SOCIAL SECURITY SYSTEM, PETITIONER, VS. THE HON. COURT OF APPEALS AND CENTRAL AZUCARERA DE BAIS, RESPONDENTS.

The novel question that this case presents is whether or not respondent
Central Azucarera de Bais,
hereinafter referred to as the Central, is exempt from the coverage of the
Social Security Act by virtue of a contract, where the longshoremen performing
for it arrastre or stevedoring work were stipulated
to be in the employ of the other contracting party, the Luka
Longshoremen’s Union, to be hereinafter referred to as
the Union, to be considered them as an independent
contractor.  Alert and sensitive to the
various techniques that at times could lend themselves to the avoidance of the
applicability of a law imposing financial obli­gation on management and thus
determined to resist any inroad on the benefits conferred by social welfare
legislation, petitioner Social Security System decided that the Central, not
the Union, was the employer and therefore came within the operation of the
Social Security Act.

The Central, insistent on the absence of an employer-employee
relationship, elevated the matter to respondent Court of Appeals.  Its contention carried the day, respondent
Court of Appeals, with an inadequate appreciation of what for it were the
decisive facts and a failure to take into consideration other clearly relevant
provisions of the contract relied upon by the Central, reversed the conclusion
reached by petitioner Social Security System. 
Such a reversal was in no small measure attributable to a Court of
Industrial Relations decision,^[1] hold­ing that the Union, likewise a
respondent in that case, was an independent contractor and that, therefore,
there was no employer-employee relationship between the Central and the members
of such Union.  When such CIR ruling was
challenged before us, we dismissed the petition for lack of merit,^[2] a
dismissal which, for respondent Court of Appeals, “is conclusive and
binding upon similar questions presented for determination in this case.”^[3]

The attitude of the Court of Appeals in abiding by a control­ling
pronouncement of this Tribunal is both correct and com­mendable.  Nonetheless, it did lose sight of the fact
that the lack of merit of such petition elevated to us to review that
particular holding of the Court of Industrial Relations was rather evident, the
case being one for unfair labor practice, as found by it with support from the
substantial evidence of record.  That is
all the legal significance that could be attached to our minute resolution of July 6, 1964.

Hence, in this petition for review, the question of whether or
not the Central is exempt from the coverage of the Social Security Act, an
affirmative answer to which would be due solely to a determination as to the
alleged status of the Union as an independent contractor, is, as set forth at
the outset, squarely before us for the
first time.  As will be more fully
explained, we answer the question differently from that of respondent Court of
Appeals.  We sustain petitioner Social
Security System.

 How the case originated is
set forth thus in the decision of respondent Court of Appeals now under
review:  “On August 31, 1960, the
Social Security System filed with the Social Security Commission a petition
against respondent, Central Azucarera de Bais, to order the latter to report for coverage under the
System the members of an organized union called ‘Luka
Longshoremen’s Union’, who loaded respondent’s sugar into vessels which docked
at the Luka wharf, on the ground that said members
were its employees.”^[4]

It went on to state that a contract entered into on August 20, 1958 between the Central
and the Union was attached to the petition.  Reference was then made to Article I thereof,
where the Union designated as contractor in such contract agreed and undertook
“to perform faithfully for the [Central] all the arrastre
and stevedoring work connected with the loading of sugar (both export and
domestic) into vessels docking at the Luka
wharf.”^[5]
It was then provided that the Union was to be renumerated at the rate of eight and one-fourth centavo
(P0.0825) per picul of sugar.^[6]

Another provision of the contract, Article VII, was then
considered.  It was therein provided that
the Union, as contractor, undertook “to employ for its own account”
such longshoremen as it may deem necessary to carry out the work agreed upon,
and to pay the latter in accordance with the Minimum  Wage Law and such other applicable
statutes.  The Union had the obligation
under the same Article to submit to the Central within five days after such
payment was made, a statement to the effect that the longshoremen had received
the wages due for all services rendered by them for which the Central had
compensated the Union, and that the requirements of the Minimum Wage Law and
other applicable labor statutes were complied with.^[7]
There was the express disclaimer in the next Article of such contract of any
“employer-employee” relationship between the Union
and the Longshoremen on the one hand, and the Central on the other.  The Union, as
contractor, was to have “entire charge, control and supervision of the
work” agreed upon.

With the above provisions in mind, and with the character of
conclusiveness and finality it attached to our resolution of July 6, 1964,
dismissing for lack of merit a petition for review of the ruling of the Court
of Industrial Relations previously mentioned, respondent Court of Appeals
arrived at the decision now on review. 
It reversed the resolution of petitioner Social Security System that the
Union was not “a bona fide
independent contractor”, the employer-employee relationship between the
Central and the longshoremen being in existence both before and subsequent to
such contract of August 20, 1958,
thus subjecting the Central to compulsory coverage under the law.

In this petition to review such decision of respondent Court of
Appeals, the Solicitor General as counsel for petitioner assigned as errors the
holding that our resolution of July 6, 1964 was conclusive on respondent Court,
the conclusion reached that under the contract entered into by the Union on
behalf of its members, it is a bona fide independent contractor,
resulting in the Central being exempt from the coverage of the Act and,
consequently, the decision reached by respondent Court of Appeals.  We find merit in the above assignment of
errors.

1.  It would appear obvious
that if our minute resolution of July 6, 1964, in a petition for the review of
a decision of the Court of Industrial Relations involving both the Central and
the Union, as respondents in an action filed by another labor union, PLUM
Federation of Industrial and Agrarian Workers, were conclusive as to the status
of the Union as an independent contractor, then respondent Court of Appeals
decided the matter correctly.  As pointed
out above, however, no such conclusiveness should attach to our minute
resolution.  In that petition for review,
one of the grievances allegedly inflicted on petitioner PLUM Federation of
Industrial and Agrarian Workers was that only the Union
and not the Central was held guilty of unfair labor practice.  Petitioner there would insist that the true
employer was the Central rather than such Union,
contrary to the finding made by the Court of Industrial Relations.  From a perusal of its petition, however,
there was nothing to rebut the conclusion reached by the Court of Industrial
Relations as to which was the true employer outside of general assertions found
in one paragraph.  Under the
circumstances, it was clearly lacking in the element of persuasiveness.  That would account for our minute resolution
dismissing the petition.

It does not follow, however, that with such a curt and summary pronouncement valid
and justifiable under the circumstances, petitioner PLUM Federation of
Industrial and Agrarian Workers, having dismally failed to assail the
conclusion reached by the Court of Industrial Relations, even if on its face
such a holding could have been impressed at the most with deceptive
plausibility, we are forever precluded from considering such a question, when
the matter is appropriately presented to us. 
Such is the situation now.  We
have to consider the force and effect of such a contract and to construe it in
such a way as not to offend or emasculate any law, especially legislation
favorable to labor, the evasion of which cannot be tolerated.  While, therefore, respondent Court of Appeals
did exhibit proper deference and respect for what this Tribunal says and does,
the conclusion reached as to the finality of the resolution of July 6, 1964 is clearly erroneous.

2.  We reach the merits then.  Is the Union an
independent contractor?  Respondent Court
of Appeals held that it is.  We hold
otherwise.

From the very opinion of respondent Court of Appeals, where reference
was made to Articles VII and VIII of the contract of August 20, 1958, relied
upon by the respondent Central to justify its plea that it is not an employer
within the meaning of the Social Security Act, it would appear from the first
of the above articles that the Union, as contractor, is confined to employing only such number of longshoremen as
would suffice to perform the work required, “taking into consideration the
amount to be paid by the [Central] to the [Union as contractor] for the work
performed under this contract.”^[8]
The next provision ought to have increased the skepticism that may legitimately
be entertained as to the Union being a bona fide
independent contractor.  Thus:  “Although
it is understood and agreed between the parties hereto that the [Union as
contractor] in the performance of its obligations hereunder, is subject to the
control or direction of the [Central] merely as to the result to be
accomplished by the work herein specified, and not as to the means and methods
for accomplishing such results, the [Union as contractor] hereby warrants that
it will perform the work in such manner as will be consistent with the
achievement of the result herein contracted for.”^[9]
It is rather neat and clever.  The expert
hand of a skillful conveyancer is apparent.  Thereby, the respondent Central could plead
without doing too great a violence to the literal language of the contract that
since the means and methods for accomplishing the results would be left to the
discretion of the Union, there would be some
justification for its plea that it is not an employer.

The last portion of the Article, however, gives the scheme
away.  The Union had to warrant
“that it will perform the work in such manner as will be consistent with
the achievement of the result herein contracted for.” Under the
circumstances, a greater degree of sophistication ought to have been displayed
by respondent Court of Appeals in the appraisal of such a stipulation.  It could have arrived at a conclusion
different from that reached with such certitude that the Union
is an independent contractor.

The well-written brief for petitioner Social Security System
stressed other relevant considerations which ought to have persuaded respondent
Court of Appeals that the Union cannot be considered an
independent contractor.  Thus, it noted
that the Union was registered as a legitimate labor
organization with the right to act as representative of its members for the
purpose of collective bargaining with employers.  It was not engaged in any activity for
profit.  Nor was any such evidence
produced to that effect.  It constituted
the juridical association composed of workers previously performing stevedoring
and arrastre work at the Luka
wharf of respondent Central.^[10]
As to why it entered into a contract, reference was made to a clause appear­ing
therein as to the workers preferring to be paid on a piece-work instead of the
former “actual-time-and-work” basis. 
As noted in the brief: 
“Their status as former employees of the respondent Central prior to
August 20, 1958, a fact which is
undisputed and we assume should be conceded, was not changed.  It is only in the light of this desire to be compensated on piece-work basis,
or to change the manner of compensation, that they are denominated in the
contract [as employees of the Union] because, from
regular employees, they have become ‘pakiao‘
workers.”^[11]

Attention was likewise invited in the brief of petitioner Social
Security System to the significant fact that the work given the longshoremen,
for which they were to be paid on piece-work basis, had reference only to the
“arrastre and stevedoring work connected with
the loading of sugar (both export and domestic) into vessels docking at the
Luke wharf * * *.”^[12] It is to be remembered that such was not the
only arrastre and stevedoring work required of such
longshoremen, members of the Union, it being provided in Article I of such
contract that “arrastre and stevedoring work on
all cargo or merchandise other than sugar is not within [its] [scope] * * * and
that in respect thereto, the work shall as heretofore been undertaken by the
[Central] and that [it] will continue to utilize the same men [members of the
Union] at the same rates and under the same conditions existing prior” to
such contract.

What other conclusion consistent with reason can there be than
that the employer-employee relationship cannot be considered as non-existent?^[13] As pertinently
asked in such brief:  “If the nature of their work never
changed, why should their status be altered through the expedient of a contract
so called?”^[14]

The point was also therein made “that prior to the signing
of the agreement, the longshoremen or workers doing the arrastre
and stevedoring work at the respondent Central’s Luka
wharf were its employees and, therefore, they continue to be such employees
even after the signing of the contract on August 20, 1958, with reference to
the arrastre and stevedoring work ‘on all cargo or
merchandise other than sugar’. 
Consequently, the respondent Court of Appeals’ dismissal of the Petition
does not even find support in the very contract relied upon by said Court since
the said petition did not limit its allegations to the loading of respondent
Central’s sugar by the longshoremen, but also ‘other cargoes on the vessels
which dock at the Luke wharf’ of the
respondent Central, which the respondent Central admittedly undertakes by
itself.”^[15]

The doubt that
thus legitimately arises as to whether the Union should
be considered an independent contractor is intensified by reference to another
article.

Thus:  “Article IV
gives to the longshoremen free breakfast, lunch, supper, bread and coffee, in
addition to medical or hospitalization benefits free of charge.  It occurs to us that if the respondent
Central were really dealing with a bona fide independent
contractor, it is strange that the respondent Central should give the workers free breakfast,
lunch, supper, and bread and coffee, and likewise extend the hospital and
medical facilities belonging to respondent Central.  A similar situation cannot be found to exist,
as indeed we are not aware of any.  The
evidence does not disclose any explanation for the inclusion of these
privileges and benefits in favor of the longshoremen and we, therefore, hazard
the guess that since from the three [whereas] clauses of the contract, it
appears that all that the Union wanted was to change the manner of their
compensation to that of ‘piece-­work basis,’ there was no intention to give up
all other benefits and privileges being enjoyed by them before, and which they
continue to enjoy even after the contract was signed under the same status as employees of the respondent
Central.  This becomes even more clear if we consider Section 2 of Article IV where
bonuses, night pay, overtime, Sunday and holiday pay, have been withdrawn.  The withdrawal of these items, in the light
of the manifest intention to change the manner of their compensation to that of
‘piece-work basis,’ is quite natural be­cause a worker who is compensated on
piece-work basis cannot claim bonuses, night pay, overtime, Sunday and holiday
pay, as these forms of extra or additional compensation are inconsistent with
the manner by which they have elected to be compensated.”^[16]

Earlier, reference was made to Article VIII of the contract cited
in the opinion of the decision of respondent Court of Appeals, the last
paragraph of which obliges the contractor to “perform the work in such
manner” as will be consistent with the achievement of the result herein contracted. 
Such a clause was rightfully looked upon by petitioner Social Security
System as demonstrating the control and supervision of respondent Central not
only as to the result, but also as to the means by which the work is to be per­formed.  We had occasion earlier to find such
assumption far from arbitrary or groundless.

What is the law on the matter? 
In the leading case of Investment Planning v. Social Security System,^[17]
the opinion being penned by Justice Makalintal, after
noting that prior to such decision, the specific question of when there is an
employer-employee relationship for purposes of the Social Security Act having
as yet not been settled and a review of analogous holdings as to the
applicability of the Workmen’s Compensation Act defeating the attempts of some
employees to free themselves from such obligation by resorting to the device of an independent contractor, arrived
at the conclusion that the control test should prove decisive.  Where the employer therefore “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 it
could be per­formed, then the relationship should be considered as existing. 
The facts of this case as could be gleaned from the contract, if
subjected to an analysis much more careful than that made by respondent Court
of Appeals, misled no doubt by its mistaken belief that our minute resolution
in denying the PLUM Federation petition, was conclusive argue against the
finding that the Central should not be considered an employer.  The status of independent contractor ought
not to have been attached to the Union; instead the existence of the
employer-employee relationship between the Central and the Longshoremen members
of the Union, as found by petitioner Social Security System, ought to have been
affirmed.

3.  To recapitulate:  It would
not seem at all far-fetched that freed from the compulsion of according
deference to what respondent Court of Appeals mistakenly believed was the
binding effect of our resolution in the PLUM petition, it would have arrived at
a similar conclusion reached by us.  For
undoubtedly respondent Court would have subjected the contract relied upon by
the Central to show that the Union was an independent contractor to a more
intense and rigorous scrutiny.  Such a
process would yield a finding not of acceptance but of rejection of the contention that such a contract
sufficed to place the Central outside the coverage of the Social Security Act.

Only thus could there be fealty to the purpose and objective of
the act.  If it were otherwise, what is
manifested is betrayal instead.  That is
not to comply with judicial duty, which in the construction of statutes is to foster the legislative intent, not to
frustrate it.  When as
in the case of the Social Security Act, it is indisputable that the
employer-employee relationship is, as is desirable, made to reflect the
realities of the situation, any construction that would yield the opposite
finds no justification.

That such should be the case becomes more evident, considering
that the statute was undoubtedly enacted to promote social justice and protect
labor.  Whenever a question as to its applicability comes up them, the utmost
care should be taken lest by inattention or insufficient awareness of the ways
and methods of big business, undoubtedly prompted by what to it is legitimate
defense against any governmental measure likely to curtail profits, the gains
expected to be conferred on labor be diminished, if not entirely nullified.

WHEREFORE, the Decision of respondent Court of Appeals
dated September 22, 1965 is
reversed and the Resolution No. 944 of petitioner Social Security System,
Series of 1963, rendered on May 20, 1963, finding that the members of the Luka Longshoremen’s Union are employees of respondent
Central Azucarera de Bais,
sustained.  With costs
against respondent Central Azucarera de Bais.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Capistrano, and Teehankee, JJ., concur.

Barredo, J., did not take part.

^[1] PLUM Federation of Industrial and Agrarian Workers v. Central Azucarera de Bais, CIR Case No. 2887-ULP.

^[2] PLUM Federation of Industrial and Agrarian Workers v.
Central Azucarera de Bais,
L-22741, July
6, 1964.

^[3] Decision of the Court of Appeals, Social Security System v.
Central Azucarera de Bais,
CA-G.R. No. 32895-R, p. 7.

^[4]
Decision of September 22, 1965, p. 1.

^[5] Ibid, p. 2.

^[6]Ibid.

^[7] Ibid, pp. 2 and 3.

^[8] Ibid, Article VII, p. 2.

^[9] Ibid, Article VIII, pp. 3 to 4.

^[10] Brief for Petitioner Social
Security System, pp. 23 to 24.

^[11] Ibid, p. 25.

^[12] Ibid, citing Article I of
the Contract, p. 25.

^[13] Ibid, pp. 25 to 26.

^[14] Ibid, p. 26.

^[15] Ibid, p. 28.

^[16] Ibid, pp. 28 to 29.

^[17] L-19124, November 18, 1967.