PHILIPPINE REFINING CO., INC., PETITIONER, VS. COURT OF APPEALS, SOCIAL SECURITY COMMISSION, SOCIAL SECURITY SYSTEM, BUKLOD NG MANGGAGAWA AND VICENTE GARCIA, RESPONDENTS.

Philippine Refining versus Court of Appeals

The Case

This is a petition for review brought by the Philippine Refining Company against the Court of Appeals, the Social Security Commission, the Social Security System, the labor union Buklod Ng Manggagawa, and Vicente Garcia. The company asks the Supreme Court to overturn the finding that Vicente Garcia and the twenty-two workers he engaged under pakiao arrangements are its own employees for purposes of compulsory coverage under the Social Security Act, as amended. The case matters because it is the leading statement on how the Court treats the independent contractor defense in social security coverage: there is a strong presumption in favor of coverage, and every claim that an intervening entity is an independent contractor is subjected to intense and rigorous scrutiny under the control test.

Procedural History

The labor union filed a petition for compulsory coverage with the Social Security Commission. The Commission resolved that Vicente Garcia and the twenty-two workers were employees of the Philippine Refining Company for purposes of compulsory coverage. The company elevated the matter to the Court of Appeals, which affirmed the Commission's resolution in a decision dated September 12, 1968. The company then came to the Supreme Court by petition to review that decision, assigning as errors the findings of an employer-employee relationship, the rejection of Garcia as an independent contractor, the finding of reserved general control and supervision, the finding that the work was an integral part of company operations, and the order of coverage.

Facts

The Philippine Refining Company extracts and refines oil from copra and uses the refined oil in manufacturing various products. Vicente Garcia began working for the company in 1922 as a copra carrier. In 1931 he was promoted to foreman with twenty-one or twenty-two men under him. By 1948 these men worked under pakiao arrangements, but the company paid the workers directly, and Garcia's only function as to wages was to distribute the money. The workers unloaded copra from trucks, stored it in the company warehouses in Manila, and delivered it from the warehouses to the company's Mill Day Bin.

In 1955 the pakiao arrangements were formalized in writing, and Garcia was given authority to choose and hire the men. Compensation shifted to a volume basis, at so many centavos per metric ton handled, with the money given to Garcia. The handling, storage, and distribution of copra is an essential, permanent, and indispensable process in the company's business, not an incidental or one-time operation; copra is the basic raw material in the manufacture of lard, cooking oil, soap, and other products.

When the Social Security Act was implemented on September 1, 1957, and until the union filed its petition on April 27, 1961, the company took no steps to report the twenty-two workers for coverage, believing Garcia was an independent contractor and the workers were his own employees. The company argued that it did not hire them, that Garcia paid their wages and supervised them, and that they had no service record, were not on the payroll, and were not members of the bargaining union. The Commission found that Garcia was not a bona fide contractor, that he had no investment and assumed no risk of loss, that the equipment belonged to the company, and that he served nobody but the company.

Issues

• Whether or not an employer-employee relationship exists between the Philippine Refining Company and Vicente Garcia and his workers, notwithstanding the intervention of Garcia as an alleged independent contractor.
• Whether or not Vicente Garcia may be considered a bona fide independent contractor for purposes of Social Security coverage.
• Whether or not the company reserved general control or supervision over the work of Garcia's workers.
• Whether or not the services rendered by Garcia's men constitute an integral part of the industrial operation of the company.
• Whether or not Garcia and his men should be covered under the Social Security System.

Applicable Provisions

Article II, Section 7 of the Constitution provides:

The State shall establish, maintain, and ensure adequate social services in the field of social security to guarantee the enjoyment by the people of a decent standard of living.

This constitutional mandate anchors the strong presumption in favor of greater coverage and protection under the Social Security Act.

Ruling

The Court dismissed the petition for lack of merit and affirmed the Court of Appeals. On the first and second issues, the Court held that the independent contractor technique had been a device used by some employers to avoid the financial obligations of social security and other social and labor legislation, and that this era is behind us. There is a strong presumption in favor of greater coverage, so all assertions that an intervening entity is an independent contractor are subjected to intense and rigorous scrutiny. The Court applied the control test: whether the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which it is accomplished.

On the third and fourth issues, the Court affirmed the factual findings of the Commission. Copra is the basic raw material of the business, and the company has positive and direct control over its handling immediately before it is fed into the manufacturing process. The conveyor is company-owned; its load, and the time and manner of its operation, are controlled by the company. A company employee ordered the supposed contractor where to store copra, when to bring it out, how much to load and where, and what class to handle. The company limited the number of workers Garcia could hire to assure that statutory minimum wages were paid from the lump sum. Garcia had no office of his own, no independent funds to pay his men, and could not work for any other company; he was completely dependent on the company, and he himself denied being an independent contractor. The control test was more than satisfactorily met.

On the fifth issue, because the workers are the company's employees, they fall within compulsory coverage under the Social Security Act, as amended.

Doctrine

There is a strong presumption in favor of greater social security coverage and protection, grounded in Article II, Section 7 of the Constitution. Every assertion that an intervening entity is an independent contractor is subjected to intense and rigorous scrutiny. The test is the control test: the employer must control or have reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which it is accomplished. Where the putative contractor has no investment, assumes no risk of loss, uses the company's equipment, serves no other principal, and the work is an integral part of the employer's business, the workers are the employer's employees for social security purposes.

Disposition

The petition was dismissed for lack of merit, the Court of Appeals decision was affirmed, and costs were taxed against the Philippine Refining Company.

Remember This

Memorize the line that there is a strong presumption in favor of social security coverage, so claims of independent contracting are met with intense and rigorous scrutiny under the control test. Examiners use this case to test the control test and the independent contractor defense in social security and labor coverage.