Employer-Employee Relationship

A basic concept in labor law is that of

employer-employee relationship. When is an
employer-employee relationship deemed to
exist? The Supreme Court had once again
occasion to answer this question in the case of
TELEVISION AND PRODUCTION EXPONENTS,
INC. and/or ANTONIO P. TUVIERA versus
ROBERTO C. SERVAA, (G.R. No. 167648,
January 28, 2008).
The case involves a complaint for illegal
dismissal and nonpayment of benefits filed by
Servana against TAPE. Servana alleged that he
was first connected with Agro-Commercial
Security Agency but was later on absorbed by
TAPE as a regular company guard.
On its part TAPE contended that Servana was
merely a talent and/or independent
contractor.
In resolving the issue of employer-employee
relationship the Supreme Court made use of the
four-fold test:
Jurisprudence is abound *sic+ with cases that
recite the factors to be considered in
determining the existence of employeremployee relationship, namely:
(a) the selection and engagement of the
employee;
(b) the payment of wages;
(c) the power of dismissal; and
(d) the employers power to control the
employee with respect to the means and
method by which the work is to be
accomplished.
*The most important factor involves
the control test. Under the control test, there is
an employer-employee relationship when the
person for whom the services are performed
reserves the right to control not only the end
achieved but also the manner and means used
to achieve that end.
The Court further observed that these factors
were present in the case.

First, as to the selection and engagement of the

employee:
Clearly, respondent was hired by TAPE.
Respondent presented his identification card to
prove that he is indeed an employee of TAPE. It
has been in held that in a business
establishment, an identification card is usually
provided not just as a security measure but to
mainly identify the holder thereof as a bona fide
employee of the firm who issues it.
Second, as to the payment of wages:
Respondent claims to have been receiving
P5,444.44 as his monthly salary while TAPE
prefers to designate such amount as talent
fees. Wages, as defined in the Labor Code, are
remuneration or earnings, however designated,
capable of being expressed in terms of money,
whether fixed or ascertained on a time, task,
piece or commission basis, or other method of
calculating the same, which is payable by an
employer to an employee under a written or
unwritten contract of employment for work
done or to be done, or for service rendered or
to be rendered. It is beyond dispute that
respondent received a fixed amount as monthly
compensation for the services he rendered to
TAPE.
Thirdly, as to the power of dismissal:
The Memorandum informing respondent of
the discontinuance of his service proves that
TAPE had the power to dismiss respondent.
And finally, as to the power of control, which is
the most important test:
Control is manifested in the bundy cards
submitted by respondent in evidence. He was
required to report daily and observe definite
work hours.
What is significant are the concrete objects
which for the Supreme Court served as
evidences for the existence of an employeremployee relationship between the parties,
namely:
(1) The identification card;
(2) The fixed amount as monthly compensation;
(3) The Memorandum of discontinuance; and
(4) The bundy cards.

Where these or similar evidences are present

the conclusion is well-nigh inevitable that an
employer-employee relationship exists.

(c) seasonal employees or those who work or

perform services which are seasonal in nature,
and the employment is for the duration of the
season;[8] and

Kinds of employees

(d) casual employees or those who are not

regular, project, or seasonal employees.
Jurisprudence has added a fifth kind a fixedterm employee.[9]

ART. 280. Regular and Casual

Employment. The provisions of written
agreement to the contrary notwithstanding and
regardless of the oral agreement of the parties,
an employment shall be deemed to be regular
where the employee has been engaged to
perform activities which are usually necessary
or desirable in the usual business or trade of the
employer, except where the employment has
been fixed for a specific project or undertaking
the completion or termination of which has
been determined at the time of the
engagement of the employee or where the
work or service to be performed is seasonal in
nature and the employment is for the duration
of the season.

MANAGEMENTPREROGATIVES

Management prerogative

Definition: An exclusive and special

right, power or privilege granted to
business owners.
- Property right attributed to the owner
of a business establishment

An employment shall be deemed to be

casual if it is not covered by the preceding
paragraph: Provided, That, any employee who
has rendered at least one year of service,
whether such service is continuous or broken,
shall be considered a regular employee with
respect to the activity in which he is employed
and his employment shall continue while such
actually exists.[7]
The foregoing contemplates four (4) kinds
of employees:
(a) regular employees or those who have been
engaged to perform activities which are usually
necessary or desirable in the usual business or
trade of the employer;
(b) project employees or those whose
employment has been fixed for a specific
project or undertaking[,] the completion or
termination of which has been determined at
the time of the engagement of the employee;

- Par.4, Sec. 3, ART. XIII, Philippine

Constitution: The state shall regulate
the relations between workers and
employers, recognizing the x x x right of
enterprises to reasonable returns of
investments, and to expansion &
growth.
- ART. 428 of the Civil Code: The owner
has the right to enjoy and dispose of a
thing, without other limitations than
those established by law.

Based on what we was stated The

owner of a business establishment has,
among others, the right to control or
direct its business, the right to its fruits
and the right to dispose the same,
subject to the regulations of the police
power of the state.

Example.
When an owner of a business
enterprise, after operating a profitable
business for several years and decides
to close the same for he is already tired
of doing business and wants to travel
abroad for vacation, absolutely, he CAN
CLOSE the business. However, he is
obliged to pay separation pay to
workers as mandated by law. (Art. 283,
Labor Code.)

Most
ManagementPrerogatives

The Right to HIRE The company has

the exclusive right to purchase labor
from any person whom it chooses.
Thus, the transferee in good faith of a
business
establishment
has
no
obligation to absorb employees of the
transferor and to continue on
employing them. (MDII Employees
Association vs Presidential Assistant on
Legal Affairs, 79 SCRA 40) There is no
law which requires the purchaser to
absorb the employees of the selling
corporation. As there is no such law,
the most that the purchasing company
may do, for purposes of public policy
and social justice, is to give preference
to the qualified separated employees of
the selling company, who in their
judgment are necessary in the
continued operation of the business

The Right to DISMISS- The company has the right to dismiss

employees in accordance with the
causes and procedures established by
law. This particular right must be
exercised with CAUTION and without
abuse of discretion because termination
affects the right of the worker to
Security of Tenure.

common

The Right to Hire

The Right to Dismiss (Fire/Terminate)

The Right to Transfer
The Right to Promote and Demote
The Right to Discipline
The Right to Lay Down Policies
The Right to Establish Working Hours
The right to Organize and Reorganize
The Right to Reasonable return on investment
The Right to Expansion and Growth

establishment. (San Felipe Neri School

of Mandaluyong vs NLRC, et al., GR NO.
78350, 9/11/91)

- Art. 279 in cases of Regular

Employment, termination on the
grounds of just and authorized causes,
subject to the requirements of due
process.

The Right to DISMISS (continued) End

of
contract?
Completion
of
contract/phase? No prior notice is
required. Termination of probationary
employment? Notice served on
employee within a reasonable time
Any decision of termination shall be
without prejudice to the right of the
worker to contest the same by filing a
complaint with the RAB of the NLRC.
Validity of 30 day preventive
suspensions.
The Right to Transfer The company has
the right to transfer an employee from
one office to another within the
business establishment provided that
there is no demotion in rank, salary,
benefits and other privileges. This is a
privilege inherent in the employers
right to control and conduct its business
enterprise and conduct of its business
operations to achieve its purpose. It
cannot be denied to the employer.

SCRA 954; PT&T Corp. vs NLRC, Gr No.

152057, 9/29/03)

The Right to Transfer (continued) IT is

the employers prerogative, based on
its assessment on the following
employee attributes: Qualifications
Aptitudes

- The right of the employer to subject

his employees to disciplinary measures
and the need for discipline have been
judicially noticed.

Competence- An employees security of tenure

does not give him such a vested right in
his position as would deprive the
company of its prerogative to change
his assignment or transfer him where
he will be most useful.
-When the EEs transfer is not
unreasonable, nor inconvenient, nor
prejudicial to him, and it does not
involve a demotion in rank or
diminution in salaries, benefits and
privileges, the employee may not
complain that it amounts to
constructive dismissal. (PT&T vs NLRC,
GR NO. 76645, July 23, 1991; Allied
Bank vs CA, GR No. 144412, 11/18/03)

The Right to PROMOTE and DEMOTE

The company has the right to promote
employees.

Promotion: scalar ascent of an

employee to another position higher in
rank or salary. The right to promote
carries with it the right to demote.
There is no law that compels an
employee to accept a promotion, as a
promotion is in the nature of a gift or
reward, which a person has a right to
refuse. He who uses his won right,
injures no one. (Milares vs Subido, 20

The Right to DISCIPLINE

Success in industries and public services is

the foundation in which just wages may be
paid. There can be no success without
efficiency. There can be no efficiency
without discipline. Thus, when they violate
the rules of discipline, employees and
laborers jeopardize the interest not only of
the employer but also of their own. In
violating the rules of discipline, they aim at
killing the hen that lays golden eggs.
Laborers who trample down the rules set
for an efficient service are, in effect, parties
to a conspiracy against not only to capital
but also to labor.The employer has the right
to instill disciplinein his employees and to
impose reasonable penalties on erring
employees pursuant to company rules and
regulations. (SMC vs NLRC, GR No. 87277,
May 12, 1989)IF the undesirable one
remains in service, it will demoralize the
other employees (Shoemart vs NLRC Gr No.
74229, 8/11/1989)

The Right to Lay Down Policies,

EstablishWorking Hours, and to
Organize andReorganizeIn general
terms, an employer is free to regulate,
accordingto his own discretion and
judgment, all aspects ofemployment,
including
work
assignments,
workingmethods, time, place and the
manner or work, tools to beused,
processes to be followed, supervision of
workers andworking regulations. (SMC

Sales vs Ople, GR No. 53515,Feb. 8,

1989)

1. Four-fold test
2. Economic reality test
3. Two-tiered test (or Multi-factor test)
Four-fold test elements

The Right to Reasonable Return

ofInvestment and the Right to
Expansionand Growth
-Every business enterprise endeavours
to increase its profit and in the process
it may adopt or devise means designed
towards expansion and growth.

The determination of whether employeremployee relation exists between the parties

is very important. For one, entitlement to
labor standards benefits such as minimum
wages, hours of work, overtime pay, etc., or
to social benefits under laws such as social
security law, workmens compensation law,
etc., or to termination pay, or to unionism
and other labor relations provisions under
the Labor Code, are largely dependent on
the existence of employer-employee
relationship between the parties.
Another thing is that the existence of
employer-employee relationship between
the parties will determine whether the
controversy should fall within the exclusive
jurisdiction of labor agencies or not. If for
example the parties are not employeremployee of each other, respectively, but
perhaps partners or associates, then any
dispute between them will be not be covered
by the jurisdiction of labor agencies but by
regular courts.
Three test to determine employer-employee
relationship

There are three test commonly used to

determine the existence of employeremployee relationship, viz.:

The usual test used to determine the

existence of employer-employer relationship
is the so-called four-fold test. In applying
this test, the following elements are
generally considered:
1. Right to hire or to the selection and
engagement of the employee.
2. Payment of wages and salaries for
services.
3. Power of dismissal or the power to
impose disciplinary actions.
4. Power to control the employee with
respect to the means and methods by
which the work is to be accomplished.
This is known as the right-of-control
test.
Right of control test is considered as the most
important element in determining the existence
of employment relation.
Of the above-mentioned elements, the right of
control test is considered as the most important
element in determining the existence of
employment relation. The control test initially
found application in the case of Viaa vs. AlLagadan and Piga, where the court held that
there is an employer-employee relationship
when the person for whom the services are
performed reserves the right to control not only
the end achieved but also the manner and
means used to achieve that end.

Control test thus refers to the employers

power to control the employees conduct not
only as to the result of the work to be done
but also with respect to the means and

methods by which the work is to be

accomplished.
In applying this test, it is the existence of the
right, and not the actual exercise thereof,
that is important.
Economic reality test

In view of todays highly specialized

workforce, the court are often faced with
situations where the right-of-control-test
alone can no longer adequately determine
the existence of employer-employer
relationship. Subsequently, another test has
been devised to fill the gap, known as the
economic reality test.
In Sevilla v. Court of Appeals, the Court
observed the need to consider the existing
economic conditions prevailing between the
parties, in addition to the standard of rightof-control, to give a clearer picture in
determining the existence of an employeremployee relationship based on an analysis
of the totality of economic circumstances of
the worker.
Economic realities of the employment
relations help provide a comprehensive
analysis of the true classification of the
individual,
whether
as
employee,
independent contractor, corporate officer or
some other capacity.
Under economic reality test, the benchmark
in analyzing whether employment relation
exists between the parties is the economic
dependence of the worker on his employer.
That is, whether the worker is dependent on
the alleged employer for his continued
employment in the latters line of business.
Applying this test, if the putative employee
is economically dependent on putative

employer for his continued employment in

the latters line of business, there is
employer-employee relationship between
them. Otherwise, there is none.
Two-tiered test (or Multi-factor test)

The economic reality test is not meant to

replace the right of control test. Rather,
these two test are often use in conjunction
with each other to determine the existence of
employment relation between the parties.
This is known as the two-tiered test, or
multi-factor test. This two-tiered test
involves the following tests:
The putative employers power to control the
employee with respect to the means and
methods by which the work is to be
accomplished; and
The underlying economic realities of the
activity or relationship.