INSULAR LIFE ASSURANCE CO., LTD., PETITIONER, VS. NATIONAL LABOR RELATIONS COMMISSION AND MELECIO BASIAO, RESPONDENTS.

On July 2, 1968,
Insular Life Assurance Co., Ltd. (hereinafter simply called the Company) and Melecio T. Basiao entered into a
contract^[1]
by which:

1.     
Basiao was
“authorized to solicit within the Philippines
applications for insurance policies and annuities in accordance with the
existing rules and regulations” of the Company;

2.      he
would receive “compensation, in the form of commissions * * as provided in
the Schedule of Commissions” of the contract to “constitute a part of
the consideration of * * (said) agreement;” and

3.      the “rules in * * (the Company’s) Rate Book
and its Agent’s Manual, as well as all its circulars * * and those which may
from time to time be promulgated by it, * *” were made part of said
contract.

The contract also contained, among others, provisions governing
the relations of the parties, the duties of the Agent, the acts prohibited to
him, and the modes of termination of the agreement, viz.:

“RELATION WITH THE COMPANY.  The Agent shall be free to exercise his own
judgment as to time, place and means of soliciting insurance.  Nothing herein contained shall therefore be
construed to create the relationship of
employee and employer between the Agent and the Company.  However, the Agent shall observe and conform
to all rules and regulations
which the Company may from time to time prescribe.

“ILLEGAL AND UNETHICAL PRACTICES.  The Agent is prohibited from giving, directly
or indirectly, rebates in any form, or from making any misrepresentation or
over-selling, and, in general, from doing or committing acts prohibited in the
Agent’s Manual and in circulars of the Office of the Insurance Commissioner.

“TERMINATION.  The Company may terminate the contract at
will, without any previous notice to the Agent, for or on account of * *
(explicitly specified causes). * *

Either party may terminate this contract by giving to the other
notice in writing to that effect.  It
shall become ipso facto cancelled if the Insurance Commissioner should
revoke a Certificate of Authority previously issued or should the Agent fail to
renew his existing Certificate of Authority upon its expiration.  The Agent shall not have any right to any
commission on renewal of premiums that may be paid after the termination of
this agreement for any cause whatsoever, except when the termination is due to
disability or death in line of service. 
As to commission corresponding to any balance of the first year’s
premiums remaining unpaid at the termination of this agreement, the Agent shall
be entitled to it if the balance of the first year premium is paid, less actual
cost of collection, unless the termination is due to a violation of this
contract, involving criminal liability or breach of trust.

“ASSIGNMENT.  No assignment of the Agency herein created or
of commissions or other compensations shall be valid without the prior consent
in writing of the Company.  * *.”

Some four years later, in April 1972, the parties entered into
another contract — an Agency Manager’s Contract — and to implement his end of
it Basiao organized an agency or office to which he
gave the name M. Basiao and Associates, while
concurrently fulfilling his commitments under the first contract with the
Company.^[2]

In May, 1979, the Company terminated the Agency a Manager’s
Contract.  After vainly seeking a
reconsideration, Basiao sued the Company in a civil
action and this, he was later to claim, prompted the latter to terminate also
his engagement under the first contract and to stop payment of his commissions
starting April 1, 1980.^[3]

Basiao thereafter filed with the then
Ministry of Labor a complaint^[4]
against the Company and its president. 
Without contesting the termination of the first contract, the complaint
sought to recover commissions allegedly unpaid thereunder,
plus attorney’s fees.  The respondents
disputed the Ministry’s jurisdiction over Basiao’s
claim, asserting that he was not the Company’s employee, but an independent
contractor and that the Company had no obligation
to him for unpaid commissions under the terms and conditions of his contract.^[5]

The Labor Arbiter to whom the case was assigned found for Basiao.  He ruled
that the underwriting agreement had established an employer-employee
relationship between him and the Company, and this conferred jurisdiction on
the Ministry of Labor to adjudicate his claim. 
Said official’s decision directed payment of his unpaid commissions
“* * equivalent to the balance of the first year’s premium remaining
unpaid, at the time of his termination, of all the insurance policies solicited
by * * (him) in favor of the respondent company * *” plus 10%
attorney’s fees.^[6]

This decision was, on appeal by the Company, affirmed by the
National Labor Relations Commission.^[7]
Hence, the present petition for certiorari and prohibition.

The chief issue here is one of jurisdiction:  whether, as Basiao
asserts, he had become the Company’s employee by virtue of the contract invoked
by him, thereby placing his claim for unpaid commissions within the original
and exclusive jurisdiction of the Labor Arbiter under the provisions of Section
217 of the Labor Code^[8]
or, contrarily, as the Company
would have it, that under said contract Basiao’s
status was that of an independent contractor whose claim was thus cognizable,
not by the Labor Arbiter in a labor case, but by the regular courts in an
ordinary civil action.

The Company’s thesis, that no employer-employee relation in the
legal and generally accepted sense existed between it and Basiao,
is drawn from the terms of the contract they had entered into, which, either
expressly or by necessary implication, made Basiao
the master of his own time and selling methods, left to his judgment the time,
place and means of soliciting insurance, set no accomplishment quotas and
compensated him on the basis of results obtained.  He was not bound to observe any schedule of working hours or report to any
regular station; he could seek and work on his prospects anywhere and at
anytime he chose to, and was free to adopt the selling methods he deemed most
effective.

 Without denying that the
above were indeed the expressed or implicit conditions of Basiao’s
contract with the Company, the respondents contend that they do not constitute
the decisive determinant of the nature of his engagement, invoking precedents
to the effect that the critical feature distinguishing the status of an
employee from that of an independent contractor is control, that
is, whether or not the party who engages the services of another has the power
to control the latter’s conduct in rendering such services.  Pursuing the argument, the respondents draw
attention to the provisions of Basiao’s contract
obliging him to “* * observe and conform to all rules and regulations
which the Company may from time to time prescribe * *,” as well as to the
fact that the Company prescribed the qualifications of applicants for
insurance, processed their applications and determined the amounts of insurance
cover to be issued as indicative of the control which made Basiao,
in legal contemplation, an employee of the Company.^[9]

It is true that the “control test” expressed in the following
pronouncement of the Court in the 1956 case of Viana
vs. Alejo Al-Lagadan:^[10]

“* * Indetermining 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 employees’ conduct — although the
latter is the most important element (35 Am. Jur.
445). * *,”

has been
followed and applied in later cases, some fairly recent.^[11]
Indeed, it is without question a valid test of the character of a contract or
agreement to render service.  It should,
however, be obvious that not every form of control that the hiring party
reserves to himself over the conduct of the party hired in relation to the
services rendered may be accorded the effect of establishing an
employer-employee relationship between them in the legal or technical sense of
the term.  A line must be drawn
somewhere, if the recognized distinction between an employee and an individual
contractor is not to vanish altogether. 
Realistically, it would be a rare contract of service that gives untrammelled freedom to the party hired and eschews any
intervention whatsoever in his performance of the engagement.

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.  The distinction acquires particular
relevance in the case of an enterprise affected with public interest, as is the
business of insurance, and is on that account subject to regulation by the
State with respect, not only to the relations between insurer and insured but
also to the internal affairs of the insurance company.^[12] Rules and regulations governing the
conduct of the business are provided for in the Insurance Code and enforced by
the Insurance Commissioner.  It is,
therefore, usual and expected for an insurance company to promulgate a set of
rules to guide its commission agents in selling its policies that they may not
run afoul of the law and what it requires or prohibits.  Of such a character are the rules which
prescribe the qualifications of persons who may be insured, subject insurance
applications to processing and approval by the Company, and also reserve to the
Company the determination of the premiums to be paid and the schedules of
payment.  None of these really invades
the agent’s contractual prerogative to adopt his own selling methods or to sell
insurance at his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the company.

There is no dearth of authority
holding persons similarly placed as respondent Basiao
to be independent contractors, instead of employees of the parties for whom
they worked.  In Mafinco
Trading Corporation vs. Ople,^[13]
the Court ruled that a person engaged to sell soft drinks for another, using a
truck supplied by the latter, but with the right to employ his own workers,
sell according to his own methods subject only to prearranged routes, observing
no working hours fixed by the other party and obliged to secure his own licenses
and defray his own selling expenses, all in consideration of a peddler’s
discount given by the other party for at least 250 cases of soft drinks sold
daily, was not an employee but an independent contractor.

In Investment Planning Corporation of the Philippines vs.
Social Security System,^[14]
a case almost on all fours with the present one, this Court held that there was
no employer-employee relationship between a commission agent and an investment
company, but that the former was an independent contractor where said agent and
others similarly placed were:  (a) paid
compensation in the form of commissions based on percentages of their sales,
any balance of commissions earned being payable to their legal representatives
in the event of death or resignation; (b) required to put up performance bonds;
(c) subject to a set of rules and regulations governing the performance of
their duties under the agreement with the company and termination of their
services for certain causes; (d) not required to report for work at any time,
nor to devote their time exclusively to working for the company nor to submit a
record of their activities, and who, finally, shouldered their own selling and
transportation expenses.

More recently, in Sara vs. NLRC,^[15]
it was held that one who had been engaged by a rice miller to buy and sell rice
and palay without compensation except a certain
percentage of what he was able to buy or sell, did work at his own pleasure
without any supervision or control on the part of his principal and relied on
his own resources in the performance of his work, was a plain commission agent,
an independent contractor and not an employee.

The respondents limit themselves to pointing out that Basiao’s contract with the Company bound him to observe and
conform to such rules and regulations as the latter might from time to time
prescribe.  No showing has been made that
any such rules or regulations were in fact promulgated, much less that any
rules existed or were issued which effectively controlled or restricted his
choice of methods — or the methods
themselves — of selling insurance.  Absent
such showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the contract leaving Basiao “* * free to exercise his own judgment as to
the time, place and means of soliciting insurance.”

The Labor Arbiter’s decision makes reference to Basiao’s claim of having been connected with the Company
for twenty-five years.  Whatever this is
meant to imply, the obvious reply would be that what is germane here is Basiao’s status under the contract of July 2, 1968, not the length of his relationship
with the Company.

The Court, therefore, rules that under the contract invoked by
him, Basiao was not an employee of the petitioner,
but a commission agent, an independent contractor whose claim for unpaid
commissions should have been litigated in an ordinary civil action.  The Labor Arbiter erred in taking cognizance
of, and adjudicating, said claim, being without jurisdiction to do so, as did
the respondent NLRC in affirming the Arbiter’s decision.  This conclusion renders it unnecessary and
premature to consider Basiao’s claim for commissions
on its merits.

WHEREFORE, the appealed Resolution of the National Labor
Relations Commission is set aside, and the complaint of private respondent Melecio T. Basiao in RAB Case No.
VI-0010-83 is dismissed.  No
pronouncement as to costs.

SO ORDERED.

Cruz, Gancayco, Griño-Aquino,
and Medialdea,
JJ., concur.

^[1]
Rollo, pp. 14-15

^[2]
Rollo, p. 16

^[3]
Rollo, p. 17

^[4]
Docketed as RAB Case No. VI-0010-83

^[5]
Rollo, p. 17

^[6]
Id., pp. 18-22

^[7]
Rollo, pp. 23-27

^[8]
which at that time conferred upon the Labor Arbiters such jurisdiction over,
among others, “* * all money claims of workers, including those based on
non-payment or underpayment of wages, overtime compensation, separation pay and
other benefits provided by law or appropriate agreement, except claims for
employees compensation, social security, medicare and
maternity benefits.”

^[9]
Respondents’ Comments; Rollo, pp. 47-52, 60-69

^[10]
99 Phil. 408, 411-412

^[11]
See Feati University vs. Bautista, 18 SCRA
119; Dy Keh Beng vs. International Labor and Marine Union of the
Phil., 90 SCRA 163; Rosario Bros. vs. Ople,
131 SCRA 72; National Mines and Allied Workers Union (NAMAWU) vs. Valero,
132 SCRA 578

^[12]
43 Am. Jur. 2d, pp. 73, 91

^[13]
70 SCRA 139

^[14]
21 SCRA 924 (1967)

^[15]
G.R. No. 73199, October 26, 1988