No employer-employee relationship for agents on commission

In 1989, a labor union filed a petition with a sewing machine company to be the sole and exclusive bargaining agent that represents the company’s collectors. The company refused to recognize the labor union, explaining that the union members were not actually their employees but were independent contractors. To support its claim, the company showed a collection agency agreement. Due to their disagreement, the matter was brought to mediation.

During mediation, the med-arbiter found an employer-employee relationship to exist between the union members and the company. This was likewise affirmed by the Secretary of Labor. The collectors thus continued to assert that they performed the most desirable and necessary activities for the continuous and effective operations of the business of the company.

On a petition for certiorari, the Supreme Court (SC) reiterated the importance of the control test in order to conclude if an employer-employee relationship exists –

The present case mainly calls for the application of the control test, which if not satisfied, would lead us to conclude that no employer-employee relationship exists. Hence, if the union members are not employees, no right to organize for purposes of bargaining, nor to be certified as such bargaining agent can ever be recognized. The following elements are generally considered in the determination of the employer-employee relationship: “(1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power to control the employee’s conduct—although the latter is the most important element.”

Under the collection agency agreement, the collection agents were paid their compensation for their services on a commission basis, particularly six percent of all collections made by the collecting agent. From here, it is clear that the agreement did not fix an amount for wages nor the required number working hours the collecting agents must put it. Thus, the Court held that collecting agents that are paid on a commission basis are considered independent contractors and not employees of the company. In such a situation, the company does not pass the control test because the company has no control over the collecting agent’s performance of collection services. On the contrary, the company only has control over the amount of collections made, which is a result of his work. In order for the company to have control over the commission agents, the company should not only have control over the end or result to be achieved but also over the means and methods in achieving the end.

Citing Investment Planning Corp. of the Philippines v. Social Security System, the SC also differentiated independent contractors from employees –

[T]he work of petitioner’s agents or registered representatives more nearly approximates that of an independent contractor than that of an employee. The latter is paid for the labor he performs, that is, for the acts of which such labor consists the former is paid for the result thereof… Even if an agent of petitioner should devote all of his time and effort trying to sell its investment plans he would not necessarily be entitled to compensation therefor. His right to compensation depends upon and is measured by the tangible results he produces.

Lastly, the Court reiterated that those who are not considered employees of a company, such as independent contractors, are not entitled to the constitutional right to join or form a labor organization for purposes of collective bargaining. Accordingly, there is no constitutional and legal basis to grant a petition for direct certification to the “union” (Singer Sewing Machine Company v. Drilon, G.R. No. 91307, 24 January 1991, J. Gutierrez, Sr.). –BENCHPRESS