Key Takeaway: The Importance of Distinguishing Between Employees and Independent Contractors in Real Estate

Edita Santos Degamo v. My Citihomes (Citihomes Builder & Development Corporation), John Wang, and Rosie Wang, G.R. No. 249737, September 15, 2021

Imagine you’re a real estate agent working hard to sell properties, only to find out that the commission you thought was yours is being withheld. This is exactly what happened to Edita Santos Degamo, who believed she was an employee of My Citihomes and sought unpaid commissions through labor tribunals. The central issue in her case was whether she was truly an employee or an independent contractor, a distinction that can significantly impact legal rights and obligations.

In this case, the Supreme Court of the Philippines clarified the criteria for determining an employer-employee relationship, particularly in the context of real estate sales. The decision hinged on the four-fold test of employment, which includes selection and engagement, payment of wages, power of dismissal, and the power to control the employee’s conduct. Understanding these elements is crucial for both employers and workers in the real estate industry to navigate their legal rights and responsibilities accurately.

Legal Context: The Four-Fold Test and Independent Contractorship

In the Philippines, the existence of an employer-employee relationship is determined by the four-fold test. This test assesses whether the employer has the power to: (1) select and engage the employee; (2) pay wages; (3) dismiss; and (4) control the employee’s conduct. The last element, known as the “control test,” is often the most decisive factor.

An independent contractor is someone who performs services for another without being subject to the latter’s control over the means and methods of accomplishing the task. The distinction between an employee and an independent contractor is critical, as it affects legal rights such as labor benefits, social security, and the jurisdiction of labor tribunals.

Relevant to this case is Article 106 of the Labor Code, which deals with the concept of labor-only contracting. It states that a labor-only contractor is one who does not have substantial capital or investment in the form of tools, equipment, machineries, work premises, among others, and the workers recruited and placed by such person are performing activities which are directly related to the principal business of the employer.

For example, if a real estate company hires a broker who then hires sales agents, the company must ensure that the broker has substantial capital and is not merely a labor-only contractor. Otherwise, the sales agents could be considered employees of the real estate company, with all the attendant rights and benefits.

Case Breakdown: From Labor Arbiter to Supreme Court

Edita Santos Degamo worked as a sales agent for My Citihomes, a real estate development company, through a licensed broker, Evelyn Abapo. After resigning, Degamo filed a complaint for unpaid commissions, claiming she was an employee of My Citihomes.

The Labor Arbiter initially ruled in Degamo’s favor, finding that Abapo was a labor-only contractor and that My Citihomes was the real employer. The Labor Arbiter ordered My Citihomes to pay Degamo her unpaid commissions.

However, both parties appealed to the National Labor Relations Commission (NLRC). The NLRC reversed the Labor Arbiter’s decision, ruling that there was no employer-employee relationship between Degamo and My Citihomes. The NLRC emphasized that Degamo was engaged by Abapo, an independent contractor, and not directly by My Citihomes.

Degamo then appealed to the Court of Appeals (CA), which upheld the NLRC’s decision. The CA noted that Degamo’s resignation was tendered to Abapo, further supporting the independent contractor status.

Finally, Degamo brought her case to the Supreme Court. The Court affirmed the CA’s decision, stating:

“The NLRC and the CA aptly determined that the four elements of employer-employee relationship are not present at bar.”

The Court emphasized that Degamo failed to provide substantial evidence of the four elements of employment, particularly the power of control over the means and methods of her work. The Court noted:

“The significant factor in determining the relationship of the parties is the presence or absence of supervisory authority to control the method and the details of the performance of the service being rendered and the degree to which the alleged employer may intervene to exercise such control.”

The Court also cited Royale Homes Marketing Corp. v. Alcantara, where it was held that sales brokers are typically independent contractors if they operate under their own methods and are not subject to the employer’s control over the means and methods of their work.

Practical Implications: Navigating Employment Status in Real Estate

This ruling has significant implications for real estate companies and their sales agents. Companies must be clear about the status of their sales agents to avoid misclassification and potential legal disputes. Agents, on the other hand, should understand their status to know their rights and where to seek redress for grievances.

For businesses, it’s crucial to ensure that any brokers or agents they work with have substantial capital and are not merely labor-only contractors. This can prevent the company from being held liable as the direct employer of the agents.

For individuals working in real estate, understanding whether you are an employee or an independent contractor can affect your legal recourse. If you believe you are an employee, you should be aware of your rights to labor benefits and protections.

Key Lessons:

• Always clarify your employment status in writing to avoid disputes over commissions or benefits.
• Real estate companies should ensure that any intermediaries they use are legitimate contractors, not labor-only contractors.
• Understand the four-fold test and the control test to determine if an employer-employee relationship exists.

Frequently Asked Questions

What is the four-fold test of employment?

The four-fold test includes the employer’s power to select and engage the employee, pay wages, dismiss, and control the employee’s conduct. It helps determine whether an employer-employee relationship exists.

What is the difference between an employee and an independent contractor?

An employee is subject to the employer’s control over the means and methods of work, while an independent contractor operates under their own methods and is only accountable for the results of their work.

How can I tell if I am an employee or an independent contractor in real estate?

Look at your contract and the level of control your employer has over your work. If you are paid a fixed salary, have set working hours, and are subject to company rules, you are likely an employee. If you are paid based on commissions and have autonomy over your work methods, you are likely an independent contractor.

What are the risks of misclassifying workers in real estate?

Misclassifying workers can lead to legal disputes over unpaid wages, benefits, and labor rights. Companies may face penalties and back payments if workers are found to be employees rather than independent contractors.

Can I file a labor case if I am an independent contractor?

Generally, labor tribunals do not have jurisdiction over disputes involving independent contractors. Such disputes should be resolved through civil courts.

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