Chrisden and several other persons alleged that in February 2016, Lazada E-Services, Philippines, Inc. (Lazada), a business which claims to facilitate the sale of goods between its sellers and buyers, hired them to work as riders. As riders, Chrisden and his group were primarily tasked to pick up items from sellers and deliver them to Lazada’s warehouse. Each of them signed an Independent Contractor Agreement which states that they will be engaged for one year and paid a service fee. They were to use their privately-owned motorcycles in their trips.
Chrisden and his group narrated that sometime in January 2017, a Lazada dispatcher told them that they have been removed from their usual routes and will no longer be given any schedules. Despite this development, they still went to the office and waited for three days to be given new tasks, but no work schedules came. They soon learned that their routes were already given to other riders.
Aggrieved by the events, Chrisden and his group filed a complaint before the National Labor Relations Commission against Lazada for illegal dismissal, illegal deduction, money claims, with claims for moral and exemplary damages and attorney’s fees.
Lazada denied that Chrisden and his group were its employees. It maintained that Chrisden and his group were independent contractors. Lazada concluded that Chrisden and his group cannot claim backwages, separation pay, and other benefits considering that they are not regular employees.
The Office of the Labor Arbiter ruled that no employer-employee relationship existed between Lazada and Chrisden and the co-riders.
The Office of the Labor Arbiter found that the respective Independent Contractor Agreements of Chrisden and his group clearly stated that no employer-employee relationship existed between them and Lazada. The said Office also determined that Chrisden and his group had control over the means and methods of their work since they provided their own vehicles and were free to choose the means of transport, delivery routes and working hours.
The Office of the Labor Arbiter added that Lazada only required goods to be delivered promptly and in good condition. While the said Office acknowledged that Lazada gave out rules and regulations on the delivery of goods, it ruled that this did not amount to control over the means and methods by which Chrisden and his group accomplished their work.
Thus, the Office of the Labor Arbiter dismissed the complaint for lack of jurisdiction.
On appeal, the National Labor Relations Commission affirmed the Office of the Labor Arbiter’s ruling.
Chrisden and his group filed a petition with the Court of Appeals, but their petition was dismissed outright.
Chrisden and his group then elevated their case to the Supreme Court.
Were Chrisden and his group regular employees of Lazada?
The Supreme Court ruled in the affirmative.
The Court reiterated the following established principles:
Consistent with the constitutional recognition that labor is a primary social economic force, full protection to labor is a social policy enshrined in Article XIII, Section 3 of the Constitution. The provision guarantees the right of workers to security of tenure, among others. One’s employment is a property right which cannot be revoked without due process.
Under Philippine laws, the nature of employment of a worker is prescribed by law, regardless of what the contract and the parties present it to be. Furthermore, employment contracts are not ordinary contracts because they are imbued with public interest.
The applicable provisions of the law are deemed incorporated into the contract and the parties cannot exempt themselves from the coverage of labor laws simply by entering into contracts. Thus, regardless of the nomenclature and stipulations of the contract, the employment contract must be read consistent with the social policy of providing protection to labor.
To determine the existence of an employer-employee relationship, the Court employs a two-tiered test:
- the four-fold test; and
- the economic dependence test.
Under the four-fold test, to establish an employer-employee relationship, four factors must be proven:
- the employer’s selection and engagement of the employee;
- the payment of wages;
- the power to dismiss; and
- the power to control the employee’s conduct.
The Court identifies the power of control is the most significant factor in the four-fold test.
The right to control extends not only over the work done but over the means and methods by which the employee must accomplish the work. The power of control does not have to be actually exercised by the employer. It is sufficient that the employer has a right to wield the power.
However, not all rules imposed upon the worker is an indication of control. When rules are intended to serve as general guidelines to accomplish the work, it is not an indicator of control.
When the control test is insufficient, the economic realities of the employment are considered to get a comprehensive assessment of the true classification of the worker.
The determination of the relationship between employer and employee depends upon the circumstances of the whole economic activity, such as:
- the extent to which the services performed are an integral part of the employer’s business;
- the extent of the worker’s investment in equipment and facilities;
- the nature and degree of control exercised by the employer;
- the worker’s opportunity for profit and loss;
- the amount of initiative, skill, judgment or foresight required for the success of the claimed independent enterprise;
- the permanency and duration of the relationship between the worker and the employer; and
- the degree of dependency of the worker upon the employer for his continued employment in that line of business.
Regarding classifications of employment, the Court referred to Article 295 of the Labor Code of the Philippines which provides four classifications, namely:
- regular;
- project;
- seasonal; and
- casual.
Employees who perform activities which are necessary or desirable in the usual business of the employer may be regular, project, or seasonal employees. Of the three, project and seasonal employees are generally engaged to perform tasks which only lasts for a specific period and duration. Meanwhile, casual employees are those who perform work which are not usually necessary or desirable for the employer’s business.
The Court explained that activities which are considered usually necessary or desirable in the employer’s business generally depends on the industry. There must be a reasonable connection between the work performed by the employee and the usual trade or business of the employer.
The Court mentioned Brent School, Inc. v. Zamora as a case which recognized another employment classification referred to as fixed-term.
Said the Court, fixed-term employment is an arrangement wherein an employee is hired for a specific period. In fixed-term employment, the work performed may also be necessary or desirable to the usual business of the employer. Fixed-term employments are recognized by law for projects with pre-determined completion or generally in a work where a fixed term is essential and natural appurtenance.
The Court then discussed that in order for fixed-term employment to be valid, either of these circumstances must be proven:
- The fixed period of employment was knowingly and voluntarily agreed upon by the parties without any force, duress, or improper pressure being brought to bear upon the employee and absent any other circumstances vitiating his consent; or
- It satisfactorily appears that the employer and the employee dealt with each other on more or less equal terms with no moral dominance exercised by the former or the latter.
These criteria presume that an employee, on account of special skills or market forces, is in a position to make demands upon the prospective employer. The parity of standing between the employer and employee indicates that the employee needs less protection than that of the ordinary worker. In determining whether the fixed-term employment is valid, the burden of proof lies with the employer to show that it deals with the employee in more or less equal terms. The recognition of fixed-term employment in Brent remains an exception rather than the general rule.
In the present case, the Court declared that Chrisden and his group were regular employees of Lazada.
According to the Court, Chrisden and his group satisfied the four-fold test.
- First, Chrisden and his group were directly employed by Lazada as evidenced by the Independent Contractor Agreements they signed;
- Second, as indicated in the said Agreement, Chrisden and his group received their salaries from Lazada. Chrisden and his group were paid by Lazada the amount of P1,200.00 for each day of service;
- Third, Lazada had the power to dismiss Chrisden and his group. In their contract, Lazada can immediately terminate the Agreement for breach of its material provisions.; and
- Fourth, Lazada had control over the means and methods of the performance of the work of Chrisden and his group, as explicitly mentioned in their Agreement and as reflected in the way the work of Chrisden and his group was carried out. Lazada required the accomplishment of a route sheet which kept track of the arrival, departure, and unloading time of the items. Chrisden and his group shouldered a penalty of P500.00 on top of an item’s actual value should it get lost. Chrisden and his group were also required to submit trip tickets and incident reports to Lazada.
The Court added that even if it considered the foregoing factors as mere guidelines, the circumstances of the whole economic activity between Lazada and Chrisden and his group, nonetheless, confirmed the existence of an employer-employee relationship. Stated otherwise, the Court found that Chrisden and his group satisfied the economic dependence test.
Although Lazada insisted that the delivery of items was only incidental to its business as it was mainly an online platform where sellers and buyers transact, the Court found that the delivery of items by Chrisden and his group was clearly integrated in the services it offered. The Court even noticed Lazada’s admission that it had different route managers to supervise the delivery of the products from the sellers to the buyers. But this only confirmed that Lazada had taken steps to facilitate not only the transaction of the seller and buyer in the online platform but also the delivery of the items.
The Court also looked into the contention of Lazada that it could have left the delivery of the goods to the sellers and buyers. However, the Court disregarded said contention as this was not the business model it actually implemented.
The Court further found that Chrisden and his group were required by Lazada to use their own motor vehicles and other equipment and supplies in the delivery of the items. Moreover, Chrisden and his group were found to have no control over their own profit or loss because they were paid a set daily wage. There were also found to have no control over their own time and they could not offer their service to other companies as Lazada could demand their presence from time to time.
For the Court, Chrisden and his group were economically dependent on Lazada for their livelihood and their continued engagement in its line of business.
At this point, the Court rejected Lazada’s assertion that the Independent Contractor Agreements of Chrisden and his group explicitly stipulated that the absence of an employer-employee relationship between them. According to the Court, the protection of the law afforded to labor precedes over the nomenclature and stipulations of the Contract. The Independent Contractor Agreements of Chrisden and his group signed was not as ordinary as Lazada purported it to be. Thus, it was patently erroneous for the labor tribunals to reject an employer-employee relationship simply because the Independent Contractor Agreements stipulated the non-existence of the employment relation.
The Court then rebuffed Lazada’s contention that Chrisden and his group were independent contractors.
The Court set forth the following relevant principles:
An independent contractor is defined as one who carries on a distinct and independent business and undertakes to perform the job, work, or service on its own account and under one’s own responsibility according to one’s own manner and method, free from the control and direction of the principal in all matters connected with the performance of the work except as to the results thereof.
Laws and jurisprudence recognize two types of contractors:
- legitimate job contractors under Article 106 of the Labor Code of the Philippines; and
- independent contractors who possess unique skills and talent and whose contracts are governed by the Civil Code of the Philippines.
The Court stressed that when the status of the employment is in dispute, the employer bears the burden to prove that the workers are independent contractors rather than regular employees.
In the present case, the Court ruled that Lazada failed to establish that Chrisden and his group fell under any of the categories of independent contractors, based on the following findings:
- First, Chrisden and his group were not hired by a contractor or subcontractor as both parties’ submitted that they were directly engaged by Lazada; and
- Second, the work performed by Chrisden and his group did not require a special skill or talent. Picking up and delivering goods from warehouse to buyers did not call for a specific expertise. There was also no showing that Chrisden and his group were hired due to their unique ability or competency.
Finally, the Court could not consider Chrisden and his group as regular employees with a fixed-term employment. The Court stated that fixed-term employment as enunciated in Brent presupposes an employee who is more or less on equal footing with an employer. It applies only in exceptional cases where the employee has bargaining power on account of a special skill or the market force.
In the present case, the Court found that Lazada neither demonstrated nor argued this and had even failed to allege as to how the terms and conditions of their contracts were agreed upon.
Having been declared regular employees of Lazada, the Court accordingly ordered the reinstatement of Chrisden and his group, as well as the payment of their backwages.
Further reading:
- Ditiangkin, et al. v. Lazada, et al., G.R. No. 246892, September 21, 2022.
