Philippine Refining Co., Inc. vs. Court of Appeals

An employer-employee relationship exists for purposes of compulsory Social Security coverage where the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is accomplished — the control test — and assertions that an intervening entity is an independent contractor are subjected to intense and rigorous scrutiny in light of the strong presumption in favor of greater coverage and protection under the Social Security Act.

Philippine Refining Co., Inc. is engaged in the business of extracting and refining oil from copra and using the refined oil in the manufacture of various products. The Social Security Act was implemented on September 1, 1957, providing compulsory coverage for employees. The company believed that Vicente Garcia was an independent contractor and that the workers he employed pursuant to the pakiao agreement were his own employees, for whom the company was not accountable in any manner.

Philippine Refining Co., Inc. is engaged in the business of extracting and refining oil from copra and using the refined oil in the manufacture of various products. Respondent Vicente Garcia started working for the company in 1922 as a copra carrier. In 1931, he was promoted to foreman with 21 or 22 men working under him. By 1948, these men were employed under pakiao arrangements, but the company paid the workers directly and the function of their foreman insofar as wages were concerned was to distribute the money.

The pakiao workers unloaded copra from trucks or carriers, stored it in the company warehouses at Isaac Peral Street (now United Nations Avenue), Manila, and delivered copra from the warehouses to the company's Mill Day Bin. In 1955, the pakiao arrangements were formalized in writing through a series of written agreements, and Garcia was given the authority to choose and hire the men to do the work assigned to him. Instead of the company paying the workers directly with Garcia merely distributing their wages, the work was compensated on a volume basis at so many centavos per metric ton handled by all of them in the various phases of the job — receipt, storage, and distribution of copra — with the money being given to Garcia.

The work of the 22 laborers represented by the respondent union is an essential, permanent and indispensable process in the business of the petitioner company. It is not an incidental or one-time operation such as constructing a company facility or repairing a plant or machinery where the workers' job ends upon completion of the project. Copra is the basic raw material in the manufacture of lard, cooking oil, soap, and various other products of the employer company, and its handling, storage, and distribution are an integral part of company operations.

When the Social Security Act was implemented on September 1, 1957 and up to April 27, 1961 when the respondent labor union filed a petition for compulsory coverage with the Social Security Commission, the company took no steps to report the 22 workers to the SSS for coverage in the belief that Vicente Garcia was an independent contractor and the workers he employed pursuant to the pakiao agreement were his own employees for whom the company was not accountable in any manner.

The Social Security Commission found, and the Court of Appeals sustained, that the company has positive and direct control over the handling of copra immediately prior to its being fed into the manufacturing process. The conveyor is owned by the company. The load it may carry and the time and manner of its operation are controlled by the company. A company employee ordered the supposed independent contractor where to store copra, when to bring out copra, how much to load and where, and what class of copra to handle. The company limited the number of workers which Garcia could hire to assure that statutory minimum wages were paid from the lump sum payments given for the pakiao work. Garcia had no office of his own, had no independent funds to pay the men working under him, could not work for any other company but was completely dependent on the company. Garcia himself denies that he is an independent contractor.

• Employer-Employee Relationship: Petitioner argued that the finding of the Court of Appeals that an employer-employee relationship exists between petitioner and Garcia and his workers, notwithstanding the intervention of Garcia as an independent contractor, is contrary to the law and the evidence.
• Independent Contractor Status: Petitioner argued that the finding that Garcia cannot be considered an independent contractor for purposes of Social Security coverage is contrary to the evidence and established jurisprudence.
• Reserved Control: Petitioner argued that the finding that petitioner has reserved general control or supervision over the work of Garcia's workers is contrary to the evidence.
• Integral Part of Operations: Petitioner argued that the finding that the services rendered by Garcia's men constitute an integral part of the industrial operation of the company is contrary to the evidence.
• Compulsory Coverage: Petitioner argued that the Court of Appeals acted contrary to law in ordering Garcia and his men to be covered under the Social Security System.
• Selection and Hiring: Petitioner contended that it did not select, much less hire, the workers.
• Payment of Wages: Petitioner contended that Vicente Garcia pays their wages.
• Control and Supervision: Petitioner contended that Garcia has control and supervision over the workers.
• Absence of Records: Petitioner contended that the workers do not have any service record on file with the company.
• Payroll: Petitioner contended that the workers are not in the company's payrolls.
• Union Membership: Petitioner contended that the workers are not members of the union with whom the company had entered into a collective bargaining agreement.

• Bona Fide Contractor: Respondent countered that Garcia is not a bona fide contractor; he cannot carry on the burden of social security.
• Control as to Result: Respondent countered that Garcia is subject to the control of the company as to result.
• No Investment or Risk: Respondent countered that Garcia has no investment of his own and assumes no risk of loss.
• Sale of Labor: Respondent countered that Garcia merely sells his labor to the company.
• Equipment Ownership: Respondent countered that the equipment used by the workers belongs to the company.
• Collection of Wages: Respondent countered that Garcia collects from the company the salary of the workers.
• Integral Part of Business: Respondent countered that the service rendered constitutes an integral part of the business operation of the company.
• Exclusive Service: Respondent countered that Garcia services nobody but the company.

• Employer-Employee Relationship: Whether an employer-employee relationship exists between petitioner and Vicente Garcia and his 22 workers notwithstanding the intervention of Garcia as an alleged independent contractor.
• Independent Contractor Status: Whether Vicente Garcia can be considered an independent contractor for purposes of Social Security coverage.

• Employer-Employee Relationship: Yes. An employer-employee relationship exists between petitioner and Garcia and his workers, the control test having been more than satisfactorily met on the facts.
• Independent Contractor Status: No. Garcia cannot be considered an independent contractor for purposes of Social Security coverage, as the company controlled the means and methods of the work, and the company's assertion of independent contractor status was subjected to intense and rigorous scrutiny.

• Employer-Employee Relationship: The Court applied the control test, which ascertains whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is accomplished. The facts show that the company has positive and direct control over the handling of copra immediately prior to its being fed into the manufacturing process. The conveyor is owned by the company, and the load it may carry and the time and manner of its operation are controlled by the company. A company employee ordered Garcia where to store copra, when to bring out copra, how much to load and where, and what class of copra to handle. The company limited the number of workers Garcia could hire to assure that statutory minimum wages were paid from the lump sum payments. Garcia had no office of his own, had no independent funds to pay the men working under him, could not work for any other company but was completely dependent on the company. Garcia himself denies that he is an independent contractor. The control test is more than satisfactorily met.

• Independent Contractor Status: The Court noted a strong presumption in favor of greater coverage and protection under the Social Security Act, subjecting all assertions that an intervening entity is an independent contractor to intense and rigorous scrutiny. The Court cited Social Security System vs. Court of Appeals (26 SCRA 458) for the proposition that the employer-employee relationship under the Social Security Act should reflect the realities of the situation, and that any construction that would yield the opposite finds no justification. The Court also observed that the independent contractor technique was among the devices adopted by some employers to avoid financial obligations under social and labor legislation, but that all major employers have since accepted the fact, if not the wisdom, of social security. The Court affirmed the factual findings of the Social Security Commission, sustained by the Court of Appeals, that the company's control over the work was direct and positive.

• Control Test — The test for determining the existence of an employer-employee relationship for purposes of compulsory Social Security coverage: whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is accomplished. Applied here, the company's direct control over the handling of copra, its ownership of the conveyor, its limitation of the number of workers Garcia could hire, and Garcia's complete dependence on the company all satisfied the test.
• Presumption in Favor of Coverage — There is a strong presumption in favor of greater coverage and protection under the Social Security Act; consequently, all assertions that an intervening entity is an independent contractor are subjected to intense and rigorous scrutiny. The Court applied this presumption to reject the company's claim that Garcia was an independent contractor.

• "Only thus could there be fealty to the purpose and objective of the act. If it were otherwise, what is manifested is betrayal instead." — Quoted from Social Security System vs. Court of Appeals (26 SCRA 458, 468), this passage emphasizes that the employer-employee relationship under the Social Security Act must reflect the realities of the situation and that any construction yielding the opposite finds no justification.
• "Under the control test, We ascertain whether the employer controls or has reserved the right to control the employee not only as to the result of the work to be done but also as to the means and methods by which the same is accomplished." — This is the canonical formulation of the control test applied by the Court to determine the existence of an employer-employee relationship.
• "There is a strong presumption in favor of greater coverage and protection. Consequently, We subject all assertions that an intervening entity is an independent contractor to intense and rigorous scrutiny." — The Court's statement of the presumption in favor of coverage under the Social Security Act and the corresponding standard of scrutiny applied to independent contractor claims.
• "The control test is more than satisfactorily met." — The Court's conclusion after applying the control test to the facts, affirming the findings of the Social Security Commission and the Court of Appeals.

• Social Security System vs. Court of Appeals, 26 SCRA 458 — Controlling precedent for the proposition that the employer-employee relationship under the Social Security Act should reflect the realities of the situation and that the statute was enacted to promote social justice and protect labor.
• Investment Planning Corporation vs. Social Security System, 21 SCRA 924 — Cited for the formulation of the control test.
• Social Security System vs. Court of Appeals, 30 SCRA 210 — Cited for the formulation of the control test.
• Social Security System vs. Court of Appeals, 39 SCRA 629 — Cited for the application of the control test in ascertaining whether an intervening employer is a bona fide independent contractor who bears the obligation of registering his workers and paying the employer's share of the SSS premium contributions.

• Article II, Section 7, 1987 Constitution — "The State shall establish, maintain, and ensure adequate social services in the field of ... social security to guarantee the enjoyment by the people of a decent standard of living." Cited to support the strong presumption in favor of greater coverage and protection under the Social Security Act.
• Social Security Act, as amended — The statute providing for compulsory coverage of employees; the Court construed it in favor of coverage, holding that the employer-employee relationship should reflect the realities of the situation and that the statute was enacted to promote social justice and protect labor.

Teehankee (Chairman), Makasiar, Melencio-Herrera, Plana, Vasquez, and Relova, JJ., concurred.