Social Security System vs. Court of Appeals and Conchita Ayalde

A worker hired on a "pakyaw" basis is not ipso facto an independent contractor; where the economic realities of the relationship show employment rather than independent business enterprise, he is an employee entitled to compulsory coverage under the Social Security Law. The absence of payroll, timesheet, or similar documentary proof does not defeat the establishment of an employer-employee relationship, which may be proved by any competent and relevant evidence, including testimonial evidence.

Conchita Ayalde owned a sugarcane plantation known as Hda. No. Audit B-70 in Pontevedra, La Carlota City, and leased another, Hda. Audit B-15-M, from the University of the Philippines in La Granja, La Carlota City. Ignacio Tana, Sr. worked as a farmhand in these plantations, and upon his death his widow, Margarita Tana, sought social security benefits from the System. The Social Security System is the agency charged with the implementation and enforcement of the Social Security Law (Republic Act No. 1161, as amended by Presidential Decree Nos. 1202 and 1636), whose mandatory coverage is premised on the existence of an employer-employee relationship.

Conchita Ayalde owned a sugarcane plantation known as Hda. No. Audit B-70 in Pontevedra, La Carlota City, and leased another plantation, Hda. Audit B-15-M, from the University of the Philippines in La Granja, La Carlota City. Ignacio Tana, Sr. worked as a farmhand in these plantations, and Antero Maghari served as Ayalde's overseer. Tana was married to Margarita Tana, who resided with him inside the plantation.

In a petition before the Social Security Commission, Margarita alleged that her husband had been employed by Ayalde as a farmhand in the two sugarcane plantations; that he worked continuously six days a week, four weeks a month, and twelve months every year from January 1961 to April 1979; and that he received a regular salary based on the prevailing minimum wage. She further alleged that throughout the period, social security contributions, as well as medicare and employees compensation premiums, were deducted from Tana's wages, and that it was only after his death that she discovered he had never been reported for coverage and that his contributions had never been remitted. She prayed that Ayalde and Maghari, as administrator, be ordered to pay the premium contributions and to report Tana for coverage, and that the SSS grant her the funeral and pension benefits due her.

The SSS intervened, revealing that neither Hda. B-70 nor Ayalde and Maghari were registered members-employers and that Tana had never been registered as a member-employee; its records showed no way of verifying whether the alleged premium contributions had been remitted. Maghari answered that he was a mere employee hired as overseer of Hda. B-70 during crop years 1964-65 to 1971-72, his duties limited to those defined by the employer and never involving SSS matters, and prayed for dismissal for lack of cause of action. Ayalde, for her part, denied that Tana was her employee, admitting only that he had been hired intermittently as an independent contractor to plow, harrow, or burrow Hda. B-15-M; that he used his own carabao and implements and followed his own schedule of work hours; and that she never exercised control over the manner by which he performed his work. She also averred that in 1971 the University of the Philippines had terminated the lease over Hda. B-15-M and she had since surrendered possession, so that Tana was no longer hired to work thereon starting crop year 1971-72 and was never contracted to work in Hda. B-70.

The parties presented conflicting accounts of Tana's engagement. Margarita and her corroborating witnesses, Agaton Libawas and Aurelio Tana, testified that while Tana was hired as an "arador" on a "pakyaw" basis for intermittent periods, he was also paid a daily wage disbursed by Ayalde's overseer every fifteen days, and that he worked continuously for most of the year doing tasks such as cutting and hauling canes, plowing, hauling fertilizers, weeding, and stubble cleaning. They further testified that they acknowledged receipt of their wages by signing on sheets of ruled or intermediate pad paper, which differed from the payrolls presented by Ayalde, and that deductions were made from their salaries purportedly for SSS contributions. Ayalde insisted that Tana was paid solely on a "pakyaw" basis and presented payrolls covering only January 1974 to January 1976 and November 1978 to May 1979, which covered only Hda. B-70 and bore no signatures of the laborers named therein; she admitted that all her records and payrolls for Hda. B-15-M had been either destroyed or lost.

The Social Security Commission found that Tana had been employed by Ayalde from January 1961 to March 1979, crediting the testimony of Margarita corroborated by two co-workers, and held that Ayalde, having failed to report Tana for coverage, was liable for damages equivalent to death benefits of P7,067.40 plus P750.00 in funeral benefit. The Court of Appeals reversed, ruling that Tana was an independent contractor and that, in the absence of an employer-employee relationship, Ayalde could not be compelled to pay the burial and pension benefits. On review, the conflicting factual findings of the Commission and the appellate court required the Supreme Court to scrutinize the records itself.

• Pakyaw Workers as Employees: Petitioner SSS argued that the Court of Appeals erred in ruling that an employee working under the "pakyaw" system is considered under the law to be an independent contractor, and that the deceased Ignacio Tana, Sr., hired on a "pakyaw" basis to perform specific tasks in Ayalde's sugarcane plantations, should be considered an employee whose heirs are entitled to pension and burial benefits.
• Pro-Labor Interpretation: Petitioner maintained that the Court of Appeals erred in not giving due consideration to the fundamental tenet that doubts in the interpretation and implementation of labor and social welfare laws should be resolved in favor of labor.
• Deference to Administrative Findings: Petitioner argued that the Court of Appeals erred in disregarding the settled rule that the factual findings of administrative bodies on matters within their competence shall not be disturbed by the courts.
• Compulsory Coverage Under Section 8(j): Petitioner contended that the Court of Appeals erred in ruling that, even granting that Tana was employed by Ayalde, such employment did not entitle him to compulsory coverage since he was not paid any regular daily wage or basic pay and did not work for an uninterrupted period of at least six months in a year in accordance with Section 8(j)(1) of the Social Security Law.

• Independent Contractor Status: Respondent Ayalde countered that Tana was hired intermittently as an independent contractor on a "pakyaw" basis to plow, harrow, or burrow Hda. B-15-M; that he used his own carabao and farming implements and followed his own schedule of work hours; and that she never exercised control over the manner by which he performed his work, so that he did not fall within the coverage of the Social Security Law.
• Termination of the Lease: Respondent argued that the University of the Philippines had already terminated the lease over Hda. B-15-M in 1971 and that she had since surrendered possession thereof, so that Tana was no longer hired to work thereon starting crop year 1971-72 and was never contracted to work in Hda. B-70.
• Absence of Employer-Employee Relationship: Respondent maintained that Tana was never her employee and prayed for the dismissal of the case for lack of cause of action.

• Pakyaw Worker as Employee: Whether an agricultural laborer hired on a "pakyaw" basis is an employee or an independent contractor under the Social Security Law.
• Compulsory Coverage: Whether such a worker is entitled to compulsory coverage and corresponding benefits under the Social Security Law.
• Pro-Labor Interpretation: Whether doubts in the interpretation and implementation of labor and social welfare laws should be resolved in favor of labor.
• Deference to Administrative Findings: Whether the factual findings of the Social Security Commission should be respected over the contrary findings of the Court of Appeals.

• Pakyaw Worker as Employee: No. The Court of Appeals erred in treating a "pakyaw" worker as an independent contractor; the four-fold test and the economic realities of the relationship establish that Tana was an employee of Ayalde.
• Compulsory Coverage: Yes. Tana, having been paid a daily wage and having worked continuously for most of the year for eighteen years, was entitled to compulsory coverage under the Social Security Law, whether his service was continuous or broken.
• Pro-Labor Interpretation: Yes. Doubts in the interpretation and implementation of labor and social welfare laws must be resolved in favor of labor.
• Deference to Administrative Findings: The general rule that factual findings of administrative bodies are not to be disturbed yields where there are conflicting and contradictory findings of fact; the Court may scrutinize the records to determine the facts for itself.

• Pakyaw Worker as Employee: Mandatory coverage under the Social Security Law is premised on the existence of an employer-employee relationship, and Section 8(d) defines an "employee" as any person who performs services for an employer in which either or both mental and physical efforts are used and who receives compensation for such services where there is an employer-employee relationship. The essential elements are (a) selection and engagement of the employee; (b) payment of wages; (c) power of dismissal; and (d) power of control over the means and methods by which the work is to be accomplished, with the power of control being the most determinative. Tana's selection and engagement by Ayalde or her overseer, and their prerogative to dismiss him, were undisputed; the dispute centered on the payment of wages. Ayalde's payrolls were incomplete, covered only Hda. B-70, bore no signatures of the laborers, and spanned only portions of the eighteen-year period; they were unworthy of credence and could not overcome the positive, corroborated testimonies of Margarita, Libawas, and Aurelio Tana that Tana received a daily wage disbursed every fifteen days. No particular form of evidence is required to prove an employer-employee relationship, and the absence of a timesheet, time record, or payroll becomes inconsequential where the relationship is sufficiently proved by testimonial evidence. While Tana was sometimes hired as an "arador" on a "pakyaw" basis, he was also hired to do other tasks, worked continuously for most of the year, and resided inside the plantation for free—circumstances inconsistent with independent contracting. Although Ayalde may not have directly imposed the manner and methods of his work, she exercised control through her overseer; the power of control refers merely to the existence of the power, and it is sufficient that the employer has the right to wield it. Jurisprudence supplies further considerations: Tana was not engaged in a distinct occupation or business; he worked exclusively for Ayalde for eighteen years; and plowing or preparing the soil was a major part of Ayalde's regular business of growing sugarcane. Where a worker possesses some attributes of an employee and others of an independent contractor, he may be classified as an employee when the economic facts of the relationship make it more nearly one of employment than one of independent business enterprise.

• Compulsory Coverage: The Court of Appeals also erred in ruling, in the alternative, that even if Tana were an employee he was ineligible for compulsory coverage because he was not paid a regular daily wage and did not work for an uninterrupted period of at least six months in a year under Section 8(j)(1) of the Social Security Law. Substantial testimonial evidence established that Tana was paid a daily wage and worked continuously for most of the year, even while he was occasionally called upon to plow the soil on a "pakyaw" basis. As a farm laborer who had worked exclusively for Ayalde for eighteen years, Tana was entitled to compulsory coverage under the Social Security Law, whether his service was continuous or broken. Ayalde failed to counter the positive assertions that SSS premiums were deducted from Tana's salary; even on the assumption that there were no deductions, the fact remained that Tana was and should have been covered under the law, his circumstances placing him outside the ambit of the exception in Section 8(j) of Republic Act No. 1161, as amended by Section 4 of Republic Act No. 2658.

• Pro-Labor Interpretation: The Court applied the settled tenet that doubts in the interpretation and implementation of labor and social welfare laws are resolved in favor of labor, consistent with the Social Security Law's character as a social welfare measure and with the petitioner's assignment of error on this point.

• Deference to Administrative Findings: While the existence of an employer-employee relationship is ultimately a question of fact and factual issues are generally not within the province of the Supreme Court, the rule admits of exceptions. Where there are conflicting and contradictory findings of fact, as between the Social Security Commission and the Court of Appeals, the Court has not hesitated to scrutinize the records to determine the facts for itself. The Court's examination of the records showed that the Commission's findings were supported by substantial evidence, and that the Court of Appeals had made a selective appreciation of the evidence, relying on the witnesses' admission of intermittent "pakyaw" hiring while failing to appreciate the rest of their testimonies.

• Four-Fold Test of Employer-Employee Relationship — The essential elements of an employer-employee relationship are: (a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of dismissal; and (d) the power of control with regard to the means and methods by which the work is to be accomplished, with the power of control being the most determinative factor. The Court applied this test and found all elements present, noting that selection and engagement and the power of dismissal were undisputed, and that the payment of wages was established by the claimant's positive testimonial evidence.

• Control Test — The power of control refers merely to the existence of the power; it is not essential for the employer to actually supervise the performance of the employee's duties, it being sufficient that the former has the right to wield the power. The Court held that Ayalde, on her own or through her overseer, wielded the power to hire or dismiss and to check on the work of the laborers, and as owner/lessee of the plantations possessed the power to control everyone working therein.

• Economic Realities Test / Intermediate Area Doctrine — When a worker possesses some attributes of an employee and others of an independent contractor, which make him fall within an intermediate area, he may be classified under the category of an employee when the economic facts of the relations make it more nearly one of employment than one of independent business enterprise with respect to the ends sought to be accomplished. The Court applied this doctrine to Tana, finding a preponderance of evidence that he was an employee rather than an independent contractor.

• No Particular Form of Evidence Required to Prove Employment — No particular form of evidence is required to prove the existence of an employer-employee relationship; any competent and relevant evidence may be admitted, and where the relationship is sufficiently proved by testimonial evidence, the absence of a timesheet, time record, or payroll becomes inconsequential. The Court relied on this doctrine to disregard Ayalde's incomplete and unsigned payrolls.

• Doubts Resolved in Favor of Labor — Doubts in the interpretation and implementation of labor and social welfare laws are resolved in favor of labor. The Court invoked this principle in rejecting the Court of Appeals' restrictive reading of the Social Security Law.

• Exception to the Finality of Administrative Factual Findings — While factual findings of administrative bodies on matters within their competence are generally not disturbed by the courts, the rule yields where there are conflicting and contradictory findings of fact, in which case the Supreme Court may scrutinize the records to determine the facts for itself. The Court applied this exception because the Commission and the Court of Appeals had reached contrary factual conclusions.

• "No particular form of evidence is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence to prove the relationship may be admitted." — Quoted from Opulencia Ice Plant and Storage vs. NLRC, this passage states the evidentiary standard for proving employment and supports the Court's disregard of the absence of payroll, timesheet, or pay slip as fatal to the claim.

• "When a worker possesses some attributes of an employee and others of an independent contractor, which make him fall within an intermediate area, he may be classified under the category of an employee when the economic facts of the relations make it more nearly one of employment than one of independent business enterprise with respect to the ends sought to be accomplished." — Quoted from Sunripe Coconut Products Co. vs. Court of Industrial Relations, this is the canonical formulation of the intermediate-area doctrine applied to classify Tana as an employee rather than an independent contractor.

• "the power of control refers merely to the existence of the power. It is not essential for the employer to actually supervise the performance of duties of the employee; it is sufficient that the former has a right to wield the power." — This passage articulates the control test as applied to Ayalde, who exercised control through her overseer even if she did not directly supervise Tana's work.

• "As a farm laborer who has worked exclusively for Ayalde for eighteen (18) years, Tana should be entitled to compulsory coverage under the Social Security Law, whether his service was continuous or broken." — This is the ratio decidendi on the coverage issue, rejecting the Court of Appeals' alternative holding that Tana was ineligible under Section 8(j) of the Social Security Law.

• Opulencia Ice Plant and Storage vs. NLRC, 228 SCRA 473 (1993) — Cited as the controlling authority for the rule that no particular form of evidence is required to prove an employer-employee relationship and that the absence of a timesheet, time record, or payroll becomes inconsequential where testimonial evidence sufficiently proves the relationship.
• Dy Keh Beng vs. International Labor, 90 SCRA 161 (1979) — Cited as the case through which the Court invoked the intermediate-area doctrine, quoting the ruling in Sunripe Coconut Products Co.
• Sunripe Coconut Products Co. vs. Court of Industrial Relations, 83 Phil. 518, L-2009, April 30, 1949 — Cited as the source of the long-standing ruling that a worker possessing some attributes of an employee and others of an independent contractor may be classified as an employee when the economic facts make the relationship more nearly one of employment.
• MAM Realty Dev't. Corp. vs. NLRC, 244 SCRA 797 (1995) — Cited for the rule that the power of control refers merely to the existence of the power and that actual supervision is not essential.
• Great Pacific Life Assurance Corp. vs. NLRC, 187 SCRA 694 (1990) and Santos vs. NLRC, 293 SCRA 113 (1998) — Cited for the doctrine that the existence of an employer-employee relationship is ultimately a question of fact.
• Arambulo vs. CA, 293 SCRA 567 (1998) and Jison vs. CA, 286 SCRA 495 (1998) — Cited for the exception to the general rule on factual issues, allowing the Court to scrutinize the records where there are conflicting findings of fact.
• Filipinas Broadcasting Network, Inc. vs. NLRC, 287 SCRA 348 (1998) and Cabalan Pastulan Negrito Labor Association vs. NLRC, 241 SCRA 643 (1995) — Cited for the elements of an employer-employee relationship and the primacy of the power of control.

• Section 8(d), Republic Act No. 1161 (Social Security Law) — Defines an "employee" as any person who performs services for an employer in which either or both mental and physical efforts are used and who receives compensation for such services where there is an employer-employee relationship. The Court used this definition as the premise for mandatory coverage and applied it to Tana.
• Section 8(j)(1), Republic Act No. 1161, as amended by Section 4 of Republic Act No. 2658 — Provides the exception from compulsory coverage for certain employees. The Court held that Tana's circumstances placed him outside the ambit of this exception, since he was paid a daily wage and worked continuously for most of the year.
• Republic Act No. 1161, as amended by Presidential Decree Nos. 1202 and 1636 — The Social Security Law, whose mandatory coverage the Court held to be premised on the existence of an employer-employee relationship and which entitled Tana to compulsory coverage.

Davide, Jr., C.J. (Chairman), Puno, Kapunan, and Pardo, JJ., concur.