Mafinco Trading Corporation vs. Ople

A peddler who voluntarily executes a formal, notarized peddling contract to buy and sell a manufacturer's products—posting cash and performance bonds, securing business licenses, employing and paying helpers, and registering as an employer with the SSS—is an independent contractor, not an employee, and the NLRC has no jurisdiction over the termination of such a contract.

Mafinco Trading Corporation was appointed on April 30, 1968 by Cosmos Aerated Water Factory, Inc. as its sole distributor of Cosmos soft drinks in Manila. On May 31, 1972, Rodrigo Repomanta executed a peddling contract with Mafinco whereby he agreed to "buy and sell" Cosmos soft drinks; Rey Moralde entered into a substantially identical contract. The contracts were to remain in force for one year, terminable by either party upon five days' prior notice. Presidential Decree No. 21, issued on October 14, 1972, created the National Labor Relations Commission and vested it with original and exclusive jurisdiction over all matters involving employee-employer relations, including disputes and grievances that might lead to strikes and lockouts. Section 11 of the decree prohibited employers from dismissing regular employees with at least one year of service without written clearance from the Secretary of Labor.

On April 30, 1968, Cosmos Aerated Water Factory, Inc. appointed Mafinco Trading Corporation as its sole distributor of Cosmos soft drinks in Manila. On May 31, 1972, Rodrigo Repomanta executed a notarized peddling contract with Mafinco, whereby he agreed to "buy and sell" Cosmos soft drinks in Manila. Rey Moralde entered into a substantially identical contract. Under the contract, Mafinco would provide the peddler with a delivery truck for the exclusive peddling of Cosmos products. The peddler himself was to drive the truck, or if he employed a driver or helpers, those persons would be his employees under his direction and responsibility, and their compensation—including salaries, wages, overtime pay, separation pay, bonus, and other remuneration—would be for the peddler's own account. The peddler was required to comply with the Social Security Act and all applicable labor laws in relation to his own employees. The peddler would be responsible for any damage to property, death, injuries, or damage to the truck caused by his own acts or omissions or those of his driver and helpers. Mafinco would furnish gasoline and oil and bear maintenance and repair costs from ordinary wear and tear. The peddler would secure at his own expense all necessary licenses and permits and bear all expenses incurred in selling the products. Purchases were charged to the peddler at ₱2.52 per case of 24 bottles, ex-warehouse, with a peddler's discount of ₱11.00 if he purchased at least 250 cases a day. The peddler would post a cash bond of ₱1,500 to answer for unpaid accounts and a performance bond of ₱1,000 to assure compliance with his obligations to his employees under the Social Security Act and labor laws. The contract would be effective up to May 31, 1973, and either party could terminate it upon five days' prior notice.

On December 7, 1972, Mafinco, pursuant to paragraph 9 of the contract, served notice of termination effective December 12, 1972. Four days later, on December 11, 1972, Repomanta and Moralde, through their union, the Federacion Obrera de la Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF), filed a complaint with the NLRC charging Mafinco's general manager with violating Presidential Decree No. 21 for terminating union officials. Mafinco moved to dismiss on the ground that the NLRC had no jurisdiction because Repomanta and Moralde were not employees but independent contractors. Mafinco pointed out that Repomanta was registered with the SSS as an employer who paid premiums for his own employees, that he secured a mayor's permit and peddler's license, paid the privilege tax, and obtained workmen's compensation insurance for his own helpers. Mafinco further cited prior rulings of the Court of Industrial Relations and the Court of Appeals holding that peddlers under similar contracts were not employees of Cosmos, and that the Bureau of Labor Relations had denied an application for registration of peddlers as a labor union because they were employers in their own right.

The complaint was referred to a factfinder who, in a report dated January 22, 1973, found after "exhaustively and impartially" considering the contentions that the peddlers were employers or independent businessmen, as previously held by the Court of Industrial Relations and the Court of Appeals, and that this holding had the force of res judicata. The old NLRC adopted that recommendation in its order dated February 2, 1973, analyzing the peddling contract and reviewing prior court rulings, and concluded that the complainants were not employees of Mafinco and that Presidential Decree No. 21 did not apply to them. Complainants appealed to the Secretary of Labor, who reversed the NLRC on April 16, 1973, ruling that Repomanta and Moralde were employees because they had no capital of their own, relied entirely on the contract price, and that the peddling contract was a device to evade labor law coverage. The Secretary directed the NLRC to hear the case on the merits. Mafinco's motion for reconsideration was denied on July 16, 1973.

On September 3, 1973, the Secretary directed a committee composed of Ernesto Valencia, Vicente R. Guzman, and Eleo Cayapas to conduct an in-depth study of the actual relationship between Cosmos, Mafinco, and the peddlers. The committee interviewed twenty peddlers, an officer of Cosmos, and an officer of Mafinco. In its report dated September 17, 1973, the committee concluded that the relationship was not one of employer and employee and that the peddlers were independent contractors, applying the four-fold test: the selection and engagement of employees showed no evidence of hiring as employees; no wages were paid, and the "dealer's discount" did not constitute wages under the Minimum Wage Law because it lacked periodicity and notification requirements; the power of dismissal was not lodged with Mafinco or Cosmos, as the termination was simply the exercise of a contractual right; and the power to control was absent, as peddlers were free to choose their time, routes were pre-arranged among themselves, uniforms were voluntarily adopted by the Cosmos Peddlers Association, and liaison officers served mainly for market analysis. The committee also found that the peddlers posted cash and performance bonds, secured their own business licenses, paid occupation taxes, and registered as employers with the SSS—all attributes of independent contractors. The Secretary, however, in his resolution of October 18, 1973, ignored the committee's conclusion and clarified that the NLRC should determine whether the complainants were illegally dismissed, with the jurisdictional issue no longer to be taken up.

Mafinco filed the instant petition for certiorari and prohibition on November 14, 1973, praying for a declaration that the Secretary of Labor and the NLRC had no jurisdiction, that the Secretary's decision be set aside, and that the NLRC and Secretary be enjoined from further proceeding in the case. The parties submitted conflicting factual allegations in their pleadings and memoranda, with the Solicitor General arguing that the question was factual in character and that the contracts were part of an intricate network of devices to conceal the true nature of the relationship, and Repomanta and Moralde contending that their contracts were terminated because of union-organizing activities and annexing a joint affidavit of sixty-three sales agents and an SSS resolution holding that peddlers were employees of Cosmos. The record became voluminous and factually controversial.

• Lack of Jurisdiction: Mafinco argued that the NLRC had no jurisdiction over the complaint because Repomanta and Moralde were not its employees but independent contractors, and that there was termination of a contract, not dismissal of an employee.
• Status as Employers: Mafinco stressed that Repomanta was registered with the SSS as an employer who paid premiums for his employees, secured a mayor's permit and peddler's license, paid the privilege tax, and obtained workmen's compensation insurance for his own helpers, and that Moralde was in the same situation.
• Prior Adjudications: Mafinco cited prior rulings of the Court of Industrial Relations, the Court of Appeals, and the Supreme Court holding that peddlers under similar contracts were not employees of Cosmos, and that the Bureau of Labor Relations had denied registration of peddlers as a labor union because they were employers in their own right.
• Additional Grounds for Dismissal: Mafinco filed a motion to dismiss the NLRC complaint on three additional grounds: that the NLRC had no jurisdiction because Repomanta and Moralde had not sought reinstatement or backwages; that the employer's failure to secure written clearance before dismissing an employee might constitute a crime under Article 327 of the Labor Code rather than contempt under Section 10 of P.D. No. 21; and that the contempt provisions of P.D. No. 21 were abrogated by the Labor Code.

• Factual Nature of the Issue: The Solicitor General, as counsel for the NLRC and the Secretary of Labor, argued that the question of whether Repomanta and Moralde were independent contractors or employees was factual in character and could not be resolved by merely construing the peddling contracts; that other relevant facts aliunde or dehors the contracts should be taken into account; and that the contracts were part of an "intricate network of devices developed and perfected through the years to conceal the true nature of their relationship to their sales agents."
• Evasion of Labor Laws: Repomanta and Moralde contended that the peddling contracts were a scheme to camouflage an employer-employee relationship and thus evade coverage of labor laws, and that their contracts were terminated because of their activities in organizing a union among the peddlers.
• SSS Ruling: Repomanta and Moralde annexed Resolution No. 921 of the Social Security Commission dated November 16, 1972 in SSS Case No. 602, wherein it was held that peddlers and their helpers were employees of Cosmos.
• Opposition to Dismissal: Repomanta and Moralde opposed Mafinco's motion to dismiss the NLRC complaint, pointing out that the complaint was pending in the new NLRC and that this Court could not dismiss it, and observing that Article 327 was eliminated from the Labor Code and superseded by Article 278.

• Jurisdiction: Whether the old NLRC had jurisdiction over the complaint of Repomanta and Moralde for the termination of their peddling contracts.
• Employment Status: Whether Repomanta and Moralde were employees of Mafinco or independent contractors under their peddling contracts.

• Jurisdiction: No. The NLRC had no jurisdiction over the complaint because no employer-employee relationship existed under the peddling contracts, and the termination was merely the exercise of a contractual right freely stipulated by the parties.
• Employment Status: No. Repomanta and Moralde were independent contractors, not employees, as the peddling contracts established a buyer-seller relationship in which the peddlers had their own capital, employees, licenses, and bonds, and Mafinco lacked the power of selection, payment of wages, dismissal, and control that characterize employment.

• Jurisdiction: Jurisdiction of the NLRC under Presidential Decree No. 21 was limited to matters involving employee-employer relations. Because the peddling contracts did not create an employer-employee relationship, the NLRC had no jurisdiction over the complaint. The Secretary of Labor consequently had no jurisdiction to remand the case to the NLRC for a hearing on the merits. The case was not rendered moot by the Labor Code, which abolished the old NLRC but transferred pending cases to the new NLRC for decision under P.D. No. 21. The Court resolved the jurisdictional issue pro hac vice mainly on the basis of the notarized peddling contracts, because the parties' conflicting factual submissions had made the record voluminous and factually controversial, and the Court is not a trier of facts. In a certiorari and prohibition case, only legal issues affecting jurisdiction may be resolved on the basis of undisputed facts; since the facts had become uncertain, the contract itself served as the sole criterion.
• Employment Status: The four-fold test for employer-employee relationship requires: (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 employee's conduct, the latter being the most important element. An independent contractor is one who exercises independent employment and contracts to do a piece of work according to his own methods without being subject to the employer's control except as to the result. Applying these tests to the peddling contract: (1) There was no selection and engagement as employees—the peddlers voluntarily executed formal contracts and were free to reject them; (2) No wages were paid—the "dealer's discount" was not a wage because it lacked periodicity and notification requirements under the Minimum Wage Law, and the peddlers' earnings varied from month to month; (3) The power of dismissal was not lodged with Mafinco—the termination was the exercise of a contractual right to terminate upon five days' notice, not a dismissal of an employee; (4) The power to control was absent—the peddlers were free to choose their time, routes were pre-arranged among themselves through the Cosmos Peddlers Association, uniforms were voluntarily adopted by the association, and liaison officers served mainly for market analysis. The peddlers posted cash and performance bonds, secured their own business licenses, paid occupation taxes, registered as employers with the SSS, and employed and paid their own helpers—all attributes of independent contractors. The Court acknowledged the case was "penumbral" and "sui generis," lying on the shadowy borderline between employee and independent contractor, but concluded that on the basis of the peddling contract, no employer-employee relationship was created. The ruling was without prejudice to the peddlers' right to sue in the Court of First Instance for reformation or annulment of the contract or for a declaration of the actual juridical relationship through a full-dress trial.

• Four-fold test for employer-employee relationship — The existence of an employer-employee relationship is determined by four elements: (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 employee's conduct, the latter being the most important element. The Court applied this test to the peddling contract and found all four elements absent: there was no hiring as employees, no payment of wages, no power of dismissal, and no power to control the peddlers' conduct.
• Independent contractor defined — 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. A person who has no capital or money of his own to pay his laborers or to comply with his obligations to them, who files no bond to answer for the fulfillment of his contract, falls short of the requisites of an independent contractor. The Court found that the peddlers had capital (cash and performance bonds), employed and paid their own helpers, and exercised their own methods in selling, satisfying the definition.
• Judicial review of administrative agency decisions — Judicial review of the decision of an administrative agency or official exercising quasi-judicial functions is proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud or collusion, or where the administrative action is corrupt, arbitrary, or capricious. The Court exercised this review to set aside the Secretary of Labor's decision for having exceeded jurisdiction in remanding a case to the NLRC where no employer-employee relationship existed.
• Contract interpretation in jurisdictional determinations — Where the parties' factual submissions become conflicting and controversial in a certiorari and prohibition case, the jurisdictional issue may be resolved pro hac vice mainly on the basis of the written contract, since the Court is not a trier of facts and only legal issues affecting jurisdiction may be resolved on undisputed facts. The terms of a notarized contract, where unambiguous, are conclusive in the absence of averment and proof of mistake.

• "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 canonical four-fold test for employer-employee relationship, the controlling analytical framework applied throughout the decision.
• "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 defines the independent contractor standard against which the peddlers' status was measured, drawing the line between employment and independent contractorship.
• "It should be obvious by now that the instant case is a penumbral, sui generis case lying on the shadowy borderline that separates an employee from an independent contractor." — This characterizes the difficulty of the classification and explains why the Court resolved the issue on the contract alone rather than on conflicting factual submissions.
• "However, this ruling is without prejudice to the right of Repomanta and Moralde and the other peddlers to sue in the proper Court of First Instance and to ask for a reformation of the instrument evidencing the contract or for its annulment or to secure a declaration that, disregarding the peddling contract, the actual juridical relationship between them and Mafinco or Cosmos is that of employer and employee." — This preserves the peddlers' remedy in the regular courts, acknowledging that the contract-based ruling does not foreclose a full-dress factual inquiry into the actual relationship.

• Rapajon vs. Fong Kui and Figueras vs. Asierto, CA-G.R. Nos. 19477-R and 21397-R, March 18, 1958; G.R. Nos. L-14072 to L-14074 — The Court of Appeals held that delivery helpers of peddlers acting as sales agents of Manila Cosmos were not employees of Cosmos. The Supreme Court denied the petition for review for being factual and for lack of merit. The Court treated this as controlling precedent establishing that peddlers under similar contracts were not employees, and found the present contracts substantially identical.
• Cosmos Supervisors Association vs. Manila Cosmos Aerated Water Factory, Inc., CIR Case No. 4399-ULP, July 17, 1967 — The Court of Industrial Relations held that peddlers of Manila Cosmos were not employees of the latter. The Court cited this as squarely applicable precedent.
• Mansal vs. P.P. Gocheco Lumber Co., 96 Phil. 941 — Cited for the definition of an independent contractor and the proposition that a person who possesses no capital or money of his own to pay his obligations to his workers but relies entirely upon the contract price falls short of the requisites of an independent contractor. The Court applied this definition but found that the peddlers did have capital in the form of cash and performance bonds.
• Viana vs. Al-Lagadan and Piga, 99 Phil. 408 — Cited as the source of the four-fold test for employer-employee relationship. The Court applied the test and found all four elements absent.
• Andoyo vs. Manila Railroad Co., G.R. No. 34722, March 28, 1932 — Cited by the committee for the pre-war definition of an independent contractor. The Court adopted the committee's analysis based on this definition.
• Quisaba vs. Sta. Ines-Melale Veneer & Plywood, Inc., L-38088, August 30, 1974, 58 SCRA 771 — Cited for the proposition that the regular courts, not the NLRC, have jurisdiction over an employee's action for damages against an employer. The Court paraphrased its dictum in advising the peddlers to file the proper action for damages in the regular courts if Mafinco and Cosmos had acted oppressively.
• San Miguel Corporation vs. Secretary of Labor, L-39195, May 16, 1975, 64 SCRA 56 — Cited for the standard of judicial review of administrative agency decisions: proper in cases of lack of jurisdiction, error of law, grave abuse of discretion, fraud or collusion, or corrupt, arbitrary, or capricious action.

• Section 2, Presidential Decree No. 21 — Vested the NLRC with original and exclusive jurisdiction over all matters involving employee-employer relations, including disputes and grievances that might lead to strikes and lockouts under Republic Act No. 875. The provision was applied to determine the jurisdictional threshold: because no employer-employee relationship existed, the NLRC had no jurisdiction.
• Section 11, Presidential Decree No. 21 — Prohibited employers from shutting down establishments or dismissing regular employees with at least one year of service without written clearance from the Secretary of Labor. The provision was inapplicable because the peddlers were not employees.
• Article 290, Labor Code (as amended by P.D. No. 626) — Provided that cases pending before the old NLRC should be transferred to and processed by the new NLRC and decided in accordance with P.D. No. 21. The Court cited this to show the case was not rendered moot by the Labor Code.
• Articles 1370 and 1374, Civil Code — Cited by the committee for the interpretation of contracts: the laws in force at the time the contract was made govern its interpretation, and the terms of the contract, where unambiguous, are conclusive. The Court adopted this approach in resolving the jurisdictional issue on the basis of the contract alone.
• Section 7, Rule 130, Rules of Court (parol evidence rule) — Cited by the committee for the proposition that the terms of a written contract cannot be varied by parol evidence. The Court relied on this in confining its analysis to the four corners of the notarized peddling contract.
• Section 7, Workmen's Compensation Act (as amended) — Provided that any contract, regulation, or device intended to exempt the employer from liability under the Act shall be null and void. The Secretary of Labor relied on this provision to argue that the peddling contract was a device to evade labor law coverage; the Court rejected this argument on the basis of the contract's terms and longstanding judicial validation.
• Article 1701, Civil Code — Cited in connection with the dictum that if Mafinco and Cosmos had acted oppressively toward their peddlers, the proper action for damages should be filed in the regular courts.

Barredo, Antonio, Concepcion, Jr., and Martin, JJ., concurred. Mr. Justice Fernando was on leave. Mr. Justice Martin was designated to sit in the Second Division.