RAQUEL P. CONSULTA, PETITIONER, VS. COURT OF APPEALS, PAMANA PHILIPPINES, INC., RAZUL Z. REQUESTO, AND ALETA TOLENTINO, RESPONDENTS.

Consulta versus Court of Appeals

The Case

This is a petition for review brought by Raquel Consulta against the Court of Appeals, Pamana Philippines, Incorporated, and its officers Razul Requesto and Aleta Tolentino. Consulta had been appointed a Managing Associate of Pamana, a health care business, and she claimed unpaid commissions for a health care plan she negotiated with the Federation of Filipino Civilian Employees Association at the United States Subic Naval Base. The case matters because it is the Supreme Court's clean statement of the four-fold test for employer-employee relationship, and of the boundary between permissible guidelines and prohibited control — the line that decides whether a worker may go to the Labor Arbiter at all.

Procedural History

Consulta filed a complaint for unpaid wages or commission against Pamana and its officers before the Labor Arbiter. Labor Arbiter Alex Arcadio Lopez ruled in her favor, ordering Pamana to pay her unpaid commission computed against the actual transactions with the contracting United States Naval Supply Depot upon presentation of pertinent documents, plus ten percent attorney's fees. Pamana appealed, but the National Labor Relations Commission dismissed the appeal and affirmed the Labor Arbiter, and later denied Pamana's motion for reconsideration.

Pamana then filed a petition for certiorari before the Supreme Court. The Office of the Solicitor General filed a Manifestation in Lieu of Comment praying that the petition be granted on the ground that Consulta was not an employee of Pamana. Following the St. Martin Funeral Home doctrine, the Supreme Court referred the case to the Court of Appeals. The appellate court reversed the National Labor Relations Commission, holding that Consulta was a commission agent and not an employee, and that she should have litigated her claim in an ordinary civil action. Consulta then came to the Supreme Court by petition for review.

Facts

Pamana Philippines, Incorporated is engaged in the health care business. By an appointment dated 1 December 1987, effective until 2 January 1988, Pamana confirmed Raquel Consulta as a Managing Associate within Metro Manila. Her principal responsibility was to organize, develop, manage, and maintain a sales division and a full complement of agencies and Health Consultants, and to submit such number of enrollments and revenue attainments as company policies required. She was to recruit, train, and direct her Supervising Associates and Health Consultants. Her compensation was purely commission-based: five percent on the entrance fee and six percent on the medical fee of initial membership fees, and six percent on subsequent membership fees, plus participation in sales contests and other incentives. The appointment expressly stated that it was on a non-employer-employee relationship basis.

Sometime in 1987, Consulta negotiated with the Federation of Filipino Civilian Employees Association for a health care plan for its members. Pamana issued her a certification dated 23 November 1987 authorizing the Emerald Group under her, as Managing Consultant, to negotiate on Pamana's behalf with the Federation covering all United States facilities in the Philippines, and affirming the commissions and overrides due the group for as long as the contracts remained in force and the consultants remained in active status. On 4 March 1988, Pamana and the United States Naval Supply Depot signed the Federation account.

Claiming Pamana did not pay her commission for that account, Consulta filed a complaint for unpaid wages or commission. The records of the Managing Associates' meetings showed that Pamana's vice-president for sales merely gave pointers on recruitment and selling techniques, suggested incentives, and discussed survey methods; the Managing Associates themselves agreed to advance their share of their secretary's salary, asked management to shoulder half of an advertisement cost, and gave cash incentives to recruits from their own pockets. The appointment also required Consulta to represent Pamana exclusively and barred her from competing businesses for one year after termination.

Issues

• Whether or not Consulta was an employee of Pamana.
• Whether or not the Labor Arbiter had jurisdiction over Consulta's claim for unpaid commission.

Applicable Provisions

Article 217 of the Labor Code, as quoted in the decision, provides:

ART. 217. Jurisdiction of Labor Arbiters and the Commission. - (a) Except as otherwise provided under this Code the Labor Arbiters shall have original and exclusive jurisdiction to hear and decide, within thirty (30) calendar days after the submission of the case by the parties for decision without extension, even in the absence of stenographic notes, the following cases involving all workers, whether agricultural or non-agricultural: Unfair labor practice cases; Termination disputes; If accompanied with a claim for reinstatement, those cases that workers may file involving wages, rates of pay, hours of work and other terms and conditions of employment; Claims for actual, moral, exemplary and other forms of damages arising from the employer-employee relations; Cases arising from any violation of Article 264 of this Code, including questions involving the legality of strikes and lockouts; and Except claims for Employees Compensation, Social Security, Medicare and maternity benefits, all other claims, arising from employer-employee relations, including those of persons in domestic or household service, involving an amount exceeding five thousand pesos (P5,000.00) regardless of whether accompanied with a claim for reinstatement. (b) The Commission shall have exclusive appellate jurisdiction over all cases decided by Labor Arbiters. (c) Cases arising from the interpretation or implementation of collective bargaining agreements and those arising from the interpretation or enforcement of company personnel policies shall be disposed of by the Labor Arbiter by referring the same to the grievance machinery and voluntary arbitration as may be provided in said agreements.

This provision bears on the case because every claim it covers must arise from an employer-employee relation, so the absence of that relation removes the claim from the Labor Arbiter's jurisdiction.

Article 1306 of the Civil Code, also quoted in the decision, provides:

The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.

This provision bears on the case because it sustains the exclusivity stipulation in Consulta's appointment as a valid contractual restriction that does not by itself create employment.

Ruling

On the first issue, the Court affirmed that Consulta was an independent agent and not an employee of Pamana. It applied the four-fold test first laid down in Viaña versus Al-Lagadan: the power to hire, the payment of wages, the power to dismiss, and the power to control, with the power to control being the most important. The Court explained the scope of control in the language of Insular Life Assurance Company versus National Labor Relations Commission:

Logically, the line should be drawn between rules that merely serve as guidelines towards the achievement of the mutually desired result without dictating the means or methods to be employed in attaining it, and those that control or fix the methodology and bind or restrict the party hired to the use of such means. The first, which aim only to promote the result, create no employer-employee relationship unlike the second, which address both the result and the means used to achieve it.

Here the power to control was missing. Consulta did not have to report at definite hours; the time she devoted to soliciting clients was entirely her discretion; and the means and methods of recruiting, training, and managing her division were left to her sound judgment. The minutes of the meetings showed only suggestions, which the Managing Associates were free to adopt or ignore. They spent their own resources, shared in their secretaries' salaries, and paid incentives from their own pockets — marks of independent contractors. Pamana paid Consulta not for labor performed but only for results; without results, her labor was her own burden and loss. The exclusivity provision did not change this: it was a reasonable restriction against competing businesses, valid under Article 1306 of the Civil Code, and did not signify control over the means and methods of her work.

On the second issue, with no employer-employee relationship, the Labor Arbiter and the National Labor Relations Commission had no jurisdiction over Consulta's money claim. She filed under Article 217(a)(6) of the Labor Code, but that provision reaches only claims arising from employer-employee relations. The Labor Arbiter should have dismissed the claim; Consulta's remedy is an ordinary civil action.

Doctrine

• The existence of an employer-employee relationship is determined by the four-fold test: the power to hire, the payment of wages, the power to dismiss, and the power to control, and the power to control is the most important element.
• Control, for this purpose, means control over the means and methods by which the work is accomplished, not mere guidelines, pointers, or suggestions aimed at the desired result; rules that only promote the result create no employment, while those that fix the methodology do.
• Payment of compensation measured solely by results, such as commissions dependent on actual sales, is consistent with independent contractor status.
• An exclusivity stipulation is a valid contractual restriction under Article 1306 of the Civil Code and does not by itself establish control or employment.
• Under Article 217 of the Labor Code, a claim for unpaid commission falls within the Labor Arbiter's jurisdiction only if it arises from an employer-employee relation; absent that relation, the remedy is an ordinary civil action.

Disposition

The petition was dismissed and the Decision of the Court of Appeals was affirmed in its entirety, so Consulta lost her labor case and must pursue her claim for unpaid commission in an ordinary civil action.

Remember This

Memorize the line: guidelines that only promote the result create no employer-employee relationship, while rules that fix the means and methods do. Examiners use this case to test the four-fold test, the control element, and the jurisdictional consequence under Article 217 of the Labor Code when the worker is an independent agent.