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EMPLOYER-EMPLOYEE RELATIONSHIP TEST

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By: Gerardo Maximo V. Francisco on October 3,2019

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.

Employer-employee relationship test

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