Lease of service or employment?

Could an individual be considered an employee even if there is a contract between him and the company expressly declaring that he is not its employee. Assuming there is an employer-employee relation, when is he considered a regular employee? These are the issues raised in this case of Pete.

Pete entered into an agreement with the publisher of a newspaper of general circulation to solicit advertisements for the newspaper with a commission of 15 percent on direct advertisements and a 10 percent commission on agency advertisements less withholding tax. The commissions released every fifteen days of each month were to be given only after the clients would have paid for the ads. Apart from the commission Pete was also entitled to a monthly allowance of P2,000 everytime he met a P30,000 quota. He was required to submit a daily sales activity and a monthly sales report which were monitored by the President, Advertising Manager and Director.The contract he signed contained a stipulation that he is not an employee of the company and that either party may terminate the agreement at any time by giving written notice to the other, thirty days prior to the effectivity of the termination.

Barely two months after the fifth renewal of his contract, Pete received a written notice terminating his services effective 45 days later. Apart from vague allegations of misconduct on which he was not given an opportunity to defend himself i.e. pirating clients from his co-executives and failing to produce results, no definite cause for his termination was given.

So Pete filed a case before the labor arbiter asking that his dismissal be declared unlawful and that his reinstatement without loss of seniority rights be ordered. He also prayed for P500,000 moral damages and P200,000 exemplary damages.

In answer the Company alleged that it did not enter into any employment contract with Pete but only a contract of lease of work or service under Articles 1642 and 1644 of the Civil Code. And under the said contract both parties could opt to end it provided that either party would serve notice thirty days prior to the termination.

Was the company correct?

No.

The contractual relationship between Pete and the publishing company is one of employment. For an employment relationship to exist, the following factors must be considered: (a) the manner of selection and engagement; (b) the mode of payment of wages; (c) the presence or absence of the power of dismissal; and (d) the presence or absence of the power to control the conduct of the employee with respect to the means or methods by which his work is to be accomplished. The control test or the control and supervision of the party contracting for the services, not only as to the result of the work but also as to the manner and details of the performance desired, assumes primacy in the overall consideration. In this case the Company exercises such control by requiring Pete, among other things to submit a daily sales activity and also a monthly sales report.

Employment on the other hand shall be deemed to be regular where the employee has been engaged to perform activities which are usually necessary or desirable in the usual business or trade of the employer as against those which are undertaken for a specific project or seasonal. Even in these latter cases, where such person has rendered at least one year of service, regardless of the nature of the activity performed, or of whether it is continuous or intermittent, the employment is considered regular as long as the activity exist, it not being indispensable that he be first issued a regular appointment or be formally declared as such before acquiring regular status. In this case, Pete was an account executive in soliciting advertisements, clearly necessary and desirable, for the survival and continuous operation of the business of the publishing company. The paid ads was the lifeblood of the newspaper’s existence. Implicitly, the company recognized Pete’s invaluable contribution to the business when it renewed, not just once but five times, its contract with Pete.

As a regular employee therefore, Pete could be dismissed only for a valid cause and after the rudimentary due process of notice and hearing has been met. The company has not fully complied with these requirements in terminating the services of Pete. The notice of termination recites no valid or just cause for dismissal nor does it appear that he has been given the opportunity to be heard in his defense.

So Pete has been illegally dismissed. He should therefore be reinstated to his former position without loss of seniority rights and paid his commission from the date of dismissal until reinstated. He is however not entitled to moral damages as it was not shown that there was bad faith or malice on the part of the company (Paguio vs. NLRC et al., G.R. 147816, May 9, 2003).