Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-19124 November 18, 1967
INVESTMENT PLNNING CORPORTION O! T"E P"ILIPPINES, petitioner-
appellant,
vs.
SOCIL SECURIT# S#STEM, respondent-appellee.
M$LINTL, J.:
Petitioner is a domestic corporation engaged in business management and the sale of
securities. t has t!o classes of agents !ho sell its investment plans" #$% salaried
emplo&ees !ho 'eep definite hours and !or' under the control and supervision of the
compan&( and #)% registered representatives !ho !or' on commission basis.
*n August )+, $,-. petitioner, through counsel, applied to respondent /ocial /ecurit&
Commission for e0emption of its so-called registered representatives from the
compulsor& coverage of the /ocial /ecurit& Act. 1he application !as denied in a letter
signed b& the /ecretar& to the Commission on 2anuar& $-, $,-$. A motion to reconsider
!as filed and also denied, after hearing, b& the Commission itself in its resolution dated
/eptember 3, $,-$. 1he matter !as thereafter elevated to this Court for revie!.
1he issue submitted for decision here is !hether petitioner4s registered representatives
are emplo&ees !ithin the meaning of the /ocial /ecurit& Act #R.A. No. $$-$ as
amended%. /ection 3 #d% thereof defines the term 5emplo&ee5 6 for purposes of the Act
6 as 5an& person !ho performs services for an 4emplo&er4 in !hich either or both
mental and ph&sical efforts are used and !ho receives compensation for such services,
!here there is, emplo&er-emplo&ee relationship.5 #As amended b& /ec.7, R.A. No.
)-83%. 1hese representatives are in realit& commission agents. 1he uncontradicted
testimon& of petitioner4s lone !itness, !ho !as its assistant sales director, is that these
agents are recruited and trained b& him particularl& for the 9ob of selling 54:ilipinos
Mutual :und5 shares, made to undergo a test after such training and, if successful, are
given license to practice b& the /ecurities and E0change Commission. 1he& then
e0ecute an agreement !ith petitioner !ith respect to the sale of :M: shares to the
general public. Among the features of said agreement !hich respondent Commission
considered pertinent to the issue are" #a% an agent is paid compensation for services in
the form of commission( #b% in the event of death or resignation he or his legal
representative shall be paid the balance of the commission corresponding to him( #c% he
is sub9ect to a set of rules and regulations governing the performance of his duties
under the agreement( #d% he is re;uired to put up a performance bond( and #e% his
services ma& be terminated for certain causes. At the same time the Commission found
from the evidence and so stated in its resolution that the agents 5are not re;uired to
report #for !or'% at an& time( the& do not have to devote their time e0clusivel& to or !or'
solel& for petitioner( the time and the effort the& spend in their !or' depend entirel&
upon their o!n !ill and initiative( the& are not re;uired to account for their time nor
submit a record of their activities( the& shoulder their o!n selling e0penses as !ell as
transportation( and the& are paid their commission based on a certain percentage of
their sales.5 1he record also reveals that the commission earned b& an agent on his
sales is directl& deducted b& him from the amount he receives from the investor and
turns over to the compan& the amount invested after such deduction is made. 1he
ma9orit& of the agents are regularl& emplo&ed else!here 6 either in the government or
in private enterprises.
*f the three re;uirements under /ection 3 #d% of the /ocial /ecurit& Act it is admitted
that the first is present in respect of the agents !hose status is in ;uestion. 1he& e0ert
both mental and ph&sical efforts in the performance of their services. 1he compensation
the& receive, ho!ever, is not necessaril& for those efforts but rather for the results
thereof, that is, for actual sales that the& ma'e. 1his point is relevant in the
determination of !hether or not the third re;uisite is also present, namel&, the e0istence
of emplo&er-emplo&ee relationship. Petitioner points out that in effect such
compensation is paid not b& it but b& the investor, as sho!n b& the basis on !hich the
amount of the commission is fi0ed and the manner in !hich it is collected.
Petitioner submits that its commission agents, engaged under the terms and conditions
alread& enumerated, are not emplo&ees but independent contractors, as defined in
Article $+$< of the Civil Code, !hich provides"
Art. $+$<. B& the contract for a piece of !or' the contractor binds himself to
e0ecute a piece of !or' for the emplo&er, in consideration of a certain price or
compensation. 1he contractor ma& either emplo& onl& his labor or s'ill, or also
furnish the material.
=e are convinced from the facts that the !or' of petitioner4s agents or registered
representatives more nearl& appro0imates that of an independent contractor than that of
an emplo&ee. 1he latter is paid for the labor he performs, that is, for the acts of !hich
such labor consists( the former is paid for the result thereof. 1his Court has recogni>ed
the distinction in Chartered Bank, et al. vs. Constantino, 8- Phil. +$+, !here it said"
*n this point, the distinguished commentator Manresa in referring to Article
$833 of the #/panish% Civil Code has the follo!ing to sa&. . . .
1
1he code does not begin b& giving a general idea of the sub9ect matter, but b&
fi0ing its t!o distinguishing characteristics.
But such an idea !as not absolutel& necessar& because the difference
bet!een the lease of !or' b& contract or for a fi0ed price and the lease of
services of hired servants or laborers is sufficientl& clear. n the latter, the direct
ob9ect of the contract is the lessor4s labor( the acts in !hich such labor
consists, performed for the benefit of the lessee, are ta'en into account
immediatel&. n !or' done b& contract or for a fi0ed price, the lessor4s labor is
indeed an important, a most important factor( but it is not the direct ob9ect of
the contract, nor is it immediatel& ta'en into account. 1he ob9ect !hich the
parties consider, !hich the& bear in mind in order to determine the cause of the
contract, and upon !hich the& reall& give their consent, is not the labor but its
result, the complete and finished !or', the aggregate of the lessor4s acts
embodied in something material, !hich is the useful ob9ect of the contract. . . .
#Manresa Commentarios al Codigo Civil, ?ol. @, ed., pp. ++7-++8.%
Even if an agent of petitioner should devote all of his time and effort tr&ing to sell its
investment plans !ould not necessaril& be entitled to compensation therefor. Ais right to
compensation depends upon and is measured b& the tangible results he produces.
1he specific ;uestion of !hen there is 5emplo&er-emplo&ee relationship5 for purposes of
the /ocial /ecurit& Act has not &et been settled in this 9urisdiction b& an& decision of this
Court. But in other connections !herein the term is used the test that has been
generall& applied is the so-called control test, that is, !hether the 5emplo&er5 controls or
has reserved the right to control the 5emplo&ee5 not onl& as to the result of the !or' to
be done but also as to the means and methods b& !hich the same is to be
accomplished.
1hus in Philippine Manufacturing Company vs. Geronimo, et al., B--,-3, November ),,
$,87, involving the =or'men4s Compensation Act, !e read"
. . . Carcia, a painting contractor, had a contract underta'en to paint a !ater
tan' belonging to the Compan& 5in accordance !ith specifications and price
stipulated,5 and !ith 5the actual supervision of the !or' #being% ta'en care of
b&5 himself. Clearl&, this made Carcia an independent contractor, for !hile the
compan& prescribed !hat should be done, the doing of it and the supervision
thereof !as left entirel& to him, all of !hich meant that he !as free to do the
9ob according to his o!n method !ithout being sub9ect to the control of the
compan& e0cept as to the result.
Cruz, et al. vs. The Manila Hotel Company, B-,$$., April <., $,8+, presented the issue
of !ho !ere to be considered emplo&ees of the defendant firm for purposes of
separation gratuit&. !" Pictures, #nc. vs. Phil. Musicians Guild, et al., B-$)83), 2anuar&
)3, $,-$, involved the status of certain musicians for purposes of determining the
appropriate bargaining representative of the emplo&ees. n both instances the 5control5
test !as follo!ed. #/ee also Mansal vs. P.P. Cocheco Bumber Co., B-3.$+, April <.,
$,88( and ?iana vs. Allagadan, et al., B-3,-+, Ma& <$, $,8-.%
n the Dnited /tates, the :ederal /ocial /ecurit& Act of $,<8 set forth no definition of the
term 4emplo&ee4 other than that it 4includes an officer of a corporation.4 Dnder that Act
the D./. /upreme Court adopted for a time and in several cases the so-called
4economic-realit&4 test instead of the 4control4 test. #D./. vs. /il' and Aarrison, ,$ Ba!
Ed. $+8+( Bartels vs. Birmingham, #$id, $,7+, both decided in 2une $,7+%. n the Bartels
case the Court said"
n Dnited /tates v. /il', No. <$), <<$ D/ +.7, ante, $,8+, -+ /Ct $7-<, supra,
!e held that the relationship of emplo&er-emplo&ee, !hich determines the
liabilit& for emplo&ment ta0es under the /ocial /ecurit& Act !as not to be
determined solel& b& the idea of control !hich an alleged emplo&er ma& or
could e0ercise over the details of the service rendered to his business b& the
!or'er or !or'ers. *bviousl& control is characteristicall& associated !ith the
emplo&er-emplo&ee relationship, but in the application of social legislation
emplo&ees are those !ho as a matter of economic realit& are dependent upon
the business to !hich the& render service. n /il', !e pointed out that
permanenc& of the relation, the s'ill re;uired, the investment in the facilities for
!or' and opportunities for profit or less from the activities !ere also factors
that should enter into 9udicial determination as to the coverage of the /ocial
/ecurit& Act. t is the total situation that controls. 1he standards are as
important in the entertainment field as !e have 9ust said, in /il', that the& !ere
in that of distribution and transportation. #,$ Ba!, Ed. $,7+, $,8<(%
Ao!ever, the 4economic-realit&4 test !as subse;uentl& abandoned as not reflective of
the intention of Congress in the enactment of the original /ecurit& Act of $,<8. 1he
change !as accomplished b& means of an amendator& Act passed in $,73, !hich !as
construed and applied in later cases. n Benson vs. %ocial %ecurity Board, $+) :. )d.
-3), the D./. /upreme Court said"
After the decision b& the /upreme Court in the /il' case, the 1reasur&
Eepartment revamped its Regulation, $) :ed. Reg. +,--, using the test set out
in the /il' case for determining the e0istence of an emplo&er-emplo&ee
relationship. Apparentl& this !as not the concept of such a relationship that
Congress had in mind in the passage of such remedial acts as the one
involved here because thereafter on 2une $7, $,73, Congress enacted Public
Ba! -7), 7) D./ C.A. /ec. $<.$ #a% #-%. /ection $$.$#a% #-% of the /ocial
/ecurit& Act !as amended to read as follo!s"
2
1he term 5emplo&ee5 includes an officer of a corporation, but such
term does not include #$% an& individual !ho, under the usual
common-la! rules applicable in determining the emplo&er-emplo&ee
relationship, has the status of an independent contractor or #)% an&
individual #e0cept an officer of a corporation% !ho is not an emplo&ee
under such common la! rules.
=hile it is not necessar& to e0plore the full effect of this enactment in the
determination of the e0istence of emplo&er-emplo&ee relationships arising in
the future, !e thin' it can fairl& be said that the intent of Congress !as to sa&
that in determining in a given case !hether under the /ocial /ecurit& Act such
a relationship e0ists, the common-la! elements of such a relationship, as
recogni>ed and applied b& the courts generall& at the time of the passage of
the Act, !ere the standard to be used . . . .
1he common-la! principles e0pressl& adopted b& the Dnited /tates Congress are
summari>ed in Corpus 2uris /ecundum as follo!s"
Dnder the common-la! principles as to tests of the independent contractor
relationship, discussed in Master and /ervant, and applicable in determining
coverage under the /ocial /ecurit& Act and related ta0ing provisions, the
significant factor in determining the relationship of the parties is the presence
or absence of a supervisor& po!er to control the method and detail of
performance of the service, and the degree to !hich the principal ma&
intervene to e0ercise such control, the presence of such po!er of control being
indicative of an emplo&ment relationship and the absence of such po!er being
indicative of the relationship of independent contractor. n other !ords, the test
of e0istence of the relationship of independent contractor, !hich relationship is
not ta0able under the /ocial /ecurit& Act and related provisions, is !hether the
one !ho is claimed to be an independent contractor has contracted to do the
!or' according to his o!n methods and !ithout being sub9ect to the control of
the emplo&er e0cept as to the result of the !or'. #3$ C.2./. /ec. 8, pp. )7-)8%(
/ee also Millard4s nc. vs. Dnited /tates, 7- :. /upp. <38( /chmidt vs. E!ing,
$.3 :. /upp. 8.8( Ramblin vs. E!ing, $.- :. /upp. )-3.
n the case last cited #Rambin v. E!ing% the ;uestion presented !as !hether the plaintiff
there, !ho !as a sales representative of a cosmetics firm !or'ing on a commission
basis, !as to be considered an emplo&ee. /aid the Court"
Plaintiff4s onl& remuneration !as her commission of 7.F, plus G8 e0tra for
ever& G)8. of sales. Plaintiff !as not guaranteed an& minimum compensation
and she !as not allo!ed a dra!ing account or advance of an& 'ind against
unearned commissions. Plaintiff paid all of her traveling e0penses and she
even had to pa& the postage for sending orders to Avon.
1he onl& office !hich Avon maintained in /hreveport !as an office for the cit&
manager. Plaintiff !or'ed from her o!n home and she !as never furnished
an& leads. 1he relationship bet!een plaintiff and Avon !as terminable at !ill . .
.
000 000 000
. . . A long line of decisions holds that commission sales representatives are
not emplo&ees !ithin the coverage of the /ocial /ecurit& Act. 1he underl&ing
circumstances of the relationship bet!een the sales representatives and
compan& often var& !idel& from case to case, but commission sales
representatives have uniforml& been held to be outside the /ocial /ecurit& Act.
Considering the similarit& bet!een the definition of 5emplo&ee5 in the :ederal /ocial
/ecurit& Act #D./.% as amended and its definitions in our o!n /ocial /ecurit& Act, and
considering further that the local statute is admittedl& patterned after that of the Dnited
/tates, the decisions of American courts on the matter before us ma& !ell be accorded
persuasive force. 1he logic of the situation indeed dictates that !here the element of
control is absent( !here a person !ho !or's for another does so more or less at his
o!n pleasure and is not sub9ect to definite hours or conditions of !or', and in turn is
compensated according to the result of his efforts and not the amount thereof, !e
should not find that the relationship of emplo&er and emplo&ee e0ists.
=e have e0amined the contract form bet!een petitioner and its registered
representatives and found nothing therein !hich !ould indicate that the latter are under
the control of the former in respect of the means and methods the& emplo& in the
performance of their !or'. 1he fact that for certain specified causes the relationship
ma& be terminated #e.g., failure to meet the annual ;uota of sales, inabilit& to ma'e an&
sales production during a si0-month period, conduct detrimental to petitioner, etc.% does
not mean that such control e0ists, for the causes of termination thus specified have no
relation to the means and methods of !or' that are ordinaril& re;uired of or imposed
upon emplo&ees.
n vie! of the foregoing considerations, the resolution of respondent /ocial /ecurit&
Commission sub9ect of this appeal is reversed and set aside, !ithout pronouncement as
to costs.
3