AVENTUS CLINIC, MARIO SILOS AND/OR GERARDO J. JIAO, PETITIONERS, VS. NATIONAL LABOR RELATIONS COMMISSION (THIRD DIVISION) AND MARIE RUTCHELLE S. DARVIN, RESPONDENTS.

Aventus Clinic versus National Labor Relations Commission

The Case

This is a labor case about a doctor and a clinic. Aventus Medical Care engaged the services of Dr. Marie Rutchelle Darvin as a medical consultant, asked her to sign a Medical Consultancy Agreement declaring her an independent contractor, and later sent her a notice terminating that agreement. Darvin refused to sign the agreement, insisted she was a regular employee, and filed a complaint for illegal dismissal with claims for damages and attorney's fees. The case matters because it shows that the label the parties place on their contract does not decide the relationship; the four-fold test and the economic reality test do. It is a standard examination vehicle for the employee-versus-independent-contractor question, especially for professionals such as physicians.

Procedural History

Darvin filed her complaint for illegal dismissal before the Labor Arbiter. The Labor Arbiter ruled that she was a regular employee of Aventus, that her dismissal was illegal, and ordered the payment of backwages, separation pay, and attorney's fees. Aventus appealed to the National Labor Relations Commission. The Commission affirmed the finding of an employer-employee relationship but modified the monetary award, reducing the separation pay because Darvin had served only two years and not four. Aventus filed a motion for partial reconsideration, which the Commission denied. Aventus then came to the Supreme Court through a petition for certiorari, alleging grave abuse of discretion amounting to lack or excess of jurisdiction.

Facts

Aventus Medical Care is a domestic corporation engaged in operating and managing medical clinics and laboratories. Mario Silos was its President and Gerardo Jiao its Medical Director. Aventus engaged Darvin as one of its medical consultants for its Manila clinic. When she began her services, Aventus asked her to sign a Medical Consultancy Agreement, but she refused. The agreement provided that the company would compensate the consultant at a rate of 200 pesos per hour, that her duties could be reasonably modified at the company's discretion, and that the company could terminate the agreement without cause upon thirty days written notice. It also declared that the agreement would not render the consultant an employee and that she would remain an independent contractor. The agreement carried guidelines on working hours, time keeping, schedule adherence, tardiness, leaves and absences, workplace attire, and decorum.

On 5 September 2011, Jiao sent Darvin an electronic mail asking for her diagnosis and the procedure she performed on a six-year-old patient, Raphael Kaizer Ang. Darvin replied that she had diagnosed bilateral impacted cerumen and had referred the patient for ear cleaning. On 7 September 2011, Jiao sent her a Notice of Termination of the Consultancy Agreement, citing her performance of ear cleaning procedures contrary to clinic policy and her referral of patients to her spouse, an ear, nose and throat specialist holding clinic elsewhere, effective thirty days from receipt.

Darvin then filed her complaint for illegal dismissal. She argued that despite the unsigned consultancy agreement, all the elements of an employment relationship were present: Aventus paid her wages, selected and engaged her, controlled her work, required her presence during specific hours, and terminated her services. Aventus countered that the Labor Arbiter had no jurisdiction because Darvin was an independent contractor under the consultancy agreement, and that in any event she had pre-terminated the agreement by submitting a letter of resignation.

Issues

• Whether or not an employer-employee relationship existed between Darvin and Aventus.
• Whether or not Darvin was illegally terminated from employment, entitling her to her monetary claims.
• Whether or not Silos and Jiao are personally liable to Darvin.

Applicable Provisions

The decision applies the four-fold test and the control test, and quotes the terms of the Medical Consultancy Agreement itself. The agreement's clause on services provides:

The Company engages the Consultant in the capacity of Physician to perform the services enumerated under ANNEX A hereof in compliance with existing laws, rules and regulations as contained but not limited to those enumerated under ANNEX B hereof. Provided that the Consultant's duties may be reasonably modified at the Company's discretion from time to time at the schedule set forth in ANNEX C hereto attached.

This clause supplied the first and fourth indicators, since Aventus engaged Darvin and reserved the right to modify her duties.

The agreement's clause on compensation provides:

The Company shall compensate the Consultant at a rate of 200 per hour, for the services of the Consultant.

This clause supplied the second indicator, payment of wages, because the rate was fixed per hour regardless of the number of patients examined.

The agreement's clause on termination provides:

Without cause, the Company may terminate this agreement at any time upon thirty days written notice to the Consultant. If the Company requests, the Consultant will continue to perform his or her duties and may be paid his or her rate up to the date of termination.

This clause supplied the third indicator, the power of dismissal, because the power to terminate was vested solely in Aventus.

The decision also quotes its own definition of wages:

Wages are defined as a remuneration or earnings, however designated, capable of being expressed in terms of money, whether fixed or ascertained on a time, task, piece or commission basis, or other method of calculating the same, which is payable by an employer to an employee under a written or unwritten contract of employment for work done or to be done or for a service rendered or to be rendered.

This definition defeated the argument that Darvin received professional fees and not wages.

Ruling

On the first issue, the Court held that an employer-employee relationship existed. It applied the four-fold test: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the power to control the employee's conduct, which is the control test. It also applied the two-tiered test, which weighs the power to control the means and methods of the work together with the economic realities of the relationship. On selection and engagement, Aventus hired Darvin as a physician to attend to its patients in its clinic. On wages, Aventus paid her 200 pesos per hour regardless of how many patients she examined, and no evidence showed that these were professional fees. On the power of dismissal, the agreement allowed Aventus to terminate even without cause, and nothing allowed Darvin to terminate at her own instance. On control, the Court found that Aventus provided the clinic and the patients, reserved the right to modify her duties, required her to follow prescribed working hours and decorum, required patient data sheets, and actually monitored her work through Jiao's electronic mail and the notice of termination. The Court distinguished the Coca Cola case, where a retainer agreement allowed either party to terminate and the physician charged professional fees, from this case, where the power to terminate belonged solely to the clinic.

On the second issue, the Court sustained the finding that Darvin was illegally dismissed. The acts imputed to her, the performance of otoscopy procedures and the referral of patients to her spouse, were not prohibited by the Medical Consultancy Agreement, and so could not serve as just cause for termination.

On the third issue, the Court held that Silos and Jiao could not be held personally liable, since they acted in their official capacities as officers of the corporation and no circumstance justified piercing the corporate veil.

Doctrine

An employment relationship is determined by the four-fold test: the selection and engagement of the employee, the payment of wages, the power of dismissal, and the power to control the employee's conduct. The control test asks whether the employer reserves the right to control not only the end to be achieved but also the means to be used in reaching it. Where the control test alone does not give a complete picture, the economic reality test is applied, weighing whether the services are an integral part of the employer's business, the worker's investment in equipment and facilities, the nature and degree of control, the opportunity for profit and loss, the initiative and skill required, the permanency of the relationship, and the worker's dependence on the employer. A contract that expressly repudiates an employment relationship cannot negate it when its terms show otherwise. The power to terminate is absent only if the relationship can be terminated at will, with or without cause, by both parties.

Disposition

The petition was denied and the findings of the Labor Arbiter and the National Labor Relations Commission were affirmed, with the modification that Silos and Jiao were absolved of personal liability, so that Darvin won her case against the corporation.

Remember This

The single line to memorize is that the label of independent contractor in a consultancy agreement cannot prevail over the four-fold test and the economic reality test when the terms of the agreement show control, wages, and the power to dismiss. Examiners use this case to test the employee-versus-independent-contractor distinction for professionals, and the rule that corporate officers acting in their official capacity are not personally liable absent a showing that justifies piercing the corporate veil.