Employer-employee relationship test

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.

Gerardo Maximo V. Francisco is a Partner of Mata-Perez, Tamayo &

Francisco (MTF Counsel). He is a corporate, deal, litigation and employment

lawyer.
The contents of the above article are intended for general information

purposes only and do not constitute legal advice. If you have any question or

comment regarding this article, you may email the author

at info@mtfcounsel.com or visit MTF Counsel’s website at

www.mtfcounsel.com.