Singer Sewing Machine Company vs. Drilon

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 power of control being the most important element. Where the alleged employer controls only the result of the work and not the means and methods by which it is accomplished, the worker is an independent contractor, not an employee, and is not entitled to the constitutional right to form a labor organization for collective bargaining purposes.

Singer Sewing Machine Company operated a branch in Baguio City and engaged individuals as collection agents under written Collection Agency Agreements. The Singer Machine Collectors Union-Baguio (SIMACUB) was organized among these collectors and sought certification as their sole and exclusive collective bargaining agent. The dispute required the Court to determine whether the collectors were employees of the Company or independent contractors, a determination that would decide their eligibility to form a labor organization under the Constitution and the Labor Code.

Singer Sewing Machine Company operated a branch in Baguio City and engaged individuals as collection agents under written Collection Agency Agreements. On February 15, 1989, the Singer Machine Collectors Union-Baguio (SIMACUB) filed a petition for direct certification as the sole and exclusive bargaining agent of all collectors of the Company's Baguio City branch. The Company opposed the petition on the ground that the union members were not employees but independent contractors, as evidenced by the collection agency agreements they signed.

The Collection Agency Agreement contained several stipulations: (a) a collector was designated as a "collecting agent" who was to be considered at all times as an independent contractor and not an employee of the Company; (b) collection of all payments on installment accounts was to be made monthly or oftener; (c) an agent was paid compensation in the form of a commission of 6% of all collections made and turned over plus a bonus on said collections; (d) an agent was required to post a cash bond of three thousand pesos (P3,000.00) to assure faithful performance; (e) the agent was subject to all terms and conditions in the agreement; (f) the agreement was effective for one year and renewable on a yearly basis; and (g) services could be terminated in case of failure to satisfy the minimum monthly collection performance required, failure to post a cash bond, or cancellation of the agreement at the instance of either party.

The respondents relied on other features of the agreement to argue that the collectors were employees. They quoted paragraph 2, which stated that an agent shall utilize only receipt forms authorized and issued by the Company; paragraph 3, which stated that an agent had to submit and deliver at least once a week or as often as required a report of all collections made using report forms furnished by the Company; and paragraph 4 on the monthly collection quota, which respondents deemed a control measure over the means by which an agent was to perform his services.

The Company presented unrefuted circumstances showing the absence of control: (1) the collection agents were not required to observe office hours or report to Singer's office everyday except for remitting collections; (2) the collection agents did not have to devote their time exclusively for Singer, with no prohibition on working elsewhere and no requirement to account for their time; (3) the manner and method of effecting collections were left solely to the discretion of the collection agents; (4) the collection agents shouldered their transportation expenses; (5) the collection agents were paid strictly on commission basis based solely on actual collections; and (6) the commissions earned were directly deducted by the agents from the amount of collections, with the net amount remitted to Singer.

The Med-Arbiter granted the petition for certification election, finding that an employer-employee relationship existed. On appeal, the Labor Secretary affirmed, and the motion for reconsideration was denied. The Company then filed the present petition for certiorari with the Supreme Court.

• Jurisdiction of DOLE: Petitioner alleged that the Department of Labor and Employment had no jurisdiction over the case since the existence of an employer-employee relationship was at issue.
• Due Process: Petitioner argued that its right to due process was denied when the evidence of the union members' being commission agents was disregarded by the Labor Secretary.
• Employer-Employee Relationship: Petitioner contended that the public respondents patently erred in finding that an employer-employee relationship exists.
• Commission Agents as Independent Contractors: Petitioner argued that the public respondents whimsically disregarded the well-settled rule that commission agents are not employees but are independent contractors.

• Necessary Activities: Respondents insisted that the provisions of the Collection Agency Agreement belie the Company's position, asserting that union members "perform the most desirable and necessary activities for the continuous and effective operations of the business of the petitioner Company," citing Article 280 of the Labor Code.
• Bad Faith Termination: Respondents argued that the termination of the agreement by the petitioner pending the resolution of the case before the DOLE "only shows the weakness of petitioner's stand" and was "for the purpose of frustrating the constitutionally mandated rights of the members of private respondent union to self-organization and collective organization."
• Job Contracting Requirements: Respondents contended that under Section 8, Rule 8, Book III of the Omnibus Rules Implementing the Labor Code, which defines job-contracting, the union members cannot legally qualify as independent contractors who must be free from control of the alleged employer, who carry independent businesses, and who have substantial capital or investment in the form of equipment, tools, and the like necessary in the conduct of the business.

• Employer-Employee Relationship: Whether an employer-employee relationship exists between Singer Sewing Machine Company and its collection agents who signed Collection Agency Agreements.
• Right to Self-Organization: Whether the collection agents, as independent contractors, are entitled to the constitutional right to form a labor organization for purposes of collective bargaining.
• Jurisdiction of DOLE: Whether the Department of Labor and Employment had jurisdiction over the certification election case where the existence of an employer-employee relationship was at issue.

• Employer-Employee Relationship: No. The collection agents are independent contractors, not employees, because the Company exercised control only over the result of the work — the amount of collections — and not over the means and methods by which the collection job was performed.
• Right to Self-Organization: No. Since the collection agents are not employees, they are not entitled to the constitutional right to join or form a labor organization for purposes of collective bargaining, and their union has no legal basis to be granted a petition for direct certification.
• Jurisdiction of DOLE: Yes. The DOLE's assumption of jurisdiction was justified because the petitioner itself brought the case on appeal and submitted the issue of the existence of an employment relationship to the DOLE's jurisdiction.

• Employer-Employee Relationship: The Court applied the four-fold test for determining 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, with the latter being the most important element. The Court found that the Collection Agency Agreement explicitly designated the collector as an independent contractor. The requirement that collection agents utilize only receipt forms and report forms issued by the Company and submit reports at least once a week was not an indication of control over the means of performing the collection job; these requirements were intended to avoid co-mingling of personal funds with company money and to facilitate order in office procedures. Even if considered control measures, any control was only with respect to the end result of the collection. The monthly collection quota was a normal requirement in similar contractual agreements, subject to agreement by both parties, and the Company intended to take control only over the amount of collection, which is a result of the job performed. The Court relied on the unrefuted circumstances that the collection agents were not required to observe office hours, did not have to devote their time exclusively to Singer, had the manner and method of effecting collections left solely to their discretion, shouldered their own transportation expenses, were paid strictly on commission basis, and directly deducted their commissions from collections before remitting the net amount. The grounds for termination specified in the contract had no relation to the means and methods of work ordinarily required of employees. The last and most important element of the control test was not satisfied because there was nothing in the agreement implying control by the Company over both the end to be achieved and the means and methods in achieving that end.

• Right to Self-Organization: The Court found that the respondents' contention that the union members are employees under Article 280 of the Labor Code had no basis. Article 280 merely distinguishes between regular employees and casual employees for purposes of determining the right of an employee to certain benefits, to join or form a union, or to security of tenure; it does not apply where the existence of an employment relationship is in dispute. The Court cited La Suerte Cigar and Cigarette Factory vs. Director of Bureau of Labor Relations for the proposition that the question of whether an employer-employee relationship exists is a primordial consideration before extending labor benefits, and that failure to establish this juridical relationship between the union members and the employer affects the legality of the union itself, meaning the ineligibility of the union members to present a petition for certification election as well as to vote therein.

• Jurisdiction of DOLE: The Court held that the assumption of jurisdiction by the DOLE over the case was justified because the case was brought on appeal by the petitioner itself, which prayed for the reversal of the Order of the Med-Arbiter on the ground that the union members are not its employees. The petitioner thus submitted itself as well as the issue of the existence of an employment relationship to the jurisdiction of the DOLE, which was faced with a dispute on an application for certification election.

• Control Test — The most important element in determining the existence of an employer-employee relationship is the power to control the employee's conduct. Where the alleged employer controls only the result of the work and not the means and methods by which it is accomplished, no employer-employee relationship exists. The Court applied this test to find that the collection agents were independent contractors because the Company exercised control only over the amount of collection, which is a result of the job performed, and not over the manner and method of effecting collections.

• Four-Fold Test for Employer-Employee Relationship — The following elements are generally considered in the determination of the 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 the latter is the most important element. The Court applied this test and found that the last and most important element was not satisfied.

• Independent Contractor vs. Employee Distinction — An independent contractor is paid for the result of his labor, while an employee is paid for the labor he performs. The right to compensation of an independent contractor depends upon and is measured by the tangible results he produces. The Court applied this distinction, noting that the collection agents were paid strictly on commission basis based solely on actual collections and did not receive any commission if they did not effect any collection.

• Article 280 of the Labor Code Not a Yardstick for Employment Relationship — Article 280 merely distinguishes between regular employees and casual employees for purposes of determining the right of an employee to certain benefits, to join or form a union, or to security of tenure. It does not apply where the existence of an employment relationship is in dispute. The Court rejected the respondents' reliance on Article 280 to establish that the union members were employees.

• "The nature of the relationship between a company and its collecting agents depends on the circumstances of each particular relationship. Not all collecting agents are employees and neither are all collecting agents independent contractors. The collectors could fall under either category depending on the facts of each case." — This passage establishes the case-by-case approach to determining the status of collecting agents, rejecting any blanket rule that all commission agents are either employees or independent contractors.

• "The last and most important element of the control test is not satisfied by the terms and conditions of the contracts. There is nothing in the agreement which implies control by the Company not only over the end to be achieved but also over the means and methods in achieving the end." — This is the ratio decidendi of the case, articulating the controlling principle that the power of control over both the result and the means of achieving it is essential to establish an employer-employee relationship.

• "The question of whether employer-employee relationship exists is a primordial consideration before extending labor benefits under the workmen's compensation, social security, medicare, termination pay and labor relations law. It is important in the determination of who shall be included in a proposed bargaining unit because, it is the sine qua non, the fundamental and essential condition that a bargaining unit be composed of employees. Failure to establish this juridical relationship between the union members and the employer affects the legality of the union itself. It means the ineligibility of the union members to present a petition for certification election as well as to vote therein." — This passage, quoted from La Suerte Cigar and Cigarette Factory, establishes that the existence of an employer-employee relationship is a prerequisite for union formation and certification election eligibility.

• Mafinco Trading Corporation vs. Ople, 70 SCRA 139 (1976) — Cited as controlling precedent for the four-fold test in determining employer-employee relationship, particularly the elements of selection and engagement, payment of wages, power of dismissal, and power to control conduct.

• Development Bank of the Philippines vs. National Labor Relations Commission, 175 SCRA 537 (1989) — Cited as controlling precedent for the four-fold test in determining employer-employee relationship.

• Rosario Brothers, Inc. vs. Ople, 131 SCRA 72 (1984) — Cited as controlling precedent for the four-fold test in determining employer-employee relationship.

• Broadway Motors Inc. vs. NLRC, 156 SCRA 522 (1987) — Cited as controlling precedent for the four-fold test in determining employer-employee relationship.

• Brotherhood Labor Unity Movement in the Philippines vs. Zamora, 147 SCRA 49 (1986) — Cited as controlling precedent for the four-fold test in determining employer-employee relationship.

• La Suerte Cigar and Cigarette Factory vs. Director of Bureau of Labor Relations, 123 SCRA 679 (1983) — Cited as controlling precedent for the rule that the literal meaning of stipulations in a contract controls, and for the proposition that the existence of an employer-employee relationship is a primordial consideration before extending labor benefits and a prerequisite for union certification.

• Sarra vs. Agarrado, 166 SCRA 625 (1988) — Cited as controlling precedent for the principle that compensation earned only on the basis of tangible results produced indicates independent contractor status.

• Investment Planning Corp. of the Philippines vs. Social Security System, 21 SCRA 924 (1967) — Cited as controlling precedent for the distinction between independent contractors and employees: the latter is paid for the labor he performs, while the former is paid for the result thereof. Also cited for the principle that a commission agent who does his work "more or less at his own pleasure" without a regular daily time frame is an independent contractor.

• Social Security System vs. Court of Appeals, 30 SCRA 210 (1969) — Cited as controlling precedent for the principle that a commission agent who does his work "more or less at his own pleasure" without a regular daily time frame is an independent contractor.

• LVN Pictures, Inc. vs. Philippine Musicians Guild, 1 SCRA 132 (1961) — Cited as controlling precedent for the requirement that control must be exercised not only over the end to be achieved but also over the means and methods in achieving the end.

• Article 1370, Civil Code — The Court applied the first rule of interpretation that the literal meaning of the stipulations in a contract controls, finding that the plain language of the Collection Agency Agreement revealed that the designation as collection agent did not create an employment relationship.

• Article 280, Labor Code — The Court held that this provision, which defines regular employees as those who perform activities desirable and necessary for the business of the employer, is not the yardstick for determining the existence of an employment relationship because it merely distinguishes between regular and casual employees for purposes of determining rights to benefits, union membership, and security of tenure.

• Article 106, Labor Code — The Court held that this provision on contractor or subcontractor, together with Section 8, Rule 8, Book III of the Omnibus Rules Implementing the Labor Code, is relevant in determining whether the employer is solidarily liable to the employees of an alleged contractor and/or subcontractor for unpaid wages in case it is proven that there is a job-contracting situation, and does not apply to the present case.

• Section 8, Rule 8, Book III, Omnibus Rules Implementing the Labor Code — The Court held that this provision on job-contracting, which requires that an independent contractor must have substantial capital or investment in the form of tools, equipment, machineries, work premises, and other materials, does not apply to collection agents because there is no showing that a collection agent needs tools and machineries.

Fernan, C.J., Feliciano and Bidin, JJ., concurred in the decision.