SOCIAL SECURITY SYSTEM, PETITIONER, VS. THE COURT OF APPEALS AND THE PHILIPPINE GUARDS PROTECTION UNIT, RESPONDENTS.

This is an appeal by the Social Security System from the judgment
of the Court of Appeals declaring null and void the membership of private
respondent Philippine Guards Protection Unit in the Social Security System from
August 1, 1958 to June 17, 1960,
pursuant to Rep­ublic Act No. 1161 (The Social Security Act of 1954), as amended by Republic Act No. 1792, and
accordingly excluding it from
compulsory coverage during that period; declaring the said private respondent a member of the Social Security System
only as of June 18, 1960, pursuant to Republic Act No. 2658, which further
amended the said Section 9; and ordering the Social Security System to refund to the said respondent the contributions
remitted by the latter to the System corresponding to the first period
mentioned.

The following proceedings
gave rise to the present appeal:

On February 18, 1960, as
a result of a letter sent by the Social Security System to the
Philippine Guards Protection Unit threatening it with court action if it did not continue to remit its contributions to the System, the said
protection unit, owned and operated by Clemente V. Eslao, filed with the Social Security Commission a petition
for exclusion from coverage under the System and for a refund of its
remittances for September and October 1958. 
The reason given by the unit is that it is not subject to compulsory
coverage under the Social Security Act of 1954, as amended by Republic Act No.
1792, because it is not the employer, but merely the agent, of the thirty-nine
security guards or watchmen whose names appear in its membership list, for,
actually, it has only one employee, namely, the clerk-secretary of the
office.  Under Section 9 of the Social
Security Act of 1954, as amended by Republic Act No. 1792, which took effect on
June 21, 1957, “the Commission may not compel any employer to become a
member of the System unless he shall have been in operation for at least two
years and has, at the time of admission, if admitted for membership during the
first year of the System’s operation, at least fifty employees and if admitted
for membership, in the following year of operation and thereafter, at least six employees x x x.” After the issues had been joined and the case
heard, the Social Security Commission, on April 12, 1961, handed down a resolution finding the
Philippine Guards Protection Unit the employer of the security guards or
watchmen, and accordingly declaring the latter subject to compulsory
coverage.  A motion to reconsider was
filed, but the same was denied in an order of May 8, 1961.  Hence,
an appeal was interposed by the Philippine Guards Protection Unit with the
Court of Appeals, which reversed the resolution and order of the Commission in
a decision promulgated on July 24, 1967, the dispositive
portion whereof is summarized in the open­ing sentence of this Opinion.

We have noticed that although under the judgment of the Court of
Appeals private respondent’s membership in the System as of June 18, 1960, has
been expressly declared and recognized pursuant to Section 9 of the Social
Security Act of 1954, as amended by Republic Act No. 2658, which eliminated,
among others, the requirement under Republic Act No. 1792 that the employer
should have at least six employees for purposes of compulsory coverage, it is
not clear from the appealed decision if it is also the sense and intent of that court that the
security guards or watchmen in the roster of private respondent should, under
Republic Act No. 2658, likewise not be considered employees of the said
respondent.  As it now stands, the
decision under review can be interpret­ed to mean that private respondent
became a member of the System as of June 18, 1960, when Republic Act No. 2658
took effect, because it had at
least one employee, but that the security guards or watchmen in its roster
should not – as under Republic Act No. 1792 – be considered private
respondent’s employees.  To dispel any
doubt and obviate further suits on the matter, we hereby make it clear that the
issue for resolution is whether or not for
purposes of social security coverage, the security guards or watchmen in
question should be considered private respondent’s employees not only under
Republic Act No. 1792, but also under Republic Act No. 2658.

The pertinent facts concerning the mechanics of tripartite
relationship among the Philippine Guards Protection Unit, its clients and the
security guards or watchmen, which were substantially adopted by the Court of
Appeals, are succinctly stated in the basic resolution of the Social Security
Commission, to wit:

“x x x [W]henever a person approaches the owner of the agency for
employment, the owner tells him to secure a license as a special watchman and
in the meantime, the owner would look for persons or establishments that need
the service of a guard or guards.  If no
such persons or establishments are found after the applicant has secured a
license, he remains with the agency as an ‘extra guard’ and he is utilized by
the agency as a substitute for those guards going on vacation or for those who
are sick or otherwise absent (t.s.n., April 4, 1960,
pp. 11-12).  The owner may refuse to
accommodate an applicant if he so desires (t.s.n., April 28, 1960, pp. 6-7).  When a person or establishment requiring the
services of a guard is found by the owner, a contract is entered into between
the owner of the agency and the client, either orally or in writing (t.s.n., April 4, 1960,
p. 17).  The owner collects from the
client the fee for the service and from the amount received,
the owner pays the salary of the guard, retaining a part thereof for himself as
his ‘commission’ (t.s.n., April 4, 1960, p. 18).  The owner continues to receive this
‘commission’ as long as the watchman is assigned to guard the premises of a
client (t.s.n., April 4, 1960, p. 18).

“The owner of the agency furnishes the firearms and ammunitions,
but the watchmen buy their own uniforms
(t.s.n., April 4, 1960, pp. 20, 21).

“If a client is dissatisfied with the service of a guard, as when a guard is always late, the agency
may change the guard if the client so requests, or it may impose a fine on the
guard as a disciplinary measure (t.s.n., April 4, 1960, pp. 17-18).

The reasons of the Court of
Appeals for concluding that there is no
employer-employee relationship between private respondent and the security
guards and watchmen may be summarized as follows:  (a) it is
to the employ­ing units or companies that the watchmen render their
services, hence, it is the former that are the employers of the watchmen,
pursuant to Section 8(c) of the Act, which defines an employer as one who “uses the services of
another person who is under his orders as regards the employment,” and to
Section 8(d), which defines an employee as one “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
relation.” While the companies or units hand over the watchmen’s
compensation to private respondent, which in turn pays the salaries of the
watchmen after deducting a commission, whatever right or interest private
respondent has in the said salaries is limited to receiving the same for, in behalf of and in trust for the
watchmen, subject to its right to deduct its commission for securing work for
them;  (b) Since no service is rendered
by the watchmen to private respondent, it follows that in relation to
their duties of guarding, watching and protecting the interests of the
companies or units, the watchmen receive no orders from private respondent but
from the said companies or units;  (c) It
is the companies or units that hire or en­gage the watchmen, because without
their asking for the latter’s services, the watchmen concerned cannot be employed
in the said companies or units;  (d) The
employing company or unit has the right to
ask for a change or replacement or even to terminate its agreement with
private respondent;  (e) The Supreme
Court has, in a number of cases, recognized special watchmen as employees of
the companies to which they are assigned; and while those cases involve the
interpretation of the Workmen’s Compensation Act and not the Social Security
Act, the two laws being kindred legislations aimed at providing protection to
the employees against the hazards of disability, sickness and death, it would
not be improper to adopt a uniform interpretation.

Several considerations constrain us to differ with the views expressed above, and the conclusion arrived at, by
respondent Court of Appeals.

The Social Security Act of 1954, in its Section 8, contains, for
purposes of social security coverage, definition of terms, among which are the
following:

“(c)  Employer.  – 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, except the
Government and any of its political subdivisions, branches or
instrumentalities, including corporations owned
or controlled by the Government.

“(d)  Employee.  – 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.”

Tested against the criteria in Section 8(c) and (d) of the Act,
respondent Philippine Guards Protection Unit must be considered an employer of
the thirty-nine security guards
or watchmen, and the latter employees of said respondent.  Private respondent carries on a business – a
watchmen’s service – from which it derives its income in the form of what it
terms “commission”.  It uses
the services of other persons – the guards or watchmen – to carry on its
business. Without them, respondent would not be in business, which consists
solely in the letting out of watchmen’s
services for a fee.  The guards or
watchmen render their services to private respondent by allowing themselves to
be assigned by said respondent, which furnishes them
arms and ammunition, to guard and protect the properties and interests of private
respondent’s clients, thus enabling that respondent to fulfill its contractual
obligations.  Who the clients will be,
and under what terms and conditions the services will be rendered, are matters
determined not by the guards or watchmen, but by private respondent.  On the other hand, the client companies have
no hand in selecting who among the guards or watchmen shall be assigned to
them.  It is private respondent that
issues assignment orders and instructions and exercises control and supervision
over the guards or watchmen, so much so that if, for one reason or another, the
client is dissatisfied with the services of a particular guard, the client
cannot himself terminate the services of such guard, but has to notify private
respondent, which either substitutes him with another or metes out to him
disciplinary measures.  That in the
course of a watchman’s assignment the client conceivably issues instructions to
him, does not in the least detract from the fact that private respondent is the
employer of said watchman, for in legal contemplation such instructions carry
no more weight than mere requests, the privity of
contract being between the client and private respondent, not between the
client and the guard or watchman.  Corollarily,
such giving out of instructions inevitably spring from the client’s right
predicated on the contract for services entered into by it with private respondent.

In the matter of compensation, there can be no question at all that the
guards or watchmen receive compensation from private respondent and not from
the companies or establishments whose premises they are guarding.  The fee contracted for to be paid by the
client is admittedly not equal to the salary of a guard or watchman; such fee
is arrived at independently of the salary to which the guard or watchman is
entitled under his arrangements with private respondent.  All the fees received by private respondent from its clients constitute its gross
income; and the salaries it pays
to the guards or watchmen and to its clerk-secretary,
its expenses for, say, office rent, light, water and telephone services,
licenses, firearms and ammunition, are expenses incurred in the operation of the business. 
The net income or profit is arrived at after deducting all these
expenses from the gross income.  Consequently,
the term “commission” as applied to the difference between the fee
received from a client and the salary paid to a guard or watchman is a
misnomer, and its use by private
respondent cannot alter the relationship of employer and employee between it
and the guards or watchmen.

In defining an employee, Section 8(d) employs the phrase
“who receives compensation for such services, where there is an employer-employee relationship.”
Considering our view that the guards or watchmen included in its roster are
private respondent’s employees, and considering, further, that private
respondent is a bona fide independent contractor, the client companies may not be deemed employers of
said guards or watchmen, pursuant to Section 8(j) (10), which
reads:

“Employees of bona fide independent contractors shall
not be deemed employees of the employer engaging the services of said
contractors.”

In Viaña v. Al-Lagadan
and Piga, 99 Phil., 408, 411-412, we said:

“In determining the existence of employer-employee
relationship, the following elements are generally considered, namely:  (1) the selection and engagement of the employee; (2) the payment of wages; (3) the power of dismissal; and (4) the power
to control the employee’s conduct – although
the latter is the most important element (35 Am. Jur.
445).  x x x.”

From our earlier discussion it can be
seen that all the four elements enumerated above are present to make out a
relationship of employer and employee between private respondent and its thirty-nine security guards or
watchmen.

The cases cited by respondent Court of Appeals, none of which, by the way, involves an
interpretation of the Social Security Act of 1954, are not applicable.  Associated Watchmen And Security Union
(PTWO), et al. v. United States Lines, et al., 101 Phil., 896, involved a
determination of whether a labor dispute existed between the watchmen and the
companies to which they were assigned by the watch­men’s agencies, and applied
Section 2 of Republic Act No. 875 (The Industrial Peace Act), which defined a
labor dispute as “any controversy concerning terms, tenure x x x regardless of whether the
disputants stand in the proximate relation of employer and employee.” Maligaya Ship Watchmen Agency, et al. v. Associated Watchmen
Aid Security Union (PTWO), 103 Phil., 920, involved the determination of who
among the members of watchmen’s agencies should be allowed to take part in
certification elections; and we there held that the watchmen who were actually
guarding the ships and their cargo should be considered laborers or employees
of the shipping lines for purposes of the elections, in view, among others, of
the following considerations:

“x x x
[T]here never were contracts between the shipping lines and their agencies, on the one hand, and the
watchmen agencies-petitioners, on the other. 
The guarding of each ship and its cargo was never the subject of a
contract between one and the other.  The
watchmen agencies never undertook for a specified sum the guarding of the vessels
and their cargo, were never paid therefor a lump sum
without reference to the number of watchmen performing the duties of guarding
and the wages that each should receive for his work.  x x
x.”

The fact situation in the said case is
quite different from that in the present, for here there is admittedly a contract
entered into, either orally or in writing, between private respondent and its
client companies, and, precisely, the guarding of the companies’ premises and
properties is the subject of each of the contracts.  In the payment by the client to private
respondent of compensation, there is reference to the number of watchmen, but
none to the wages each shall receive for his work.

In Nicolas, et al. v. Dacara, et al.,
106 Phil., 934, the issue was whether a sum of money in the hands of protective
agency representing “salaries of guards employed by the different
companies affiliated with the de­tective and protective agency” could
be garnished for the payment of back wages judicially adjudicated in favor of
other guards affiliated with the same protective agency.  We there held, citing Maligaya
Ship Watchmen Agency, that since the money in question secured by the
sheriff represented wages due the guards “from companies that have employed
their services, that the said amount really and actually represents such
wages,” the same could not be attached or garnished for the debts of the
protective agency to the other guards. 
Again, there is no similarity between that case and the present, for
here the security guards or watchmen receive their salaries not from the
companies whose premises and properties they guard, but from private respondent
itself.  In Compañia Maritima v. Cabagnot Vda. de Hio, et al., 107 Phil., 873, we held that for purposes of
workmen’s compensation benefits, a watchman recruited by a protective agency to
guard the premises of a company should be considered an employee of said
company; but there “it was found by the (Workmen’s Compensation)
Commission that the salary of the deceased was paid directly
from the funds of petitioner,” the Compañia Maritima.  It will be
borne in mind, moreover, that in contradistinction with Section 8(j) (10) of
the Social Security Act of 1954 (quoted above), under Section 39 of the
Workmen’s Compensation Act the term “employer” includes “the
owner or lessee of a factory or establishment or place of work or any other person who is virtually the owner or manager of the business
carried on in the establishment or place of work but who, for the reason that
there is an independent contractor in the same, or for any other reason, is not
the direct employer of laborers employed there.”

There are practical considerations why private respondent
Philippine Guards Protection Unit, and not its clients, should be considered, for purposes of social security coverage,
the employer of the 39 guards or watchmen listed in its roster.  (a) A watchman is not permanently assigned to
a client; for one reason or another he may be pulled out of a particular
assignment and detailed to another client.  Consequently, different clients will have to
deduct premiums from different
watchmen at different times and remit them to the System together with the clients’ own share of the
premiums.  (b) Under the arrangements
between private respondent and its clients,
the latter do not determine how much salary is to be paid to the watchmen.  The clients merely pay to private respondent
the fee stipulated in their contracts. 
How, then, can a client deduct the premiums due from a watchman?  And how can it determine the amount of the
watchman’s premium as well as its own? 
(c) Service performed by one person for ano­ther is not considered an employment if the same is “purely casual and not for the purposes of occupation or business of the
employer” (Section 8[j][3], Social Security Act of 1954).  Under private
respondent’s hypothesis, a watchmen may at times be
considered an employee and at other times not, depending on whether or not he
happens to be assigned to a client which carries on a trade, business,
industry, undertaking or activity of any kind (Section 8[c], supra).  A fortiori, of private respondent’s 39
watchmen, some may be covered by the System’s plan, while others not. 
To pursue the matter further, all the 39 watchmen may be covered
sometimes, and not at other times.  (d)
If private respondent’s clients are considered the watchmen’s employers, it may
happen that the 39 different watchmen will have 39 different employers, which
seems absurd, considering that all the watchmen are on the payroll and under
the supervision of only one entity.

PREMISES CONSIDERED, the judgment appealed from is
reversed and set aside.  Private
respondent’s membership in the Social Security System from August 1, 1958 up to the present is declared valid
and effective.  Coverage in the System
upon all its employees falling within the required age level, including its
security guards or watchmen, is hereby declared compulsory; and private
respondent is directed to pay or remit to petitioner all back premiums due.  Costs against private
respondent.

Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando, Teehankee, Barredo, and Makasiar, JJ., concur.

Ruiz Castro, J., took no part.