G.R. No. L-23483. February 24, 1971
SOCIAL SECURITY SYSTEM, PETITIONER, VS. HON. COURT OF APPEALS, AND SHRIRO (PHILIPPINES) INC., RESPONDENTS.
CASTRO, J.:
The respondent Shriro (Philippines),
Inc., which has contracted the services of a great number of commission sales
agents, was informed on July 21, 1961 by the examiners of the petitioner Social
Security System that these agents were regarded by the System as falling in the
category of “employees,” and, therefore, premium contributions, both
employer’s and employees’, were due on them.
Before actual assessment of premiums due could be made, however, the
respondent Shriro took up in a letter addressed to the System the matter of
coverability of these agents. The petitioner’s
reply of November 17, 1961
contained an opinion-memorandum which in sum treated Shriro’s
commission sales agents as employees, not independent contractors, within the
purview of the Social Security Act.[1]
The System’s opinion was subsequently put to test by the
respondent Shriro in a petition filed with the Social
Security Commission. After hearing duly
had, the latter, in its resolution of October
23, 1962, ruled that, except for independent dealers or merchants
with their own stores and establishments, Shriro’s
commission sales agents were employees subject to compulsory coverage under the
Act.
On appeal by Shriro, the respondent
Court of Appeals reversed the Commission’s ruling and adjudged Shriro’s sales agents free of the pervading effect of the
Social Security Act.
This case is with us on appeal by certiorari filed by the
Social Security System.
The respondent Shriro concedes the
correctness of the findings of fact made by the Commission, which are quoted in
toto by the respondent Court of Appeals, as
follows:
“The following facts are undisputed. Petitioner, a domestic corporation, is the
exclusive distributor of ‘Regal’ sewing machines. It displays and sells at retail the machines
at its store located at 410 Rosario Street,
Manila, under the business name of ‘Regal
Sewing Machine Center.’ These sewing machines are sold on cash or installment
basis directly in its store or through the help of sales agents.
“At the head of the Regal
Sewing Machine Center
is a sales manager who has under his supervision 45 employees composed of
assistants, accountants, bookkeepers, clerks, sales supervisors, demonstrators,
cashiers, credit investigators, collectors, mechanics, drivers, warehouse men,
janitors, and messengers, who are admittedly subject to compulsory
coverage. They are all members of the
Social Security System and are included in the store’s report and payrolls
submitted to the Bureau of Internal Revenue.
“In order to increase and expand its sales of sewing machines,
petitioner authorizes certain persons other than those named above to act as
sales agents whose authority is for a fixed period, under certain terms and
conditions.
“In the Authorization (Exh. ‘C’), it
is stated that the sales agent is authorized to sell the sewing machines and
other merchandise of the Regal Sewing Machine Center, although he is not
authorized to receive any payment on behalf of the Company.
“In the Contract (Exh. ‘B’), it is
stated that the agent shall undertake personally or through his own employees,
and independently of the Company, the distribution and sale of such merchandise
(par. 2). The expenses for handling and
delivery of the goods to the customers are for the account of the Regal Sewing
Machine Center, unless such handling and delivery are undertaken by or from the
agent’s own store or establishment, in which case the expenses shall be for
the account of the sales agent (par. 3, Exh. ‘B’).
“It is also provided in said Contract that the sales and
distribution of the goods shall be undertaken in such manner as the sales agent
may deem proper or convenient (par. 4, Ibid). It is, however, required that deliveries and
all installment sales must be approved by petitioner’s Credit Department and
that commissions of the sales agents are to be paid only on such approval and
consummation of the sale (par. 4, Ibid).
“Other terms of the Contract are set forth as follows:
‘(a) This is not an employment contract;
‘(b) You are free to enter into similar agreements
with other companies;
‘(c) You can handle similar or other kinds of
merchandise and goods of other companies;
‘(d) You do not have to report to the Company
regarding your working hours; you do not have to time in or out for your
working hours are your own responsibility.’ (Par. 5, Exh.
‘B’)
“Further, these sales agents are not allowed to accompany
deliveries of sewing machines sold to the customers, nor are they permitted to
stay in the showroom of the store except when accompanying prospective
customers who want to see the machines.
The sales agents do not receive cash advances nor receive any allowances
of any kind. The only amount they
receive is a commission of P26.00 or P36.00 for every sewing machine sold,
depending upon the type of machine, whether De Luxe
or Imperial type.
“These sales agents are hired after a brief interview and are
accepted without undergoing any probationary period.
“Since the establishment of petitioner’s store in October, 1958,
petitioner has hired approximately 2,000 sales agents, only 820 of whom were
able to transact sales for the petitioner.
The remaining 1,180 agents made no sales; some failed to show up after
receiving their letters of authority.
Others had been merely requested to apply by prospective customers in
order to get a rebate in the form of the commission paid to the sales agents
and never appeared for the second time.
“It is provided that the relationship between petitioner and
the sales agents are revocable by the Company at any time (par. 6, Exh. ‘B’).
“The sales agents have the same Authorization and sign the
same Contract abovementioned. But,
depending on the time that they spend in pursuance of petitioner’s business,
they are classed as follows:
“1. Regular employees of other business firms or
establishments;
“2. Traveling multi-line salesmen selling sewing
machines of competing firms;
“3. Independent merchants or dealers having their
own stores or establishments.”
The sole issue presented for resolution is whether, under the
facts recited above, the sales agents contracted by the respondent Shriro to sell its sewing machines on commission basis are
“employees” within the compulsory coverage of the Social Security
Act.
The petitioner System has fielded three arguments to advance the
affirmative side.
1. The petitioner cites the statutory definition of the terms,
“employee” and “employment,” as used in the Social Security
Act. Paragraph (d) of section 8 of the
Act defines an employee as “Any person who performs services for an
’employer’ in which either or both mental and physical efforts are used and who
receives compensation for such services, where there is an employer-employee
relationship.” Paragraph (j) of the same section, upon the other hand,
defines employment as “Any service performed by an employee for his
employer, except — x x x,”
followed by a list[2]
of the services excluded by the Act from the coverage of the System. The services of commission agents do not
appear on this exempt list.
The petitioner argues that to properly appreciate the extent of
the coverage of the System, one must construe the definitions of
“employee” and “employment” together. And since the exempt services are enumerated
with specificity in the Act, all other services not so mentioned, including
those of a commission agent, should be treated as falling within the scope of
the System. This proposition overlooks
one essential point: inasmuch as the
elusive term “employee” is used in the definition of the term
“employment,” when reading the latter, one must first assume, bearing
in mind the definition marked out in par. (d) of sec. 8, the existence of an
employer-employee relationship. Only
after this is done does the list of exemptions acquire practical
application. It follows that where there
is no employer-employee relationship to speak of in the first place, the
non-inclusion of an entity or person in the list of enumerated exempt services
has no materiality or pertinence in determining coverability.
We fully agree with the respondent Court of Appeals that when a
hired person is an “employee” under the terms of the statute on
account of the existence of an employer-employee relationship between him and
the person hiring him, a further check has to be made to determine whether he
is nonetheless outside the compulsory coverage of the SSS, for the reason that
the services he renders are among the exempt services enumerated in sec. 8(j)
of the Act.
2. The petitioner System points out that although the respondent Shriro does not exercise actual control over the means and
methods employed by their commission sales agents in the solicitation of sales
orders, these agents are nevertheless employees under the “control
test” widely adhered to in this jurisdiction.[3]
The power of the respondent Shriro to terminate its
contract with its commission agents and its reserved right to approve or reject
a sales order are, according to the petitioner, manifestations of control over
the conduct of these agents. While this
form of control, the petitioner argues, does not go directly into the details
of the methods utilized by each agent in pursuance of his work, the same is
nevertheless potentially present and can be exercised in every instance where
the respondent Shriro is not satisfied with the
performance of its commission agents.
The petitioner apparently misses or ignores the distinction
between control over the means and methods used by a person in his work, on
the one hand, and control over the result of that work, on the other. The commission agents contracted by the
respondent Shriro are admittedly at full liberty to
devise means and ways of persuading people to make out sales orders for Shriro’s products. A
signed sales order is the result of an agent’s sales efforts. When the respondent Shriro
approves or rejects this sales order, what is approved or rejected is the result
of the agent’s work, not the means and methods employed by him. And because the respondent Shriro does not supervise the details of how a sale should
be made, it cannot be said that when it terminates the contract of an agent it
is on account of discipline imposed to check the means and methods employed by
that agent in his work.
3. Because our present Social Security Act was patterned after the
Federal Social Security Act of the United States,
the cases decided under the latter regarding the existence of an
employer-employee relationship should, according to the petitioner, be of great
persuasive value to this Court. The
petitioner cites a number of cases[4]
where it is ventured that “in the application of social legislation,
employees are those who as a matter of economic reality are dependent upon the
business to which they render service.”
The preponderant facts in the case of Investment Planning
Corp. of the Phil. vs. Social Security Systems[5]
approximate those of the case before us.
There, the commission agents contracted to sell FMF shares “are not
required to report (for work) at any time; they do not have to devote their
time exclusively to or work solely for petitioner; the time and the effort they
spend in their work depend entirely upon their will and initiative; they are
not required to account for their time nor submit a record of their activities;
they shoulder their own selling expenses as well as transportation; and they
are paid their commission based on certain percentages of their sales. … The
majority of the agents are regularly employed elsewhere — either in the
government or in private enterprises.” The agreement between Investment
Planning and its commission agents includes the following features: “(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 subject to a set of rules and regulations
governing the performance of his duties under the agreement; (d) he is required
to put up a performance bond; and (e) his services may be terminated for
certain causes.” We forthwith found that the “economic reality”
test, here urged upon us, has in the United
States already been “abandoned as not
reflective of the intention of Congress in the enactment of the original Social
Security Act of 1935.”[6]
Instead, we there held that the common law rule of determining the existence
of employer-employee relationship, principally the “control test,”
applies in this jurisdiction. It is well
to repeat what we there said: “x x x where the element of control
is absent; where a person who works for another does so more or less at his
own pleasure and is not subject to definite hours or conditions of work, and in
turn is compensated according to the result of his efforts and not the amount
thereof, we should not find that the relationship of employer and employee
exists.”
We are therefore of the considered view, and we so hold, that on
the basis of the factual milieu obtaining in the case at bar, the commission
sales agents of the respondent Shriro are not subject
to compulsory coverage under Rep. Act 1161, as amended, otherwise known as the
Social Security Act.
ACCORDINGLY, the judgment of the Court of Appeals is
affirmed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor, and Makasiar, JJ., concur.
[1]
Republic Act 1161, as amended.
[2] (1)
Agricultural labor when performed by a share or leasehold tenant or
worker who is not paid any regular daily wage or base pay and who does not work
for an uninterrupted period of at least six months in a year;
(2) Domestic service in a private home;
(3) Employment purely casual and not for the
purposes of occupation or business of the employer;
(4) Service performed by an individual in the
employ of his son, daughter, or spouse, and service performed by a child under
the age of twenty-one years in the employ of his parents;
(5) Service performed on or in connection with an
alien vessel by an employee if he is employed when such vessel is outside of
the Philippines;
(6) Service performed in the employ of the
Philippine Government or an instrumentality or agency thereof;
(7) Service performed in the employ of a school,
college, or university if such service is performed by a student who is
enrolled and is regularly attending classes therein;
(8) Services
performed in the employ of a foreign government or international organization, or
their wholly-owned instrumentality: Provided,
however, That this exemption notwithstanding, any foreign government,
international organization, or their wholly-owned instrumentality employing
workers in the Philippines or employing Filipinos outside of the Philippines
may enter into an agreement with the Philippine Government for the inclusion of
such employees in the Social Security System except those already covered by
the United States civil service retirement system; Provided, further,
That the terms of such agreement shall conform with the provisions of this Act
on coverage and amount of payment of contributions and benefits: Provided, finally, That the
provisions of this Act shall be supplementary to any such agreement;
(9) Service performed as a student nurse in the
employ of a hospital or nurses’ training school, and service performed as a
medical intern in the employ of a hospital; and
(10) Such other services performed by temporary
employees which may be excluded by regulation of the Commission. Employees of bona fide
independent contractors shall not be deemed employees of the employer engaging
the services of said contractors.
[3]
Philippine Manufacturing Company vs. Geronimo and Garcia, 96 Phil. 276; Mansal vs. P. P. Gocheco
Lumber Co., 96 Phil. 941; Viaña vs. Al-Lagadan and Piga, 99 Phil. 408; Vda. de Cruz, et al. vs. The Manila Hotel Co., 101
Phil. 358; LVN Pictures, Inc. vs. Phil. Musicians Guild, et al.,
L-12582, January 28, 1961, 1 SCRA 132.
[4] United
States vs. Silk, 91 L. Ed. 1757;
Bartels vs. Birmingham, Ibid,
1947; Tapager vs. Birmingham,
75 F. Supp. 375.
[5] L-19124,
November 18, 1967, 21 SCRA
924 (per Makalintal, J.).
[6]
Benson vs. Social Security Board, 172 F. 2d. 682, cited in Investment
Planning Corp. of the Phil. vs. Social Security System, supra.