Rico and six other people alleged that they were engaged on different dates as fitness trainers by Fitness First Phil., Inc., a fitness company.
Rico and his co-workers narrated that as fitness trainers, they sold and marketed the company’s physical health training programs and packages. With the company’s equipment, they also conducted actual training sessions for their clients and were paid fixed monthly salaries, 13th month pay, and commissions.
However, the company later reclassified them as freelance trainers. Although it still paid their salaries, the company discontinued paying their other labor benefits, i.e., 13th month pay, overtime pay, holiday pay, and rest day pay.
Furthermore, the company allowed them to work on their own time as long as they trained clients for at least 90 hours per month and Php80,000.00 worth of physical training packages. If Rico and his co-workers fail to meet the quota, the same translates to salary deduction, or worse, disciplinary action such that repeated failure to meet the quota may subject them to warning, suspension, and even termination of their engagement.
Soon after, the company required Rico and his co-workers to register their alleged freelance business to comply with tax regulations. Should Rico and his co-workers refuse to comply, they were penalized with a 20% deduction in their commission and termination or non-renewal of their freelance agreement. Despite such penalties, Rico and his co-workers did not comply with the company’s requirements since they believed they were its employees.
As a result, the company revoked its offer of higher commission. It also offered Rico and his co-workers the chance to revert to being instructors. Moreover, the company ignored Rico and his co-workers’ request to enjoy the benefits of being both an instructor and a freelance trainer.
Believing this was an instance of constructive dismissal, Rico and his co-workers filed a complaint against the company for illegal dismissal, regularization, and other monetary claims.
The company countered that Rico and his co-workers were independent contractors who were not required to observe fixed work hours. According to the company, Rico and his co-workers were required to observe relevant house rules in dealing with their clients, conduct 90 hours of training, and guarantee a minimum fixed monthly sale.
The company added that its employment arrangement with Rico and his co-workers is distinguished from that of its fitness instructors, who were required to work nine hours a day, six days a week.
The company explained that all trainers start as full-time fitness instructors. According to the company, a progressive commission scheme allows instructors who have obtained a certain skill and training to be promoted as freelance personal trainers to take advantage of the higher commissions and flexible working hours. It also mentioned that a freelance personal trainer though may revert to being an instructor by manifesting his or her decision to the human resource department.
The company acknowledged that it required Rico and his co-workers to register their freelance business with an offer of higher commission in compliance with tax regulations and that only 62 of its freelance trainers complied with the requirement.
Although the company revoked its offer of higher commission, it offered Rico and his co-workers the chance to revert to being instructors. However, the latter insisted on enjoying the benefits of both an instructor and a freelance trainer.
In its Decision, the Office of the Labor Arbiter declared Rico and his co-workers as independent contractors and denied their claims.
It held that the selection of Rico and his co-workers based on their expertise indicated their nature as independent contractors.
It added that Rico and his co-workers voluntarily signed the freelance agreement, successively renewed it for years, and were paid on a commission basis. It also noted that Rico and his co-workers were responsible for paying and remitting their respective monthly contributions to the Social Security System without fail and timely filing the required income tax returns. Finally, it found that both parties may terminate the agreement with or without cause.
It continued that even if the parties’ relationship were gauged under the power of control test, Rico and his co-workers would still be considered independent contractors. This was because, as freelance trainers, they were not required to report for work on a fixed schedule, and they controlled the time and manner they conducted physical training with their respective clients.
The National Labor Relations Commission and the Court of Appeals agreed with the finding that Rico and his co-workers were not employees of the company.
Rico and his co-workers elevated their case to the Supreme Court, insisting that they were regular employees of the company.
Were Rico and his co-workers independent contractors?
The Supreme Court ruled in the negative and declared Rico and his co-workers as employees of the company.
The Supreme Court began by stating that there is no inflexible rule to determine if one is an employee or an independent contractor. According to the Court, the relationship must be characterized based on the circumstances of each case.
The Court then discussed that a person’s employment status is not defined by what the parties say it should be. Rather, the employment relationship of parties is prescribed by law. When the employment status is in dispute, the employer bears the burden of proving that the person whose service it pays for is an independent contractor rather than a regular employee with or without fixed terms. The rule is that where a person who works for another performs his or her job more or less at his or her own pleasure, in the manner he or she sees fit, is not subject to definite hours or conditions of work, and is compensated according to the result of his or her efforts and not the amount thereof, no employer-employee relationship exists.
An independent contractor, the Court expounded, carries on a distinct and independent business and undertakes to perform the job, work, or service on one’s 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. Independent contractors consist of individuals with unique skills and talents that set them apart from ordinary employees and whose means and work methods are free from the employer’s control. Under this arrangement, there is no trilateral relationship but a bilateral relationship because a principal directly engages independent contractors. An independent contractor enjoys independence and freedom from the control and supervision of his or her principal as opposed to an employee who is subject to the employer’s power to control the means and methods by which the employee’s work is to be performed and accomplished.
The Court went on to employ a two-tiered test to resolve the issue: 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:
- employer’s selection and engagement of the employee;
- payment of wages;
- power to dismiss; and
- power to control the employee’s conduct.
Regarding the power of hiring, the Court found that the company initially engaged Rico and his co-workers as fitness consultants, and on different dates, they transitioned to become freelance personal trainers. However, the Court clarified that an engagement based on talents and skills does not necessarily prevent a person from achieving regular employment status, especially when he or she is repeatedly engaged as an independent contractor on a fixed term in an effort to circumvent security of tenure.
On the payment of wages, the Court found that based on the Freelance Personal Trainer Agreement, Rico and his co-workers were paid on a commission basis. Again, the Court clarified that the Labor Code of the Philippines explicitly mentions commissions as one of the forms of paying wages, or anything paid as remuneration of earnings to employees.
On the power to dismiss, the Court found that although the Freelance Personal Trainer Agreement mentioned that the parties may voluntarily terminate the same with or without cause, the power to dismiss actually rests with the company. For instance, the company held the power to dismiss the freelance personal trainer if it became manifest that the latter was unqualified or unfit to discharge his or her duties.
The Court then remarked that the company’s power to terminate Rico and his co-workers is better understood concurrently with the company’s power of control.
The Court stated that under the four-fold test, the right to control is the dominant factor in determining whether one is an employee or an independent contractor. The so-called control test is commonly regarded as the most crucial and determinative indicator of the presence or absence of an employer-employee relationship. Under the control test, an employer-employee relationship exists where the person for whom the services are performed reserves the right to control the end to be achieved and the manner and means to reach that end.
In this regard, the Court held that Rico and his co-workers did not perform their tasks at their own pleasure and in the manner they saw fit. This was based on the following findings:
First, as personal trainers, Rico and his co-workers performed tasks necessary and desirable to the company’s principal business of providing health programs/packages — to conduct physical training to its clients.
Second, to ensure the quality of services, Rico and his co-workers were required to attend all educational training sessions and other such events pertaining to the company. In fact, the company kept track of the performance of Rico and his co-workers, and some of them were even lauded for their exemplary performance.
Third, even if It assessed the company’s power of control vis-à-vis the Freelance Personal Trainer Agreement, it would reach the same conclusion because although the Agreement guaranteed that Rico and his co-workers shall be free of control in the marketing and conduct of the physical health training packages, the following portions of such Agreement negate the alleged absence of control on the part of the company.
One, upon engagement, Rico and his co-workers were bound to
-diligently perform and assume their duties;
-be assigned to any health club managed by the company;
-observe company rules and regulations; and
-attend company educational training sessions.
Two, Rico and his co-workers were required to guarantee a set number of monthly sales and conduct a set block of time for physical training programs/packages.
And three, the company reserved the right to unilaterally revise the Minimum Performance Standards even without notice.
In addition, the Court further discussed that even if It applied the economic dependence test, the conclusion would be the same. The Court reiterated the following circumstances of the whole economic activity laid down in Francisco v. National Labor Relations Commission1G.R. No. 170087, 31 August 2006 in considering the determination of the relationship between employer and employee:
- extent to which the services performed are an integral part of the employer’s business;
- extent of the worker’s investment in equipment and facilities;
- nature and degree of control exercised by the employer;
- worker’s opportunity for profit and loss;
- amount of initiative, skill, judgment[,] or foresight required for the success of the claimed independent enterprise;
- permanency and duration of the relationship between the worker and the employer; and
- degree of dependency of the worker upon the employer for his continued employment in that line of business.
Here, the Court found that Rico and his co-workers acted as personal trainers, marketed physical health packages and were paid commissions for the sale of such packages. The Court also found that Rico and his co-workers were wholly dependent upon the company for their continued employment as they were prohibited from providing training outside the company. The exclusivity clause, said the Court, only strengthened the finding that Rico and his co-workers were regular employees of the company.
Further reading:
- Escauriaga v. Fitness First, Phil., Inc., G.R. No. 266552, 22 January 2024.
