Mendaros vs. Lazada E-Services Phil., Inc.

Regardless of the nomenclature assigned by the parties to their agreement, a worker engaged to perform activities necessary or desirable in the employer's usual business is a regular employee where the four-fold test and economic dependence test are satisfied, and a fixed-term provision in a standardized contract is invalid where the employee lacked bargaining power and the work is continuous in nature. The one-year term in the riders' Independent Contractor Agreements did not constitute valid fixed-term employment because the riders did not possess special skills distinguishing them from ordinary employees, did not negotiate the contract terms on equal footing with the employer, and delivery was a usual and continuous activity in Lazada's business.

Lazada E-Services Phil., Inc. operates an e-commerce platform facilitating transactions between sellers and buyers, including the delivery of purchased items from sellers to buyers. In April 2016, Lazada engaged seven motorcycle riders — Rogelio Garalde Mendaros, Romeo Dela Cruz, Jr., Julius Caesar Gutierrez, Rey Abalos, Jeremiah Muga, King Michael Muit, and June Suarez — under similarly worded Independent Contractor Agreements, each providing for a one-year term and a daily service fee of PHP 1,200.00, and expressly stipulating that no employer-employee relationship existed between the parties. The riders used their own motorcycles and equipment in performing delivery services. The dispute arose from the termination of the riders' engagements and their subsequent claim that they were regular employees illegally dismissed without just cause and due process.

In April 2016, Lazada E-Services Phil., Inc. engaged seven motorcycle riders — Rogelio Garalde Mendaros, Romeo Dela Cruz, Jr., Julius Caesar Gutierrez, Rey Abalos, Jeremiah Muga, King Michael Muit, and June Suarez — under similarly worded Independent Contractor Agreements. Each Agreement provided that no employer-employee relationship would exist between the parties and that the Agreement would be effective for a term of one year. The riders were paid PHP 1,200.00 per day as service fee and were required to use their own motorcycles and equipment in performing delivery services, which consisted of picking up items from sellers and delivering them to buyers or to Lazada's warehouse.

The Agreements of Rogelio, Rey, Jeremiah, and Michael expired on April 1, 2017, while that of Julius lapsed on April 6, 2017. June's Agreement was discontinued a few days before the end of its one-year term. Romeo's Agreement was prematurely terminated due to his alleged act of reproducing and using independent contractor identification cards in violation of Clause 6 of the Agreement. Lazada required the riders to log their arrival, loading, and departure times in route sheets, to report their arrival at every seller or store, and to scan parcels using gadgets and equipment — including application software, a mobile phone scanner, a power bank, and a postpaid line — provided by Lazada. Annex I of the Agreements stated that the services would be evaluated on a monthly and quarterly basis, and that failure to meet the standards set would give Lazada the right to terminate the Agreement immediately by written notice.

Aggrieved by the termination of their contracts, the riders filed on November 6, 2017 a complaint for illegal dismissal, money claims, damages, and attorney's fees before the Labor Arbiter, asserting that they were regular employees of Lazada, not independent contractors, and that Lazada unjustly dismissed them without just cause and due process. Lazada countered that the Agreements were contracts for services governed by the Civil Code, negating the existence of an employer-employee relationship, and that the regular courts, not labor tribunals, had jurisdiction. The Labor Arbiter dismissed the complaint for lack of jurisdiction on April 10, 2018, finding no employer-employee relationship. The NLRC affirmed this ruling in toto on November 21, 2018, and denied reconsideration on December 28, 2018. The Court of Appeals likewise affirmed the labor tribunals on March 25, 2021, holding that the riders' evidence failed to establish that Lazada exercised control over the means and methods of their work, and denied reconsideration on July 30, 2021.

• Regular Employment Status: Petitioners argued that notwithstanding the terms of their Agreements with Lazada, they were regular employees because they performed activities necessary or desirable to Lazada's usual trade or business. They contended that they did not possess unique skills and talents that would distinguish them from ordinary employees and qualify them as independent contractors.
• Four-Fold Test Satisfied: Petitioners asserted that all four elements of employer-employee relationship were present, pointing to: (a) a Letter of Final Warning issued to Rogelio stating he was "expected to achieve and maintain an acceptable level of performance for the duration of employment" and that failure would lead to "employment termination"; (b) a Certificate of Employment issued to June; (c) Run Sheets provided to Romeo and Rey that dictated which parcels would be delivered first and when; (d) Independent Contractor Daily Time Logs issued to Jeremiah and June requiring definite hours of work; and (e) an Identification Card designating Michael as a Rider of Lazada.
• Control Exercised by Lazada: Petitioners cited the Duties provision of the Agreement, which stated that "the method by which Contractor is to perform such Services shall be as instructed by, and within the discretion and control of, the Company," and the provision stating that the Company would not pay the Contractor for any day the Contractor could not comply with obligations according to the schedule dictated by the Company.

• Independent Contractor Status: Lazada averred that petitioners were independent contractors and that no employer-employee relationship existed between them, the Agreements being contracts for services governed by the Civil Code. Accordingly, regular courts, not labor tribunals, had jurisdiction over the case.
• Work Not Necessary or Desirable to Business: Lazada maintained that as an online market or store operating an e-commerce platform, petitioners' work as riders was not necessary or desirable in its usual trade or business.
• Four-Fold Test and Economic Dependence Not Satisfied: Lazada argued that petitioners failed to satisfy both the four-fold test and the economic dependence test. It asserted that petitioners had discretion over how to perform their tasks, including the means of transportation, routes taken, timing of breaks, and when to commence deliveries. The contracts did not specify a particular period to perform deliveries, contradicting petitioners' claim of working 12 hours a day, six days a week. Given this arrangement, petitioners were free to offer their services to other parties, negating alleged control by Lazada.

• Employer-Employee Relationship: Whether the Court of Appeals committed reversible error in agreeing with the labor tribunals that petitioners were independent contractors and that no employer-employee relationship existed between them and Lazada.
• Necessary or Desirable Work: Whether the tasks of petitioners as riders were necessary or desirable in the usual trade or business of Lazada.
• Four-Fold Test: Whether petitioners were able to satisfy the four-fold test of employment.
• Economic Dependence: Whether petitioners were economically dependent on their work as riders of Lazada.
• Fixed-Term Employment: Whether the one-year term in the Agreements constituted valid fixed-term employment.

• Employer-Employee Relationship: Yes. The CA erred in affirming the labor tribunals; petitioners were regular employees of Lazada, not independent contractors, as established through stare decisis based on Ditiangkin and Borromeo, which involved substantially identical facts and issues.
• Necessary or Desirable Work: Yes. The delivery of items was integral to Lazada's business; it was not merely an incidental service but an integrated part of the services Lazada offered, easing transactions between sellers and buyers.
• Four-Fold Test: Yes. All four elements were present: Lazada directly hired the riders, paid them PHP 1,200.00 per day, held the power to dismiss them, and exercised control over the means and methods of their work through route sheets, scanning requirements, equipment provision, and performance evaluation standards.
• Economic Dependence: Yes. The riders were dependent on Lazada for their continued employment in this line of business, having been previously engaged by a third-party contractor to provide services for Lazada and then directly hired by Lazada.
• Fixed-Term Employment: No. The one-year term was not a valid fixed-term employment because the riders did not negotiate the contract terms on equal footing with Lazada, the Agreements were uniformly worded, the work required no special skill, and delivery was a continuous activity in Lazada's business.

• Employor-Employee Relationship: The Court found that the findings of the labor tribunals and the CA were premised on a misapprehension of facts, permitting reevaluation of the evidence under Rule 45. The Court applied the principle of stare decisis, noting that the facts and issues were substantially identical to those in Ditiangkin vs. Lazada E-Services Philippines, Inc. and Borromeo vs. Lazada E-Services Philippines, Inc., where the Court had already held that Lazada's riders were regular employees. The riders in Ditiangkin were hired in February 2016 under the same type of Independent Contractor Agreements, with the same daily fee of PHP 1,200.00, the same one-year term, the same use of privately-owned motorcycles, and the same arguments raised by Lazada. Because the same questions relating to the same event had been put forward by parties similarly situated, stare decisis barred relitigation of the same issue. The nomenclature of the Agreements was of no moment, as employment contracts are imbued with public interest and the applicable labor laws are deemed incorporated into the contract regardless of the parties' stipulations.

• Necessary or Desirable Work: The Court rejected Lazada's argument that it was merely an online platform where sellers and buyers transact and that delivery was only incidental. The delivery of items was clearly integrated into the services Lazada offered, easing the transaction between sellers and buyers. That Lazada could have left delivery to the sellers and buyers was of no moment because that was evidently not the business model being implemented. Lazada admitted it had route managers to supervise delivery, demonstrating that it had taken steps to facilitate not only the online transaction but also the delivery of items.

• Four-Fold Test: All four elements were satisfied. First, Lazada directly hired the riders through the purported Independent Contractor Agreements. Second, Lazada paid them PHP 1,200.00 per day. Third, Lazada held the power to dismiss, as in fact it terminated June and Romeo before the lapse of their one-year term for alleged violations of the Agreement. Fourth, and most importantly, Lazada controlled the means and methods of the riders' work. Control was shown by the requirement to log arrival, loading, and departure times in route sheets, enabling Lazada to monitor their movements; the requirement to report arrival at every seller or store to scan parcels; the provision of gadgets and equipment (application software, mobile phone scanner, power bank, and postpaid) used to scan items; and Annex I's provision that services would be evaluated monthly and quarterly, with the right to terminate immediately if standards were not met. Even if some instructions were considered mere guidelines, the circumstances of the whole economic activity confirmed the existence of an employer-employee relationship.

• Economic Dependence: The riders were economically dependent on Lazada for their continued employment in this line of business. They had been previously engaged by a third-party contractor to provide services for Lazada and were then directly hired by Lazada, demonstrating economic dependence for their livelihood. They had no control over their own profit or loss because they were paid a set daily wage, and they had no control over their own time because Lazada could demand their presence from time to time, precluding them from offering services to other companies.

• Fixed-Term Employment: Fixed-term employment arises only in special cases where the employee has bargaining power with the employer due to special skill, presupposing that the parties are on more or less equal footing. For validity, either the fixed period must have been knowingly and voluntarily agreed upon without force, duress, or improper pressure, or it must satisfactorily appear that the parties dealt with each other on more or less equal terms with no moral dominance. Lazada failed to show that the riders negotiated the terms on approximately equal terms; the Agreements were similarly worded and applied uniformly, the work required no special talent or skill, and delivery was a usual and continuous activity in Lazada's business. The one-year term was therefore not essential or a natural appurtenance to the work, and the riders were regular employees without a fixed term. Their removal after one year without just cause and due process constituted illegal dismissal, entitling them to reinstatement, full backwages, and attorney's fees. Moral and exemplary damages were denied because Lazada acted on an honest but mistaken belief that the riders were independent contractors, and the records were bereft of proof of bad faith or oppressive conduct.

• Stare Decisis — The doctrine that, for the sake of certainty, a conclusion reached in one case should be applied to those that follow if the facts are substantially the same, even though the parties may be different. It proceeds from the principle that, absent powerful countervailing considerations, like cases ought to be decided alike. The Court applied this doctrine because the facts and issues in the present case were substantially identical to those in Ditiangkin vs. Lazada E-Services Philippines, Inc. and Borromeo vs. Lazada E-Services Philippines, Inc., where Lazada's riders had already been declared regular employees. Lazada raised the very same arguments and defenses it previously raised in Ditiangkin.

• Four-Fold Test of Employment — The test for determining the existence of an employer-employee relationship, requiring the presence of: (a) the employer's selection and engagement of the employee; (b) the payment of wages; (c) the power to dismiss; and (d) the power to control the employee's conduct, which extends over the means and methods by which the employee must accomplish the work. The power of control is the most essential element and need not be actually exercised; it suffices that the employer has the right to wield it. However, not all rules imposed upon a worker indicate control — rules intended as general guidelines to accomplish the work are not indicators of control. All four elements were found present in the riders' engagement with Lazada.

• Economic Dependence Test — The test applied when the control test is insufficient, considering the economic realities of employment to obtain a comprehensive assessment of the worker's true classification. The proper standard is whether the worker is dependent on the alleged employer for his continued employment in that line of business. The riders were found economically dependent on Lazada, having been previously engaged by a third-party contractor to provide services for Lazada and then directly hired by Lazada, with no control over their own profit or loss or their own time.

• Independent Contractor — One who carries on a distinct and independent business and undertakes to perform the job on its own account and under one's own responsibility, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof. Independent contractors possess unique skills and talents distinguishing them from ordinary employees. When the status of the relationship is questioned, the employer or principal bears the burden to prove that the worker is an independent contractor. The riders did not qualify as independent contractors because they lacked unique skills and Lazada exercised control over the means and methods of their work.

• Fixed-Term Employment — An arrangement wherein an employee is hired for projects with pre-determined completion or in work where a fixed term is essential and a natural appurtenance of the work. For validity, either: (1) the fixed period was knowingly and voluntarily agreed upon without force, duress, or improper pressure and absent circumstances vitiating consent; or (2) it satisfactorily appears that the employer and employee dealt with each other on more or less equal terms with no moral dominance. Fixed-term employment arises only in special cases where the employee has bargaining power due to special skill. The one-year term in the riders' Agreements was invalid because the riders lacked bargaining power, the Agreements were standardized, the work required no special skill, and delivery was a continuous activity in Lazada's business.

• "Regardless of the nomenclature which the parties assign to their agreement, employment contracts are prescribed by law as they are imbued with public interest." — This passage articulates the principle that the substance of the employment relationship prevails over contractual labels, a foundational rationale for the Court's disregard of the Independent Contractor Agreements' stipulations.

• "The applicable provisions of the law are deemed incorporated into the contract and the parties cannot exempt themselves from the coverage of labor laws simply by entering into contracts." — Quoted from Ditiangkin vs. Lazada E-Services Philippines, Inc., this formulation establishes that parties cannot contract out of labor law protections, reinforcing the public-interest character of employment relationships.

• "However, not all rules imposed upon a worker indicates the exercise of control by the employer. When rules are intended to serve as general guidelines to accomplish the work, it is not an indicator of control." — This passage refines the control test by distinguishing actual control over means and methods from general guidelines, a nuance critical to analyzing gig-economy and platform-worker arrangements.

• "Fixed-term employment arises only in special cases where an employee has bargaining power with the employer in view of his/her special skill. This presupposes that the employee is more or less on equal footing with the employer." — This formulation defines the doctrinal boundary of valid fixed-term employment, limiting its application to situations of genuine bargaining parity and special skill, which the riders lacked.

• Ditiangkin vs. Lazada E-Services Philippines, Inc., G.R. No. 246892, September 21, 2022 — Controlling precedent applied through stare decisis. The facts and issues were substantially identical: Lazada riders hired in February 2016 under Independent Contractor Agreements with the same terms (PHP 1,200.00/day, one-year term, own motorcycles) raised the same claims of regular employment and illegal dismissal. The Court therein held that the riders satisfied both the four-fold test and economic dependence test and were regular employees. The same arguments and defenses raised by Lazada in Ditiangkin were raised in the present case.

• Borromeo vs. Lazada E-Services Philippines, Inc., G.R. No. 265610, April 3, 2024 — Followed precedent with identical facts and issues as Ditiangkin, where the Court applied stare decisis and held that the riders were employees of Lazada, not independent contractors. The Court relied on Borromeo for the proposition that the element of control was shown by the requirement to log arrival, loading, and departure times in route sheets, and for the denial of moral and exemplary damages where dismissal was based on an honest but mistaken belief.

• Brent School, Inc. vs. Zamora, 260 Phil. 747 (1990) — Cited for the doctrine on fixed-term employment, including the two circumstances required for validity and the examples of employment where a fixed term is essential and a natural appurtenance (overseas employment contracts, academic administrative positions, corporate officers elected for fixed periods). The Court found that the riders' situation did not fall within any of these categories.

• Career Philippines Shipmanagement, Inc. vs. Serna, 700 Phil. 1 (2012) — Cited for the parameters of Rule 45 review of a CA Rule 65 decision in labor cases: the Court examines whether the CA correctly determined the presence or absence of grave abuse of discretion in the NLRC decision, not whether the NLRC decision on the merits was correct.

• Francisco vs. National Labor Relations Commission, 532 Phil. 399 (2006) — Cited for the economic dependence test, defining the proper standard as whether the worker is dependent on the alleged employer for his continued employment in that line of business.

• Department of Transportation and Communication vs. Cruz, 581 Phil. 602 (2008) — Cited for the concept of stare decisis, defining it as the principle that a conclusion reached in one case should be applied to subsequent cases if the facts are substantially the same.

• Article 1700, Civil Code of the Philippines — Provides that the relations between capital and labor are not merely contractual but are impressed with public interest, such that labor contracts must yield to the common good and are subject to special laws on labor unions, collective bargaining, strikes, wages, working conditions, hours of labor, and similar subjects. Applied to establish that the parties cannot exempt themselves from labor law coverage through contractual stipulations.

• Article 295 [280], Labor Code — Defines regular and casual employment, providing that an employment shall be deemed regular where the employee has been engaged to perform activities usually necessary or desirable in the usual business or trade of the employer, notwithstanding written or oral agreements to the contrary. Applied to classify the riders as regular employees because delivery was necessary or desirable in Lazada's business, and the one-year term did not fall under the exceptions for specific projects or seasonal work.

Caguioa (Chairperson), Zalameda, Gaerlan, and Singh, JJ., concurred. No separate concurring opinions were written.