AGAPITA PAJARILLO, ET AL., PETITIONERS AND APPELLANTS, VS. SOCIAL SECURITY SYSTEM, RESPONDENT AND APPELLEE.

Pajarillo versus Social Security System

The Case

This is a petition by a group of fishing-boat owners against the Social Security System, asking to be spared from compulsory coverage under the Social Security law. The boat owners had been required to register as employers, and they filed a joint petition with the Social Security Commission claiming that no employer-employee relationship exists between them and the pilots and crew-members of their fishing vessels. The case matters because it draws the outer boundary of the employer-employee relationship for social security purposes, and because it teaches how the control test and the definition of employment operate in a share-of-the-catch undertaking.

Procedural History

The boat owners filed a joint petition with the Social Security Commission, praying that they be exempted from the compulsory coverage of the law. After hearing, the Commission denied the petition. It held that while the services of the crew-members are engaged by the pilots, the pilots are mere employees or agents of the boat owners, so that a boat owner can abolish the employment of the crew by withdrawing from the pilot the authority to take charge of the vessel. The Commission directed the boat owners to report their coverage and that of their respective pilots and crew-members, and to pay the prescribed premiums under Sections 18, 19, and 20 of Republic Act 1161, as amended. The boat owners then appealed to the Supreme Court.

Facts

The appellants own fishing boats used for fishing at sea. As property owners, they enter into agreements with the so-called patrons or pilots, whereby the pilots take charge of the fishing vessels, equipment, and gear. Once entrusted with the equipment, the pilot hires the crew to man the boat and secures their provisions, usually financed from loans obtained as advances from fish dealers and payable in kind when the boat returns with its catch.

The fishing trips are not regular. The fishermen go out to sea only when there is no moon or it is not yet very bright, so that even in months of fine weather a boat can make at most eighteen fishing days a month. The men have no regular income. If the trip yields a catch, the proceeds are divided into three parts: one part goes to the owner of the boat and equipment, one part is set aside for expenses like crude oil and maintenance, and the other one-third is divided among the men, with the pilot getting three times the share of a crew-member and the machinist twice the share of a crew-member.

The men, usually twelve for every vessel including the pilot, are under no obligation to stay in one outfit. Sometimes they join for one night only, sometimes two or three days, then leave and join other outfits. Even the pilot is not bound to retain his charge for any definite duration and can return the boat to its owner anytime. The boat owners, required to register as employers, filed their joint petition for exemption, which the Commission denied.

Issues

• Whether or not there exists an employer-employee relationship between the boat owners and the crew-members of their respective fishing boats within the meaning of Republic Act 1161, as amended.
• Whether or not, even assuming that the pilots and crew-members may be treated as employees of the boat owners, they may be subjected to compulsory coverage under the Social Security Act.

Applicable Provisions

Section 8(c) of Republic Act 1161 defines an employer:

"Employer" means any person, natural or juridical, domestic or foreign, who carries on in the Philippines any trade, business, industry, undertaking, or activity of any kind and uses the services of another person who is under his orders as regards the employment.

The phrase "under his orders as regards the employment" is the statutory anchor of the control test that the Court applies.

Section 8(d) of the same law, as amended by Republic Act 2658, defines an employee:

"Employee" means 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.

The element of compensation for services rendered is the second test the Court uses.

Section 8(j) of the same law, as amended, defines employment and excludes agricultural labor of share or leasehold tenants:

"Employment" means any service performed by an employee for his employer except 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.

The Court uses this exclusion by analogy to hold that the fishermen's services are likewise outside compulsory coverage.

Ruling

On the first issue, the Court held that no employer-employee relationship exists. The pilots are not under the orders of the boat owners as regards their employment. They go out to sea not upon the direction of the boat owners but upon their own volition as to when, how long, and where to go fishing. Much less do the boat owners control the crew-members, with whom they have no relation whatsoever; the crew simply join every trip for which the pilots allow them, without any reference to the vessel owners. Neither the pilots nor the crew-members receive compensation from the boat owners. They only share in their own catch produced by their own efforts, and the boat owners have nothing to do with the distribution of the rest of the catch. The men perform no service for the boat owners but mainly for their own benefit. The boat owners are not responsible for the wage, salary, or fee of the pilot and crew; their sole participation is furnishing the equipment, after which they wait for the boat's return and receive their share, if any. The undertaking is therefore in the nature of a joint venture, with the boat owner supplying the boat and equipment and the pilot and crew contributing labor, the parties getting specific shares for their respective contributions.

On the second issue, the Court held that even assuming the pilots and crew-members may be treated as employees, they cannot be made subject to compulsory coverage. The men are under no obligation to remain in the outfit for any definite period; one can be a crew-member of one outfit for a day and of another vessel the next. A fishing boat has no regular schedule of trips; it all depends on the weather and natural conditions and on the volition of the pilots and crew themselves. Even a completed trip is no assurance of income. The Court held that the services rendered by the fishermen are no different from the agricultural labor of a share or leasehold tenant or worker, which is specifically excluded from the definition of employment and exempted from coverage. Add to this the extreme difficulty, if not impossibility, of determining the monthly wage or earnings of these fishermen for the purpose of fixing contributions, and there is every reason to exempt the parties from compulsory registration.

Doctrine

An employer-employee relationship under the Social Security law requires that the worker be under the orders of the employer as regards the employment, and that he receive compensation for services rendered. Where the boat owner merely furnishes the vessel and equipment and the pilot and crew contribute labor in exchange for specific shares of the catch, the undertaking is a joint venture, not an employment. Even assuming employment, workers whose engagement is casual, intermittent, and without regular wage or schedule, akin to the labor of a share or leasehold tenant, fall outside compulsory coverage, especially where their monthly earnings cannot be determined for fixing contributions.

Disposition

The Supreme Court set aside the resolution of the Social Security Commission and declared the petitioners exempted from the compulsory coverage of the Social Security law, with no costs.

Remember This

Memorize the line that the undertaking is a joint venture, with the owner supplying boat and equipment and the men contributing labor in exchange for specific shares of the catch. Examiners use this case to test the control test and the concept of compensation in social security coverage, and to compare fishermen's shares with the excluded labor of share or leasehold tenants.