EMPLOYER- EMPLOYEE RELATIONSHIP

The jurisdiction of the National Labor Relations Commission (NLRC) is limited to cases or disputes where
there is an employer-employee relationship between the parties. If no such employer-employee
relationship exists, then the regular courts would have jurisdiction over the case or dispute.

Philippine jurisprudence applies the “four-fold test” to determine the issue of whether an employer-
employee relationship exists: 1) the selection and engagement of the employee; 2) the payment of
wages; 3) the power of dismissal; and 4) the employer’s power to control the employee’s conduct (the
‘control test’).

If substantial evidence is presented to show that a person selects and engages another for employment,
pays his/her wages, has the power to dismiss him/her and/or controls his/her conduct, then the courts
will consider such person as his/her employer.

It is the so-called “control test” which constitutes the most important index of the existence of the
employer-employee relationship that 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
methods by which the same is to be accomplished. Stated otherwise, an employer-employee
relationship exists where the person for whom the services are performed reserves the right to control
not only the end to be achieved but also the means to be used in reaching such end. (Pacific Consultants
International Asia, Inc. v. Klaus K. Schonfeld, 516 SCRA 209).

“It should be borne in mind that the control test calls merely for the existence of the right to control the
manner of doing the work, not the actual exercise of the right.” (Dy Keh Beng v. International Labor and
Marine Union of the Philippines, et al., 90 SCRA 161.)

In a job contracting arrangement where the principal farms out the performance of a part of its business
activities to another entity (the job contractor), the job contractor’s own employees perform or
undertake that portion of the principal’s business which has been farmed out.

If the job contracting arrangement is illegitimate (known as ‘labor-only contracting’), the job contractor’s
employees may be considered as the employees of the principal.

Section 8 of the Department of Labor and Employment (DOLE) Department Order No. 174, series of
2017 (D.O. No. 174-17) summarizes the requirements found in law and jurisprudence for legitimate job
contracting:

a) The contractor or subcontractor is engaged in a distinct and independent business and undertakes to
perform the job or work on its own responsibility, according to its manner and method;

b) The contractor or subcontractor has substantial capital to carry out the job farmed out by the
principal on his account, manner and method, investment in the form of tools, equipment, machinery
and supervision;
c) In performing the work farmed out, the contractor is free from the control and/or direction of the
principal in all matters connected with the performance of the work except as to the result thereto; and

d) The service agreement ensures compliance with all the rights and benefits for all the employees of
the contractor or subcontractor under the labor laws.
Conversely, D.O. No. 174-17 defines illegal and prohibited labor-only contracting as an arrangement
where:

a) The contractor or subcontractor does not have substantial capital, or

b) The contractor or subcontractor does not have investments in the form of tools, equipment,
machineries, supervision, work premises, among others,

c) The contractor’s or subcontractor’s employees recruited and placed are performing activities which
are directly related to the main business operation of the principal; or
The contractor or subcontractor does not exercise the right to control over the performance of the work
of the employee.

The applicability of the control test is clear from D.O. No. 174-17 that if the principal exercises control
over the work of the contractor and the contractor’s employees, the principal may be considered as the
employer of the contractor’s employees.

In conclusion, control is key in determining whether a person is one’s employee and should be carefully
exercised.