NOTES ON ER-EE CASES

(Vis-a-vis Independent Contractor)

Labor Law Review

2nd S, 2022-23
Atty. PF Fallar Jr

1. Tiangco vs ABS-CBN ( GR No. 200434, 06 Dec 2021)

Doctrine: "Possession of skills, expertise, or talent is a persuasive element of an independent

contractor. It becomes conclusive if it is established that the individual performed the work
according to his own manner and method and free from the principal's control except to the
result".

Comments:

a. Note that possession of "unique" skills ( itself a disputable concept, since at times what we
may really mean is "elite" level of skills) is merely a "persuasive element". "Control" would still
be the most decisive factor.

An employee is subject to far greater control and supervision by their employer, than an
independent contractor (IC) would.

An independent contractor is one who carries on an independent business ( or profession)

and undertakes to perform the job, work, or service on his own account and under his own
responsibility according to his own manner and method free from the control and direction of
the principal/client except as to the results thereof (Paytan vs Supermax, GR No. 216620, 04
March 2020).

There would invariably be some form of control that would be imposed by the hiring party , even
in IC (e.g. , the contractor or agent cannot sell a competitor product) but this alone would not
negate other factors indicating independence (e.g., can work on other jobs not competing with
principal's/client's products; not bound to observe any schedule of working hours , account for
his time/activities , or report to any regular office ; could seek and work on his prospects
anywhere and anytime he chose to; free to adopt the selling methods deemed most effective).

As the Supreme Court has put it : Logically, the line should be drawn between rules that
merely serve as guidelines towards the achievement of the mutually desired result
without dictating the means or methods to be employed in attaining it, and those that
control or fix the methodology and bind or restrict the party hired to the use of such
means. The first, which aim only to promote the result, create no employer-employee
relationship unlike the second, which address both the result and the means used to achieve it.

b. While I agree in the result of this case , that this is not a labor dispute, I prefer that the case is
resolved primarily from the point of view of the law on contracts. In the earlier case of Mel's
partner Jay Sonza (Jay Sonza vs ABS-CBN , GR No. 138051, 10 June 2004), which has similar
set of facts with a few minor variations, the contract was also between the Mel & Jay Mgt &
Development Corp. (represented by Jay Sonza as its President and General Manager , Mel
Tianco being Treasurer and EVP ) and ABS-CBN. Sonza (and Tianco) were talent of their own
agency, not of the tv network. Clearly, for absence of privity of contract, Sonza and Tianco
could not be employees of the tv network. Neither the 4-fold test nor the economic dependency
test was necessary to arrive at that conclusion.

In labor law, there are two types of contractors: i) legitimate job contractors ( business entities,
governed by Arts. 106-109 of the Labor Code) ;and , ii) independent contractors (individuals who
possess skills and talents which they use to run their own business).

Mel & Jay Mgt & Development Corp. was clearly an job contractor , because it provided the
services of its talents ( Mel and Jay) in connection with a specific and distinct job (hosting a tv
program) within the tv network's operations. Mel and Jay ( besides being owners and managers
of their own company) are also its employees deployed to one of its clients, ABS-CBN. Hence,
they cannot at the same time be employees of ABS-CBN.

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The contract therefore was between two corporations , ABS CBN and MJMDC. Given this
situation, no ER ER relationship is ever possible since an employee is always a natural person.
Sonza's and Tianco's had contracts with their own corporation, not with ABS CBN. In the Jay
Sonza case, the CA noted:

Clearly, the relations of principal and agent only accrues between complainant Sonza
and MJMDC, and not between ABS-CBN and MJMDC. This is clear from the provisions of
the May 1994 Agreement which specifically referred to MJMDC as the ‘AGENT’. As a
matter of fact, when complainant herein unilaterally rescinded said May 1994
Agreement, it was MJMDC which issued the notice of rescission in behalf of Mr. Sonza,
who himself signed the same in his capacity as President.

That being the case, the party which may have a cause of action against ABS CBN would be
MJMDC and not Mel and Jay their personal capacities. Such cause of action definitely would
not be a labor dispute.

2. Cabrera vs Lazada ( GR No. 246892, 21 September 2022)

Doctrine: "When the status of the employment is in dispute, the employer bears the burden to
prove that the person whose service it pays for is an independent contractor rathe than a
regular employee with or without a fixed term".

Comments:

a. While I agree with the result of this decision, that the Lazada drivers are employees and
not independent contractors, I do not subscribe to the formulation of which party bears the
burden of proving whether the circumstance indicates the existence of ER-EE or of IC

Employer-employee relationship is both a question of fact and of law. The burden of proving
the same rests on the party who asserts the proposition. This is the general rule on
evidence.

It is a basic rule of evidence that each party must prove his

affirmative allegation. If he claims a right granted by law, he must
prove his claim by competent evidence, relying on the strength of his
own evidence and not upon the weakness of that of his
opponent. The test for determining on whom the burden of proof lies
is found in the result of an inquiry as to which party would be
successful if no evidence of such matters were given. 18 In an illegal
dismissal case, the onus probandi rests on the employer to prove that
its dismissal of an employee was for a valid cause. 1However, before a
case for illegal dismissal can prosper, an employer-employee
relationship must first be established. Thus, in filing a complaint
before the LA for illegal dismissal, based on the premise that he was
an employee of respondents, it is incumbent upon petitioner
[complainant] to prove the employer-employee relationship by
substantial evidence. (Reyes vs Glaucoma Research Foundation G.R. No.
189255, June 17, 201)5

In most cases, it would be the employee's burden since the majority of labor cases are filed by
them. But in some instances, like illegal strikes or union unfair labor practice (ULP), the
employer would be the complainant and thus would have the burden of proving the issues. In
non-labor cases like prosecution for the crime of qualified theft, the employer would have the
burden of proving this element.

b.In this case, the Lazada drivers successfully proved ER EE rel thought the 4-fold test
( especially the aspect of control) and also through the economic dependence test (see pp. 19-
21).

Lazada , for itself, failed to prove the existence of IC. In a somewhat dismissive language, the
SC said that "the work performed [ by them] do not require a special skill or talent" inasmuch as
"picking up and delivering goods from warehouse to buyers do not call for specific expertise".
Moreover, "it is not shown that 'they] were hired due to their unique ability of competence" ( p.
19). I would dispute that the driving of this sort, while not requiring the skills of an F1 driver, still
requires a certain unique talent and a level of expertise.

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I think it is wrong for the SC to rely on the "unique skill or talent" as the main criterion for IC.
This is just one of the circumstances which may be , as the SC itself put it in the Mel Tianco
case, a "persuasive" indicator of IC status . Bata Reyes may possess unique skills but playing
billiards by itself is a common pastime. The same goes for the work of artists, actors, athletes,
lawyers, doctors, designers, writers etc. who, when they are IC instead of being EEs, are such
because they possess "elite" (not unique) skills in their fields and could conduct their profession
or occupations as an independent business and not as employees. Even the neighborhood
beautician could be an IC, and so may the Lazada drivers if otherwise they are not subject to
Lazada's control in the manner described in the decision. It would have been better for the SC
to cite the guidelines used by the US Supreme Court in resolving EE v IC categorization:

1. The extent to which services are integral to the employer's business.

Greater integration favors an employee-employer relationship.
2. The permanence of the relationship. More established relationships favor
employee status.
3. The amount of investment in equipment. When a worker makes a
significant investment in the equipment they use in working for someone
else, this suggests an independent contractor relationship.
4. The degree of control by the principal. More control favors employee-
employer status.
5. The amount of financial risk. More opportunity for profit or loss favors an
independent contractor relationship.
6. The amount of initiative, judgment or foresight in open-market competition
with others required for the for the success of the claimed independent
enterprise. Entrepreneurial and distinctive work favors an independent
contractor relationship.

The SC actually used these guidelines, without stating them. For No. 1 (extent of services) . , it
ruled that: " The services performed by petitioners are integral to respondent's business. xxx
The delivery of items is clearly integrated in the services offered by respondents. xxx In
carrying out their business, they are not merely a platform where parties can transact; they also
offer the delivery of items from the sellers to the buyers. (p. 20). For No. 2 (permanence of
relationship ), the SC noted that "petitioners have been previously engaged by third-party
contractor to provide services for respondents" For No. 4 (control), this was extensively
discussed and highlighted by the provision in the contract which stipulates that "the method by
which Contractor is to perform such Services shall be as instructed by and within the discretion
and control of the Company" (p.20). For No. 5 ( financial risk) , the SC noted that "petitioners
had no control over their own profit or loss because they were paid a set daily wage" (p.21) .

For No. 3 ( amount of investment), the SC apparently left the issue hanging. It stated that:
"Furthermore, petitioners have invested in equipment to be engaged by respondents.
Particularly, petitioners are required by respondents to use their own motorcycles" ( p. 21). What
are we to make of this observation without a conclusion? If we follow the US guidelines,
ownership of the motorcycles would be an indicator of IC and not of ER-EE rel. Precisely
because of the implication of this circumstance, they took pains to argue that "they do not have
the capacity to perform their duties without the tools provided by respondents such as
cellphones, product scanners, and uniforms"(p. 6). What do you think?

c. Gross errors by LA, NLRC, and CA

The nomenclature of the written contract is not decisive in determining the question of
employment relationship, nor are the terms contained therein (e.g., disavowal of employer-
employee relationship) binding on the courts. Titles alone are weak indicators. (Reyes vs
Glaucoma Research Foundation, supra).

Yet both the LA and the NLRC, which are specialized agencies with expertise in labor law,
dismissed the complaint on the simplistic ground that "since the terms of the Contract are
explicit and clear its literal meaning should control" (pp.2-3).

To what factors should we attribute this egregious error by the LA and the NLRC on a
fundamental labor law doctrine? Intellectual sloth? Graft?

The CA, for its part, dismissed the certiorari petition on the ground that the correct remedy if
Rule 43 and not Rule 65. This is also a manifest and inexplicable error, since Rule 65 to the CA

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has long been the mode imposed by the SC since the St. Martin's Funeral Home decision was
promulgated when most of you were not even born yet (1998). PFFALLARJRFEB2023