Sara vs. Agarrado

The existence of an employer-employee relationship is determined by the four-fold test: (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, with the control test being the most important element. Where the means and methods of performing the work are independent of the supposed employer's control, and compensation is dependent on the volume of sales or purchases without any guaranteed minimum, the worker is an independent contractor, not an employee, and the Labor Tribunal has no jurisdiction over claims arising from the arrangement.

Private respondent Cerila Agarrado was formerly an attendant in the clinic of petitioner Dr. Renato Sara, having quit that job in 1973. Four years later, in 1977, petitioners Dr. Sara and Romeo Arabia, as owners of a rice mill engaged in the buy and sell of palay and rice, entered into a verbal agreement with Agarrado for her to sell milled rice and purchase palay on their behalf. The dispute concerns the nature of this subsequent arrangement — whether it created an employer-employee relationship vesting jurisdiction in the Labor Tribunal, or was merely a civil agency arrangement cognizable by the regular courts.

Private respondent Cerila Agarrado was an attendant in the clinic of petitioner Dr. Renato Sara, but she quit her job in 1973. Four years later, petitioners Dr. Sara and Romeo Arabia, being owners of a rice mill and having begun to engage in the buy and sell of palay and rice, entered into a verbal agreement with Agarrado whereby it was agreed that she would be paid a P2.00 commission per sack of milled rice sold as well as a commission of 10% per kilo of palay purchased. It was further agreed that Agarrado would spend her own money for the undertaking, but to enable her to carry out the agreement more effectively, she was authorized to borrow money from other persons, as in fact she did, subject to reimbursement by petitioners.

In 1982, Agarrado filed with the NLRC Regional Arbitration Branch No. XI, Cotabato City, a complaint against petitioners for unpaid commission of P4,598.00 on milled rice sold, P2,982.80 on palay sold, reimbursement of P17,500.00 which she had borrowed from various persons, and P1,749.00 of her own money which petitioners allegedly had not reimbursed. By way of defense, petitioners raised the issue of lack of jurisdiction on the part of the Labor Arbiter, there being no employer-employee relationship between the parties, and averred that the claim was governed by the law on agency under the Civil Code and hence a purely civil obligation cognizable by the regular courts.

The NLRC established that sometime in June 1977, petitioners re-engaged Agarrado's services to sell milled rice to customers and to buy palay for and in behalf of Dr. Sara, with the verbal agreement that to carry out the task effectively, she was duly authorized to spend her own money, if necessary, subject to reimbursement, and if that would not be sufficient, to borrow money from other sources with the further understanding that Dr. Sara would repay them through her. Agarrado was never given capital by her supposed employer but relied on her own resources, and petitioners did not supply her with tools and appliances needed to carry out her undertaking.

Agarrado was not even obliged to sell the palay she purchased to petitioners; she was at liberty to sell it to any trader offering higher buying rates. She worked at her own pleasure and was not subject to definite hours or conditions of work, and she could even delegate the task of buying and selling to others or simultaneously engage in other means of livelihood while selling and purchasing rice or palay. The Labor Arbiter rendered a decision in favor of Agarrado ordering petitioners to pay all the claims amounting to P26,397.80, which the NLRC affirmed on appeal. Petitioners then took the present recourse, maintaining lack of jurisdiction on the part of the Labor Tribunal as well as grave abuse of discretion in finding them liable. The Solicitor General agreed with petitioners that there was no employer-employee relationship and that the Labor Arbiter had no jurisdiction, filing his comment on his own behalf after informing the NLRC of his contrary stand.

• Lack of Jurisdiction: Petitioners argued that the Labor Arbiter had no jurisdiction to take cognizance of the case because no employer-employee relationship existed between the parties.
• Civil Law Governs: Petitioners averred that the claim for alleged unpaid commission and certain sums of money is governed by the law on agency under the Civil Code and hence a purely civil obligation cognizable by the regular courts.
• Grave Abuse of Discretion: Petitioners maintained that the Labor Tribunal committed grave abuse of discretion in finding them liable to private respondent.

• Employer-Employee Relationship: Private respondent claimed entitlement to unpaid commissions and reimbursement of sums of money, having been engaged by petitioners to sell milled rice and purchase palay on their behalf.
• Solicitor General's Position: The Solicitor General agreed with petitioners that there was no employer-employee relationship between the parties and that by reason thereof the Labor Arbiter had no jurisdiction over the case, filing his comment on his own behalf and informing the NLRC about his contrary stand.

• Jurisdiction of the Labor Tribunal: Whether an employer-employee relationship exists between petitioners and private respondent as to warrant cognizance by the Labor Arbiter of LRD-ROXII-006-82.

• Jurisdiction of the Labor Tribunal: No. No employer-employee relationship existed between the parties, and the Labor Tribunal's jurisdiction, being primarily predicated upon the existence of such relationship, could not attach. The verbal agreement between the parties negated the existence of the requisites of payment of wages, power of dismissal, and control, and private respondent was an independent contractor.

• Jurisdiction of the Labor Tribunal: The Court applied the four-fold test for determining the existence of an employer-employee relationship: (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. Although there was a selection and engagement of private respondent in 1977, the verbal agreement negated the existence of the other requisites. As to payment of wages, the arrangement was explicitly on a commission basis dependent on the volume of sale or purchase; private respondent was not guaranteed any minimum compensation nor was she allowed any drawing account or advance of any kind against unearned commissions. Her right to compensation depended upon and was measured by the tangible results she produced — the quantity of rice sold and the quantity of palay purchased. The power to terminate the relationship was mutually vested upon the parties, as either may terminate the business arrangement at will, with or without cause. Finally, noticeably absent from the agreement was the element of control, which is deemed the most important of the four requisites that the other requisites may even be disregarded. Under the control test, an employer-employee relationship exists if the "employer" has reserved the right to control the "employee" not only as to the result of the work done but also as to the means and methods by which the same is to be accomplished. The means and methods of purchasing and selling rice or palay by private respondent were totally independent of petitioners' control. She was never given capital but relied on her own resources, and petitioners did not supply her with tools and appliances. She was not even obliged to sell the palay she purchased to petitioners, was free to sell it to any trader offering higher buying rates, worked at her own pleasure without definite hours or conditions of work, and could delegate the task to others or simultaneously engage in other means of livelihood. Under these conditions, private respondent was an independent contractor who exercised independent employment, contracted to do a piece of work according to her own method and without being subject to the control of her employer except as to the result of her work. She was paid for the result of her labor, unlike an employee who is paid for the labor he performs. The absence of an employer-employee relationship removed the controversy from the scope of the Labor Tribunal's limited jurisdiction.

• Four-Fold Test for Employer-Employee Relationship — The existence of an employer-employee relationship is determined by: (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. In this case, although there was selection and engagement, the other requisites were negated by the verbal agreement, particularly the element of control.
• Control Test — Among the four requisites, control is deemed the most important, and the other requisites may even be disregarded. An employer-employee relationship exists if the "employer" has reserved the right to control the "employee" not only as to the result of the work done but also as to the means and methods by which the same is to be accomplished; otherwise, no such relationship exists. Here, the means and methods of purchasing and selling rice or palay were totally independent of petitioners' control.
• Independent Contractor — A person who exercises independent employment and contracts to do a piece of work according to her own method and without being subject to the control of her employer except as to the result of her work is an independent contractor. Such a person is paid for the result of her labor, unlike an employee who is paid for the labor he performs. Private respondent was an independent contractor because she relied on her own resources, was not supplied with tools, was free to sell palay to any trader, worked at her own pleasure, and could delegate tasks or engage in other livelihood.

• "To determine the existence of an employer-employee relationship, this Court in a long line of decisions has invariably applied the following four-fold test: [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." — This passage states the canonical four-fold test for determining the existence of an employer-employee relationship, which is the controlling doctrine in this case.
• "Under the control test, an employer-employee relationship exists if the 'employer' has reserved the right to control the 'employee' not only as to the result of the work done but also as to the means and methods by which the same is to be accomplished. Otherwise, no such relationship exists." — This defines the control test, which the Court deemed the most important requisite, and was the decisive factor in finding no employer-employee relationship.
• "Under the conditions set forth in their agreement, private respondent was an independent contractor, who exercising independent employment, contracted to do a piece of work according to her own method and without being subject to the control of her employer except as to the result of her work. She was paid for the result of her labor, unlike an employee who is paid for the labor he performs." — This articulates the distinction between an independent contractor and an employee, which was the basis for dismissing the case for lack of jurisdiction.

• Viana vs. Al-Lagadan, 99 Phil. 408 — Cited as part of the long line of decisions applying the four-fold test for determining the existence of an employer-employee relationship.
• Investment Planning Corp. vs. SSS, G.R. No. L-19124, November 18, 1967, 21 SCRA 924 — Cited for the four-fold test and for the proposition that an independent contractor is paid for the result of labor, unlike an employee who is paid for the labor performed.
• SSS vs. Court of Appeals, G.R. No. 28134, June 30, 1971, 39 SCRA 629 — Cited for the four-fold test and the control test.
• Mafinco Trading Corp. vs. Ople, G.R. No. 37790, March 25, 1976, 70 SCRA 139 — Cited for the four-fold test.
• SSS vs. Cosmos Aerated Water Factory, Inc., G.R. No. L-55764, February 16, 1982, 112 SCRA 47 — Cited for the four-fold test.
• Feati vs. Bautista, G.R. No. 21278, December 27, 1966, 18 SCRA 41 — Cited for the proposition that control is the most important requisite and the other requisites may even be disregarded.
• LVN Pictures, Inc. vs. Phil. Musicians Guild, G.R. No. 12582, January 26, 1961, 1 SCRA 312 — Cited for the control test definition.
• Phil. Refining Co., Inc. vs. C.A., No. L-29590, September 30, 1982, 117 SCRA 84 — Cited for the control test.
• Mansal vs. Gocheco Lumber, 96 Phil. 941 — Cited for the distinction between an independent contractor and an employee.

• Article 1700, Civil Code — The law on agency under the Civil Code was invoked by petitioners to argue that the claim was a purely civil obligation cognizable by the regular courts, not the Labor Tribunal. The Court implicitly accepted this characterization by finding no employer-employee relationship.

Gutierrez, Jr., Feliciano, Bidin, and Cortes, JJ., concurred.