

• Status of the 14 Dealers: Whether the fourteen dealers are employees of petitioner company, such that they should be included in the thirty percent jurisdictional requirement necessary to support the petition for certification election, or independent contractors and hence excluded therefrom.
• Effect of Withdrawal of 31 Union Members: Whether the withdrawal of thirty-one union members from NATU affected the petition for certification election insofar as the thirty percent requirement is concerned.
• Validity of NATU's Withdrawal of the Petition: Whether the withdrawal of the petition for certification election by NATU, through its President and legal counsel, was valid and effective.

• Status of the 14 Dealers: No. The fourteen dealers are independent contractors, not employees; the dealership agreements, read under the control test and parol evidence rule, establish a buyer-seller relationship and lack control over the means and methods of the dealers' work.
• Effect of Withdrawal of 31 Union Members: Yes. Withdrawals made before filing are presumed voluntary; the thirty-one withdrawals, plus the fourteen non-employees, left only three of forty-eight supporters, insufficient for the thirty percent requirement, so the Med-Arbiter correctly dismissed the petition.
• Validity of NATU's Withdrawal of the Petition: Not resolved. The Court declared resolution unnecessary in light of the rulings on the first two issues.

• Status of the 14 Dealers: The Court applied the control test reiterated in Mafinco Trading Corp. vs. Ople, Investment Planning Corp. vs. Social Security System, and Social Security System vs. Hon. Court of Appeals and Shriro (Phils.) Inc. In a petition for certiorari, the issue of whether respondents are employees or independent contractors should be resolved mainly in light of their dealership contracts. The contracts were clear: the dealer was "appointed" to handle sale and distribution; the dealer purchased and sold cigarettes on his own account; orders were cash or credit; the dealer received a discount, not a commission; no wages were mentioned; the dealer posted a bond, was assigned a territory, followed pricing policy, and could terminate after fifteen days' notice. No words of hire or employment appeared. The discount lacked the periodicity required of wages under the Minimum Wage Law. Under Article 1370 of the New Civil Code, the literal meaning of the stipulations controlled. Section 7, Rule 130 barred evidence varying the written terms, and evidence dehors the record was rejected. The powers reserved to the company were standard dealership provisions and controlled the result, not the means and methods of the dealers' work. The Court found striking similarities with the peddling contract in Mafinco and held the fourteen dealers to be independent contractors.
• Effect of Withdrawal of 31 Union Members: The Court held that withdrawals made before the filing of the petition are presumed voluntary absent convincing proof to the contrary, while withdrawals made after filing are deemed involuntary because the employees' names are then known to the opposite party. Here, the thirty-one union members withdrew their support before the petition was filed. Their withdrawal showed they had not given consent to the filing, so the subscription requirement was not met. With the fourteen dealers excluded as independent contractors and the thirty-one withdrawals counted, only three of the forty-eight alleged supporters remained, which could not represent the union. The Med-Arbiter's dismissal was therefore correct and justified, and the Director committed grave abuse of discretion in reversing it.
• Validity of NATU's Withdrawal of the Petition: The Court did not resolve this issue, stating that with the above pronouncements, resolution of the third issue was unnecessary.

• Control Test — The existence of an employer-employee relationship is determined by whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which it is accomplished. The elements generally considered are (1) selection and engagement of the employee, (2) payment of wages, (3) power of dismissal, and (4) power to control the employee's conduct, with control being the most important. In this case, the Court applied the test to the dealership agreements and found no control over the means and methods of the dealers' work, negating employment.
• Independent Contractor — An independent contractor is one who exercises independent employment and contracts to do a piece of work according to his own methods and without being subject to the control of his employer except as to the result of the work. Factors include whether the contractor carries on an independent business, whether the work is part of the employer's general business, the nature and extent of the work, the skill required, the term and duration of the relationship, the right to assign performance, the power to terminate, the existence of a contract for a specified piece of work, control and supervision, the employer's powers over hiring, firing, and payment of the contractor's servants, control of the premises, the duty to supply premises, tools, appliances, material and labor, and the mode, manner, and terms of payment. The Court found the La Suerte dealers to be independent contractors under these factors.
• Parol Evidence Rule — When the terms of an agreement have been reduced to writing, the writing is considered as containing all such terms, and no evidence of the terms of the agreement other than the contents of the writing may be admitted between the parties, except where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties, or the validity of the agreement is put in issue by the pleadings, or where there is an intrinsic ambiguity in the writing. The Court applied this rule to reject evidence of actual practice and operation that would vary the written dealership agreements.
• Withdrawals Before and After Filing of a Certification Election Petition — Withdrawals of support made before the filing of a petition for certification election are presumed voluntary unless there is convincing proof to the contrary, because the names of supporting employees are then supposed to be held secret from the opposite party. Withdrawals made after the filing are deemed involuntary, because the employees' names are known to the opposite party and foul means may be used. The Court applied this distinction to the thirty-one pre-filing withdrawals and held they affected the thirty percent requirement.
• Literal Meaning of Contract Stipulations — Under Article 1370 of the New Civil Code, the literal meaning of the stipulations shall control when the terms of a contract are clear and leave no doubt upon the intention of the contracting parties. The Court used this rule to interpret the dealership agreements as creating a buyer-seller relationship and independent contractorship.
• Thirty Percent Requirement in Certification Elections — A bargaining unit must be composed of employees, and failure to establish an employer-employee relationship between the union members and the employer affects the legality of the union and the members' eligibility to file a certification election petition or vote therein. A petition supported by forty-eight signatories in a bargaining unit of sixty salesmen is vitiated when fourteen of the forty-eight lack employee status; with the thirty-one pre-filing withdrawals, only three of the forty-eight remained, insufficient to satisfy the requirement. The Court accordingly ordered dismissal of the petition.

• "In determining the existence of employer-employee relationship, the following elements are generally considered, namely: (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 employees' conduct-although the latter is the most important element." — This passage states the control test and its four elements, which the Court used to determine that the fourteen dealers were not employees.
• "An independent contractor is one who exercises independent employment and contracts to do a piece of work according to his own methods and without being subject to control of his employer except as to the result of the work." — This is the Court's canonical definition of an independent contractor, applied to the dealership agreements in the case.
• "Withdrawals made before the filing of the petition are presumed voluntary unless there is convincing proof to the contrary, whereas withdrawals made after the filing of the petition are deemed involuntary." — This passage supplies the distinction that controlled the effect of the thirty-one pre-filing withdrawals on the thirty percent requirement.
• "Accordingly, after considering the terms and stipulations of the Dealership Contracts which are clear and leave no doubt upon the intention of the contracting parties in establishing the relationship between the dealers on one hand and the company on the other as that of buyer and seller, We find that the status thereby created is one of independent contractorship, pursuant to the first rule in the interpretation of contracts that the literal meaning of the stipulations shall control." — This is the ratio decidendi on the status of the fourteen dealers, holding that the written agreements created independent contractorship.

• Mafinco Trading Corp. vs. Ople, 70 SCRA 139 — Controlling precedent; the Court reiterated the control test and the factors for determining independent contractorship, and resolved the status of the dealers mainly in light of their dealership contracts. The Court found striking similarities between the La Suerte dealership agreements and the peddling contract in Mafinco.
• Investment Planning Corp. vs. Social Security System, 21 SCRA 924 — Laid down the control test, namely whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which the same is to be accomplished; the decision rejected the economic facts of the relation test. The Court followed this ruling.
• Social Security System vs. Hon. Court of Appeals and Shriro (Phils.) Inc., 37 SCRA 579 — Applied the control test and held that where the element of control is absent, and the person works more or less at his own pleasure and is compensated according to the result of his efforts, an employer-employee relationship does not exist. The Court followed this ruling.
• Social Security System vs. The Hon. Court of Appeals, Manila Jockey Club, Inc., Phil. Racing Club, 30 SCRA 210 — Held that the question of employer-employee relationship for purposes of the Social Security Act is settled by the control test. The Court cited this ruling as supplementing the control-test jurisprudence.

• Article 1370, New Civil Code — The literal meaning of the stipulations shall control when the terms of a contract are clear and leave no doubt upon the intention of the contracting parties. The Court applied this provision to interpret the dealership agreements as establishing a buyer-seller relationship and independent contractorship.
• Section 7, Rule 130, Revised Rules of Court — When the terms of an agreement have been reduced to writing, the writing is considered as containing all such terms, and no evidence of the terms of the agreement other than the contents of the writing may be admitted, except in specified cases such as mistake, imperfection, failure to express the true intent, validity in issue, or intrinsic ambiguity. The Court applied this rule to reject evidence of actual practice and operation that would vary the written dealership agreements.
• Section 2, Minimum Wage Law (Rep. Act No. 602), as amended — Defines "wage" as remuneration or earnings capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece, commission basis, or other method of calculating the same, payable by an employer under a written or unwritten contract of employment for work done or to be done or for services rendered or to be rendered. The Court used this definition to hold that the dealer's discount lacked the characteristics of a wage.
• Section 10(k) and paragraph (h) of Section 10, Minimum Wage Law (Rep. Act No. 602), as amended — Requires every employer to notify employees at the time of hiring of wage conditions, including the rate of wages, method of calculation, periodicity of wage payment, and changes therein, and requires wages to be paid periodically at least once every two weeks or twice a month. The Court cited these provisions to distinguish the dealer's discount from wages because the discount varied with sales volume and lacked periodicity.

Makasiar (Chairman), Concepcion Jr., Abad Santos, and Escolin, JJ., concurred. Aquino, J., concurred in the result. De Castro, J., was on leave.