The Supreme Court held that employees of a cooperative are entitled to the same rights and protections as regular employees, regardless of their membership status within the cooperative. This means that even if a worker is a member or co-owner of a cooperative, they can still be considered an employee and protected by the Labor Code, particularly concerning illegal dismissal and the right to due process. The court emphasized that the existence of an employer-employee relationship is determined by specific factors, and cooperative membership does not automatically negate employee status.

Cooperative Conundrum: Are Members Always Owners, Never Employees?

Perpetual Help Credit Cooperative, Inc. (PHCCI) faced a lawsuit from several individuals who claimed illegal dismissal. PHCCI argued that these individuals were not employees but members and co-owners of the cooperative. This raised a critical question: Can cooperative members also be considered employees with the rights and protections afforded by the Labor Code? This case delves into the nuances of employment relationships within cooperatives and clarifies the rights of workers who are also cooperative members.

In determining the existence of an employer-employee relationship, the Supreme Court relies on a four-fold test, encompassing:

1. the selection and engagement of the worker or the power to hire;
2. the power to dismiss;
3. the payment of wages by whatever means; and
4. the power to control the worker’s conduct

The last element, control, assumes primacy in the overall consideration. As the Court emphasized, “No particular form of proof is required to prove the existence of an employer-employee relationship. Any competent and relevant evidence may show the relationship.” In this case, the Court found substantial evidence demonstrating that PHCCI exercised control over the private respondents.

Building on this principle, the Court examined whether the individuals were indeed regular employees. Article 280 of the Labor Code distinguishes between regular, project, and casual employees. Regular employees are those engaged to perform activities that are “usually necessary or desirable in the usual business or trade of the employer.” The Court determined that the private respondents were performing services essential to PHCCI’s daily operations, thus qualifying them as regular employees.

The cooperative argued that the private respondents were mere volunteer workers. However, the Court dismissed this argument, citing the fact that all, except one, had worked for more than one year, with fixed schedules and compensation. The court emphasized that one’s regularity of employment is not determined by the number of hours one works but by the nature and by the length of time one has been in that particular job.

The Court also rejected the argument that internal cooperative dispute mechanisms should have been exhausted before resorting to labor arbitration. The Court clarified that such mechanisms apply to disputes among members, officers, and directors concerning intra-cooperative matters. However, in this case, the dispute concerned the payment of wages, overtime pay, rest days, and termination of employment, which falls under the jurisdiction of the Labor Arbiter, as provided by Article 217 of the Labor Code.

Central to the decision was the matter of illegal dismissal. As regular employees, the private respondents were entitled to security of tenure, meaning their services could only be terminated for a just or authorized cause, and with due process. The Court found that the dismissals were not based on any valid cause but rather on the erroneous belief that the respondents were mere volunteer workers who could be terminated at will.

Further, the Court found that PHCCI failed to comply with the procedural requirements for a valid dismissal. Procedural due process requires that the employer serve two written notices to the employees before termination:

1. a notice apprising them of the specific acts or omissions for which their dismissal is sought; and
2. a notice informing them of the employer’s decision to dismiss them.

In this case, the Court found that only one notice was served. Consequently, the dismissals were deemed illegal.

Having established that the private respondents were illegally dismissed, the Court affirmed their entitlement to reinstatement with full backwages and other benefits. Considering that the dismissals occurred after the effectivity of Republic Act No. 6715, the Court awarded full backwages without deducting earnings derived elsewhere during the period of illegal dismissal.

The ruling in Perpetual Help Credit Cooperative, Inc. vs. Benedicto Faburada underscores the importance of adhering to labor laws even within the context of cooperative structures. The Supreme Court’s decision protects the rights of workers who may also be cooperative members, ensuring that they are not deprived of the safeguards provided by the Labor Code. This ruling serves as a reminder that cooperative membership does not automatically negate the existence of an employer-employee relationship and the corresponding rights and responsibilities.

FAQs

What was the key issue in this case?	The central issue was whether cooperative members working for the cooperative could be considered employees with the rights and protections afforded by the Labor Code, particularly concerning illegal dismissal.
What is the four-fold test to determine the existence of an employer-employee relationship?	The four-fold test includes: (1) the power to hire, (2) the power to dismiss, (3) the payment of wages, and (4) the power to control the employee’s conduct. The element of control is considered the most important.
What are the types of employees under the Labor Code?	Article 280 of the Labor Code distinguishes between regular employees, project employees, and casual employees. Regular employees are those engaged to perform activities that are usually necessary or desirable in the usual business or trade of the employer.
What is required for a valid dismissal of an employee?	A valid dismissal requires a just or authorized cause, as well as compliance with procedural due process. This includes serving two written notices to the employee before termination.
What is the significance of R.A. 6715 in this case?	Since the dismissals occurred after the effectivity of R.A. 6715, the Court awarded full backwages to the illegally dismissed employees without deducting earnings they may have derived elsewhere during the period of their dismissal.
Does membership in a cooperative negate the possibility of an employer-employee relationship?	No, membership in a cooperative does not automatically negate the existence of an employer-employee relationship. The court emphasized that the four-fold test should still be applied to determine the true nature of the relationship.
What is the remedy for illegal dismissal?	Illegally dismissed employees are entitled to reinstatement without loss of seniority rights and other privileges, as well as full backwages, inclusive of allowances, plus other benefits or their monetary equivalent. If reinstatement is not feasible, separation pay may be awarded.
What was the cooperative’s argument for dismissing the employees?	The cooperative argued that the employees were mere volunteer workers, being members of the cooperative, and therefore their services could be terminated at will. The Court rejected this argument.

The Supreme Court’s ruling provides clarity on the employment rights of cooperative members, reinforcing the principle that labor laws apply equally to all workers, regardless of their membership status. This case emphasizes the importance of due process and just cause in termination proceedings.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Perpetual Help Credit Cooperative, Inc. vs. Benedicto Faburada, G.R. No. 121948, October 08, 2001