Determining Employment Status: Applying the Four-Fold Test

G.R. No. 95845, February 21, 1996

Imagine a scenario: A worker performs tasks at a company, receives regular payments, and is subject to certain directives. Are they an employee or an independent contractor? This distinction matters greatly, as it determines their rights and benefits under labor laws. The case of William L. Tiu vs. National Labor Relations Commission and Hermes Dela Cruz delves into this very question, providing a clear framework for determining the existence of an employer-employee relationship.

This case revolves around a dispute between William L. Tiu, a transportation business operator, and Hermes Dela Cruz, who worked as a dispatcher in Tiu’s bus terminals. Dela Cruz filed a complaint for illegal dismissal and various labor law violations, which Tiu contested, arguing that Dela Cruz was not his employee. The central legal question is whether an employer-employee relationship existed between Tiu and Dela Cruz.

The Four-Fold Test: Defining the Employment Relationship

Philippine labor law utilizes the “four-fold test” to ascertain whether an employer-employee relationship exists. This test considers four key factors:

• Power of Selection: Who has the authority to hire or engage the employee?
• Payment of Wages: Who is responsible for paying the employee’s salary or wages?
• Power of Dismissal: Who has the authority to terminate the employee’s services?
• Power of Control: Who has the authority to control the employee’s conduct, not only regarding the outcome but also the means of achieving it?

Article 4 of the Labor Code of the Philippines provides that all doubts in the implementation and interpretation of the provisions of the Labor Code, including its implementing rules and regulations, shall be resolved in favor of labor. This underscores the policy of the State to afford protection to labor.

The most critical element of the four-fold test is the power of control. This means the employer has the right to direct not only what work should be done but also how it should be done. This distinguishes an employee from an independent contractor who performs work according to their own methods. An independent contractor can be hired to do a specific job but the employer does not dictate how to do it.

For example, a company hires a construction firm to build an office building. The company specifies the design and materials, but the construction firm determines the building methods and manages its workers. The construction firm is an independent contractor.

The Case of Tiu vs. NLRC: Applying the Four-Fold Test

Hermes Dela Cruz worked as a dispatcher in William Tiu’s bus terminals, assisting passengers and handling their luggage. He received a daily wage of P20.00. When Dela Cruz was terminated, he filed a complaint, claiming illegal dismissal and other labor violations. Tiu denied that Dela Cruz was his employee, claiming that Dela Cruz was merely a “standby” who assisted passengers independently.

The Labor Arbiter and the NLRC (National Labor Relations Commission) ruled in favor of Dela Cruz, finding that an employer-employee relationship existed based on the four-fold test. The NLRC affirmed the Labor Arbiter’s decision, prompting Tiu to file a petition for certiorari with the Supreme Court.

The Supreme Court considered the following key pieces of evidence:

• Tiu’s admission that Dela Cruz received a fixed daily rate.
• A disciplinary memorandum indicating Tiu’s power to dismiss Dela Cruz.
• Evidence showing that Tiu’s Chief Dispatcher supervised Dela Cruz’s work.

The Supreme Court emphasized the significance of the control test.

As the court stated:

“The ‘control test,’ under which the person for whom the services are rendered reserves the right to direct not only the end to be achieved but also the means for reaching such end, is generally relied on by the courts.”

The Court noted that even if the power of control was delegated to Tiu’s Chief Dispatcher, Regino dela Cruz, the ultimate authority still rested with Tiu. The Supreme Court agreed with the labor agencies’ findings, stating that:

“The question whether an employer-employee relationship exists is a question of fact. As long as the findings of the labor agencies on this question are supported by substantial evidence, the findings will not be disturbed on review in this Court.”

The Supreme Court denied Tiu’s petition, affirming the NLRC’s decision that Dela Cruz was indeed Tiu’s employee and was entitled to the benefits of labor laws.

Practical Implications: What This Means for Employers and Employees

The Tiu vs. NLRC case reinforces the importance of the four-fold test in determining employment status. It clarifies that even if some aspects of control are delegated, the ultimate power of control remains with the employer. This has significant implications for businesses and workers alike.

Businesses must carefully assess their relationships with workers to ensure proper classification. Misclassifying employees as independent contractors can lead to costly legal battles and penalties. Workers, on the other hand, should be aware of their rights and seek legal advice if they believe they have been misclassified.

Key Lessons

• The four-fold test is the standard for determining employment status in the Philippines.
• The power of control is the most critical element of the four-fold test.
• Employers cannot avoid labor law obligations by delegating control to supervisors.
• Misclassifying employees as independent contractors can have serious legal consequences.

For example, a small business owner hires several delivery drivers, paying them a fixed rate per delivery but dictating their routes and schedules. Even if the drivers use their own vehicles, they are likely considered employees due to the level of control exercised by the business owner.

Frequently Asked Questions

Q: What is the most important factor in determining if someone is an employee?

A: The power of control is generally considered the most important factor. This means the employer has the right to control not only the result of the work but also how it is done.

Q: Can an employer avoid labor law obligations by hiring workers as “independent contractors”?

A: No, simply labeling a worker as an “independent contractor” does not automatically exempt the employer from labor law obligations. The actual relationship between the parties must be examined using the four-fold test.

Q: What happens if an employer misclassifies an employee as an independent contractor?

A: The employer may be liable for unpaid wages, benefits, and penalties. The employee may also be entitled to damages for illegal dismissal or other labor law violations.

Q: What should I do if I believe I have been misclassified as an independent contractor?

A: Consult with a labor lawyer to assess your situation and determine your legal options. You may be able to file a complaint with the Department of Labor and Employment (DOLE) or pursue legal action in court.

Q: Does signing a contract as an independent contractor mean I am not an employee?

A: No, the terms of a contract are not the sole determining factor. The actual working relationship and the application of the four-fold test will determine your employment status.

Q: What is a labor-only contracting?

A: Labor-only contracting exists when the contractor or subcontractor merely recruits, supplies or places workers to an employer. The contractor does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the employees recruited are performing activities which are directly related to the principal business of the employer.

Q: Where can I file a complaint if my rights as an employee were violated?

A: You can file a complaint before the Regional Arbitration Branch of the National Labor Relations Commission (NLRC) which has jurisdiction over the workplace of the aggrieved employee.

ASG Law specializes in labor law and employment disputes. Contact us or email hello@asglawpartners.com to schedule a consultation.