Social Security System vs. Court of Appeals

The "control test" is the most important element in determining the existence of an employer-employee relationship — 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 method by which the same is to be accomplished. Where the element of control is present, the relationship of employer-employee exists for purposes of the Social Security Act.

Quality Tobacco Corporation (QTC), formerly U.S. Tobacco Corporation, is a firm engaged in the manufacture and sale of cigarettes. On August 12, 1972, QTC entered into an agreement with Romeo Carreon, denominated as a contract of purchase and sale, whereby Carreon would purchase cigarettes from QTC on a cash basis and sell them within an assigned territory. The Social Security System intervened in the proceedings, taking the side of Carreon, and asked that QTC be ordered to pay Social Security contributions in respect of Carreon. The Court took cognizance of the fact that the question of whether an employer-employee relationship exists continues to bedevil the courts, as some businessmen with the aid of lawyers have tried to avoid bringing about such a relationship because it spawns obligations connected with workmen's compensation, social security, medicare, minimum wage, termination pay, and unionism.

Quality Tobacco Corporation (QTC), formerly U.S. Tobacco Corporation, is a firm engaged in the manufacture and sale of cigarettes. On August 12, 1972, QTC, as VENDOR, entered into an agreement with Romeo Carreon, as VENDEE, the salient provisions of which provided that: the VENDEE shall purchase one or more brands of cigarettes of the VENDOR on cash basis only, subject to the discretion of the VENDOR as to the brand and quantity thereof; the VENDEE shall sell the cigarettes only within Quezon Province and or such other places as may be designated and or limited thereafter by the VENDOR, and only to residents of, or retailers or jobbers doing, and having their place of business in, said assigned territory, strictly at such prices set by the VENDOR from time to time; the VENDEE shall be solely responsible for the cigarettes delivered to him by the VENDOR as well as for the proceeds from the sale thereof, and any loss thereof due to any cause shall be solely for his own risk and account; the VENDOR may loan a delivery truck or trucks to the VENDEE, which shall be used exclusively in connection with the contract and at all times maintained by the VENDEE in good condition, with the VENDEE paying all expenses for gasoline, oil, repairs, operating costs, maintenance, tires, spare parts, etc.; the contract may be terminated upon one week's notice of either party at any time; and in the event court litigation should be necessary to recover from the VENDEE any amount due to the VENDOR, the VENDEE shall pay all damages plus cost of suit and attorney's fees of at least 20% of the amount sought to be recovered, with venue of actions agreed to be in the City of Manila.

The contract with Carreon was terminated by QTC on December 18, 1972. On April 29, 1974, Carreon filed a petition with the Social Security Commission alleging that he was an employee of QTC, and asking that QTC be ordered to report him for coverage under the Social Security Law. QTC answered claiming that Carreon was not an employee but was an "Independent businessman." The Social Security System intervened and, taking the side of Carreon, also asked that QTC be ordered to pay Social Security contributions in respect of Carreon.

The Court of Appeals, relying solely on the doctrine laid down in the Mafinco vs. Ople case, reversed the Resolution of the Social Security Commission and dismissed Carreon's petition. The Social Security System sought reconsideration, which was denied. Hence, the petition before the Supreme Court.

The Supreme Court, after a study of the records and applying the "control test," found that the existence of an employer-employee relationship between Romeo Carreon and QTC had been established, based on the following "undisputed" facts as pointed out by the Solicitor General: (a) QTC assigned a definite sales territory for Romeo Carreon; (b) QTC provided Romeo Carreon with a delivery truck for the exclusive use of the latter in his sales activities; (c) QTC dictated the price of the cigarettes sold by Romeo Carreon; (d) QTC prescribed what brand of cigarettes Romeo Carreon could sell; (e) QTC determined the persons to whom Romeo Carreon could sell; (f) QTC issued circulars and memoranda relative to Romeo Carreon's sales activities; (g) QTC required Romeo Carreon to submit to it daily, weekly and monthly reports; (h) QTC grounded Romeo Carreon for six months in 1966; (i) Romeo Carreon was supervised by sales coordinators of QTC; (j) Romeo Carreon was subject to payment of damages and loss even of accrued rights for any violation of instructions made by QTC in relation to his sales activities; and (k) Romeo Carreon was paid an allowance by QTC.

• Inapplicability of Mafinco: Petitioner argued that the Mafinco case, which was the sole basis of the Court of Appeals' finding that Romeo Carreon was an independent contractor, is not applicable to the instant petition, there being no substantial parallelism between the Mafinco contract and the contract of purchase and sale in this case. Petitioner pointed out that the Mafinco contract contained provisions which by express implication point to the status of the peddler as an independent contractor, such as: (a) that should the peddler employ a driver or helpers, the latter shall be his employees and their compensation shall be for the peddler's account, and that the peddler shall comply with the provisions of the Social Security Act and all applicable laws; (b) the peddler is responsible for damage to property, death or injuries to persons covered by his own acts or omissions or those of his driver or helpers; (c) the peddler is required to secure at his own expense all necessary licenses and permits and to bear all expenses which may be incurred in the sale of soft drinks; and (d) the peddler is to furnish a performance bond of P1,000.00 in favor of Mafinco — which provisions are notably absent in the contract in the case at bar.
• Selective Reading of Mafinco: Petitioner further contended that the Court of Appeals, in an effort to justify its holding, picked out only paragraphs 1, 2, 4, 6 and 9 of the Mafinco contract and thereafter concluded that the two contracts are similar.

• Applicability of Mafinco: Private respondent averred that the Mafinco contract is applicable to the case at bar, and that the two contracts need not embody almost the same provisions in order that they may be considered similar. It is enough that the aspect of similarity arising from the terms and conditions, because of their relevance to the issue, is relatively much stronger than the dissimilarity.
• Conclusiveness of CA Findings: Private respondent maintained that the decision was correctly concluded not only on the similarity of the two contracts but also on factual evidence adduced at the trial, and since the respondent Court had already examined the facts and passed judgment on the basis thereof, its decision is no longer subject to review. The Court of Appeals "looked behind the contract" but found the evidence insufficient to justify a finding that the terms of the contract were not followed, and that the evidence for Carreon and SSS failed to "pierce" the contract.

• Employer-Employee Relationship: Whether Romeo Carreon is an employee or an independent contractor under the contract with Quality Tobacco Corporation.
• Applicability of Mafinco: Whether the Mafinco vs. Ople case is applicable to the case at bar.

• Employer-Employee Relationship: Yes. The existence of an employer-employee relationship between Romeo Carreon and QTC was established based on the undisputed facts showing QTC's control and supervision over Carreon's work, applying the "control test."
• Applicability of Mafinco: No. The Mafinco case is not applicable because the Court of Appeals did not consider the entirety of the contract but only portions thereof, which led to the conclusion that Carreon was an independent contractor.

• Employer-Employee Relationship: The Court applied the "control test" — 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 method by which the same is to be accomplished. The Court found that the following undisputed facts established control and supervision over Carreon's work: (a) QTC assigned a definite sales territory for Romeo Carreon; (b) QTC provided Romeo Carreon with a delivery truck for the exclusive use of the latter in his sales activities; (c) QTC dictated the price of the cigarettes sold by Romeo Carreon; (d) QTC prescribed what brand of cigarettes Romeo Carreon could sell; (e) QTC determined the persons to whom Romeo Carreon could sell; (f) QTC issued circulars and memoranda relative to Romeo Carreon's sales activities; (g) QTC required Romeo Carreon to submit to it daily, weekly and monthly reports; (h) QTC grounded Romeo Carreon for six months in 1966; (i) Romeo Carreon was supervised by sales coordinators of QTC; (j) Romeo Carreon was subject to payment of damages and loss even of accrued rights for any violation of instructions made by QTC in relation to his sales activities; and (k) Romeo Carreon was paid an allowance by QTC. All these indicate control and supervision over Carreon's work.
• Applicability of Mafinco: The Court noted that the Court of Appeals ruled that there was not enough evidence to show that the contract between Carreon and QTC was not reflective of their agreement to warrant reformation. However, the Court of Appeals did not consider the entirety of the contract but only portions thereof, which led to the conclusion that Carreon was an independent contractor. The Court also noted that the well-settled rule that the findings of fact of the Court of Appeals are conclusive on the parties admits of exceptions, among which are: (1) when the findings of fact of the Court of Appeals are contrary to those of the trial court; and (2) when the findings of fact of the Court of Appeals are premised on the supposed absence of evidence and are contradicted by evidence on record. Moreover, it is elementary that findings of administrative agencies are generally accorded not only respect but also finality.

• Control Test — The most important element in determining the existence of an employer-employee relationship is the employer's power to control the employee with respect to the means and method by which the work is to be accomplished. The test is 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 method by which the same is to be accomplished. Where the element of control is absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his effort, the relationship of employer-employee does not exist.
• Four-Fold Test — The elements to be generally considered in determining the existence of an employer-employee relationship are: (a) selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the employer's power to control the employee with respect to the means and method by which the work is to be accomplished. The last, which is the so-called "control test," is the most important element.
• Finality of Administrative Findings — Findings of administrative agencies are generally accorded not only respect but also finality.

• "The last which is the so-called 'control test' is the most important element (Brotherhood Labor Unity Movement of the Phils. vs. Zamora, 147 SCRA 49 [1987]; Dy Ke Beng vs. International Labor and Marine Union of the Phil., 90 SCRA 162 [1979]; Mafinco Trading Corp. vs. Ople, 70 SCRA 141 [1976]; Social Security System vs. Court of Appeals, 37 SCRA 579 [1971])." — This passage establishes the control test as the most important element in determining employer-employee relationship and cites the line of cases supporting this doctrine.
• "In other words, where the element of control is absent; where a person who works for another does so more or less at his own pleasure and is not subject to definite hours or conditions of work, and in turn is compensated according to the result of his effort, the relationship of employer-employee does not exist. (SSS vs. Court of Appeals, 30 SCRA 210 [1969])." — This passage articulates the negative formulation of the control test, defining when the employer-employee relationship does not exist.
• "All these indicate control and supervision over Carreon's work." — This passage concludes the Court's application of the control test to the undisputed facts, finding that the totality of QTC's control over Carreon's sales activities established an employer-employee relationship.

• Mafinco Trading Corp. vs. Ople, 70 SCRA 141 (1976) — The case relied upon solely by the Court of Appeals in finding Carreon to be an independent contractor; the Supreme Court found it inapplicable because the Court of Appeals did not consider the entirety of the contract but only portions thereof.
• Investment Planning Corp. vs. SSS, 21 SCRA 924 (1967) — Cited for the proposition that the question of whether there is an employer-employee relationship for purposes of the Social Security Act is settled by applying the control test.
• SSS vs. Court of Appeals, 30 SCRA 210 (1969) — Cited for the negative formulation of the control test: where the element of control is absent, the relationship of employer-employee does not exist.
• Brotherhood Labor Unity Movement of the Phils. vs. Zamora, 147 SCRA 49 (1987) — Cited as one of the cases establishing the elements to be considered in determining the existence of an employer-employee relationship.
• Dy Ke Beng vs. International Labor and Marine Union of the Phil., 90 SCRA 162 (1979) — Cited as one of the cases establishing the elements to be considered in determining the existence of an employer-employee relationship.
• Social Security System vs. Court of Appeals, 37 SCRA 579 (1971) — Cited as one of the cases establishing the elements to be considered in determining the existence of an employer-employee relationship.
• Ramos vs. Pepsi Cola Bottling Co., 19 SCRA 289 (1967) — Cited for the distinction between a question of law and a question of fact.
• Sacay vs. Sandiganbayan, 142 SCRA 609 (1986) — Cited for the exceptions to the rule that findings of fact of the Court of Appeals are conclusive on the parties.
• Manlapaz vs. Court of Appeals, 147 SCRA 239 (1987) — Cited for the exceptions to the rule that findings of fact of the Court of Appeals are conclusive on the parties.
• Rosario Bros., Inc. vs. Ople, 131 SCRA 72 (1984) — Cited for the principle that findings of administrative agencies are generally accorded not only respect but also finality.
• U.S. Tobacco Corporation vs. Benjamin Serna, et al., CA-G.R. No. 32041, September 5, 1967 — Relied upon by the Social Security Commission in finding Carreon to be an employee of QTC.
• The Shell Co. Phil. Ltd. vs. Fireman's Insurance Co. of Newark, et al., 100 Phil. 757 — Relied upon by the Social Security Commission in finding Carreon to be an employee of QTC.

• Social Security Act — The statute under which Carreon filed his petition with the Social Security Commission, asking that QTC be ordered to report him for coverage. The Court's determination of whether an employer-employee relationship exists was made for purposes of this Act.

Teehankee, C.J., Narvasa, Cruz, and Gancayco, JJ., concurred.