ANGELITO L. LAZARO, PROPRIETOR OF ROYAL STAR MARKETING, PETITIONER, VS. SOCIAL SECURITY COMMISSION, ROSALINA LAUDATO, SOCIAL SECURITY SYSTEM AND THE HONORABLE COURT OF APPEALS, …

Lazaro versus Social Security Commission

The Case

This is a petition for review brought by Angelito Lazaro, doing business as Royal Star Marketing, against the Social Security Commission, Rosalina Laudato, and the Social Security System. Laudato had asked the Commission to declare her an employee of Royal Star and to compel remittance of the social security contributions that were never paid on her behalf. The case matters because it settles, for social security coverage, how the control test applies to a sales supervisor paid on commission — and it teaches that commission pay and freedom from fixed working hours do not defeat an employer-employee relationship.

Procedural History

Laudato filed a petition before the Social Security Commission against her three employers, including Lazaro. The Commission, applying the control test, ruled that Laudato was an employee of Royal Star and ordered payment of unremitted contributions of Five Thousand Seven Pesos and Thirty Five Centavos, penalties of Twenty Two Thousand Two Hundred Eighteen Pesos and Fifty Four Centavos, and damages of Fifteen Thousand Six Hundred Eighty Pesos and Seven Centavos under Section 24 of the Social Security Law. Lazaro's motion for reconsideration was denied. He then filed a petition for review with the Court of Appeals, which affirmed the Commission in a decision promulgated in November 1998. Lazaro came to the Supreme Court by petition for review under Rule 45.

Facts

Royal Star Marketing sells home appliances. Laudato claimed that from April 1979 to March 1986 she worked as sales supervisor of its sales agents, yet Lazaro never reported her for compulsory social security coverage and never remitted her contributions.

Lazaro answered that she was a mere sales agent paid purely on commission, not on the company payroll, who kept no fixed hours and filled out no time cards. He insisted that Royal Star exercised no control over her work.

The Commission found otherwise. It examined cash vouchers issued by Royal Star to Laudato, her calling cards naming her as Sales Supervisor, certificates of appreciation for her loyal efforts, and a memorandum of the general manager directing that no commissions be given on main office sales from walk-in customers and enjoining salesmen and sales supervisors to observe the new policy. That memorandum, the Court held, showed Royal Star's control over the means and methods of the work.

Issues

• Whether or not Laudato was an employee of Royal Star for purposes of coverage under the Social Security Law, applying the control test.
• Whether or not payment on a purely commission basis and the absence of fixed working hours preclude the existence of an employer-employee relationship.
• Whether or not the factual findings of the Social Security Commission, affirmed by the Court of Appeals, may be reviewed and reversed by the Supreme Court.

Applicable Provisions

Section 24 of the Social Security Law, as amended, provides the basis for the damages awarded against Royal Star:

Section 24. Penalty for Failure or Refusal to Register or Remit Contributions. — (a) Failure or refusal of the employer to register his employees or to pay or remit the contributions provided for in this Act shall be punished with a fine of not less than Five Hundred Pesos nor more than Five Thousand Pesos, and in case of non-payment or non-remittance of the contributions, the employer shall be liable to the System for the amount of the unremitted contributions plus a penalty of three percent per month of the amount of such contributions from the date they become due until they are remitted.

This provision is the source of Royal Star's liability for the unremitted contributions, the penalties, and the damages once Laudato was declared its employee.

Ruling

On the first issue, the Court affirmed that Laudato was an employee. For coverage under the Social Security Act, the determination of employer-employee relationship warrants the control test:

It is an accepted doctrine that for the purposes of coverage under the Social Security Act, the determination of employer-employee relationship warrants the application of the control test, that is, whether the employer controls or has reserved the right to control the employee, not only as to the result of the work done, but also as to the means and methods by which the same is accomplished.

The Commission and the Court of Appeals both applied that test and found the element of control present, supported by substantial evidence. As sales supervisor, Laudato oversaw and supervised the sales agents and was subject to management's control over how she implemented its policies and achieved its results.

On the second issue, the Court held that neither commission pay nor the absence of normal hours defeats employment. It cited its earlier ruling that insurance agents paid on commission may still be employees, and its ruling in Cosmopolitan Funeral Homes that a supervisor compensated on commission basis, exempt from normal hours because compensation is measured by the number of sales, is still an employee. The relevant factor remains control over the means and methods of the work.

On the third issue, the Court refused to disturb the factual findings. The determination of an employer-employee relationship depends heavily on the factual circumstances, and the Court is not a trier of facts; it accords great weight to findings of bodies whose function is to resolve factual matters. Lazaro offered only bare assertions against the documentary evidence.

Doctrine

For social security coverage, the control test governs: an employer-employee relationship exists where the employer controls or has reserved the right to control the employee not only as to the result of the work but also as to the means and methods by which it is accomplished. Payment on a purely commission basis does not preclude employment, and a worker exempt from normal hours because compensation is measured by sales may still be an employee. Factual findings of the Social Security Commission, affirmed by the Court of Appeals and supported by substantial evidence, are binding on the Supreme Court.

Disposition

The petition was denied and the decision of the Court of Appeals was affirmed, with costs against Lazaro.

Remember This

Memorize the line: commission pay and freedom from fixed hours do not defeat employment — control over the means and methods of the work does. Examiners use this case in labor and social security questions testing the control test against sales agents and supervisors paid on commission.