Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 84484 November 15, 1989
INSULAR LIFE ASSURANCE CO., LTD., petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION and MELECIO BASIAO, respondents.
Tirol & Tirol for petitioner.
Enojas, Defensor & Teodosio Cabado Law Offices for private respondent.
NARVASA, J.:
On July 2, 1968, Insular Life Assurance Co., Ltd. (hereinafter simply called the Company)
and Melecio T. Basiao entered into a contract
1
by which:
1. Basiao was "authorized to solicit within the Philippines applications for
insurance policies and annuities in accordance with the existing rules and
regulations" of the Company;
2. he would receive "compensation, in the form of commissions ... as
provided in the Schedule of Commissions" of the contract to "constitute a part
of the consideration of ... (said) agreement;" and
3. the "rules in ... (the Company's) Rate Book and its Agent's Manual, as well
as all its circulars ... and those which may from time to time be promulgated
by it, ..." were made part of said contract.
The contract also contained, among others, provisions governing the relations of the
parties, the duties of the Agent, the acts prohibited to him, and the modes of termination of
the agreement, viz.:
RELATION WITH THE COMPANY. The Agent shall be free to exercise his
own judgment as to time, place and means of soliciting insurance. Nothing
herein contained shall therefore be construed to create the relationship of
employee and employer between the Agent and the Company. However, the
Agent shall observe and conform to all rules and regulations which the
Company may from time to time prescribe.
ILLEGAL AND UNETHICAL PRACTICES. The Agent is prohibited from
giving, directly or indirectly, rebates in any form, or from making any
misrepresentation or over-selling, and, in general, from doing or committing
acts prohibited in the Agent's Manual and in circulars of the Office of the
Insurance Commissioner.
TERMINATION. The Company may terminate the contract at will, without any
previous notice to the Agent, for or on account of ... (explicitly specified
causes). ...
Either party may terminate this contract by giving to the other notice in writing
to that effect. It shall become ipso facto cancelled if the Insurance
Commissioner should revoke a Certificate of Authority previously issued or
should the Agent fail to renew his existing Certificate of Authority upon its
expiration. The Agent shall not have any right to any commission on renewal
of premiums that may be paid after the termination of this agreement for any
cause whatsoever, except when the termination is due to disability or death in
line of service. As to commission corresponding to any balance of the first
year's premiums remaining unpaid at the termination of this agreement, the
Agent shall be entitled to it if the balance of the first year premium is paid,
less actual cost of collection, unless the termination is due to a violation of
this contract, involving criminal liability or breach of trust.
ASSIGNMENT. No Assignment of the Agency herein created or of
commissions or other compensations shall be valid without the prior consent
in writing of the Company. ...
Some four years later, in April 1972, the parties entered into another contract an Agency
Manager's Contract and to implement his end of it Basiao organized an agency or office
to which he gave the name M. Basiao and Associates, while concurrently fulfilling his
commitments under the first contract with the Company.
2

In May, 1979, the Company terminated the Agency Manager's Contract. After vainly
seeking a reconsideration, Basiao sued the Company in a civil action and this, he was later
to claim, prompted the latter to terminate also his engagement under the first contract and
to stop payment of his commissions starting April 1, 1980.
3

Basiao thereafter filed with the then Ministry of Labor a complaint
4
against the Company and its
president. Without contesting the termination of the first contract, the complaint sought to recover
commissions allegedly unpaid thereunder, plus attorney's fees. The respondents disputed the Ministry's
jurisdiction over Basiao's claim, asserting that he was not the Company's employee, but an independent
contractor and that the Company had no obligation to him for unpaid commissions under the terms and
conditions of his contract.
5

The Labor Arbiter to whom the case was assigned found for Basiao. He ruled that the
underwriting agreement had established an employer-employee relationship between him
and the Company, and this conferred jurisdiction on the Ministry of Labor to adjudicate his
claim. Said official's decision directed payment of his unpaid commissions "... equivalent to
the balance of the first year's premium remaining unpaid, at the time of his termination, of all
the insurance policies solicited by ... (him) in favor of the respondent company ..." plus 10%
attorney's fees.
6

This decision was, on appeal by the Company, affirmed by the National Labor Relations
Commission.
7
Hence, the present petition for certiorari and prohibition.
The chief issue here is one of jurisdiction: whether, as Basiao asserts, he had become the
Company's employee by virtue of the contract invoked by him, thereby placing his claim for
unpaid commissions within the original and exclusive jurisdiction of the Labor Arbiter under
the provisions of Section 217 of the Labor Code,
8
or, contrarily, as the Company would have it,
that under said contract Basiao's status was that of an independent contractor whose claim was thus
cognizable, not by the Labor Arbiter in a labor case, but by the regular courts in an ordinary civil action.
The Company's thesis, that no employer-employee relation in the legal and generally
accepted sense existed between it and Basiao, is drawn from the terms of the contract they
had entered into, which, either expressly or by necessary implication, made Basiao the
master of his own time and selling methods, left to his judgment the time, place and means
of soliciting insurance, set no accomplishment quotas and compensated him on the basis of
results obtained. He was not bound to observe any schedule of working hours or report to
any regular station; he could seek and work on his prospects anywhere and at anytime he
chose to, and was free to adopt the selling methods he deemed most effective.
Without denying that the above were indeed the expressed implicit conditions of Basiao's
contract with the Company, the respondents contend that they do not constitute the decisive
determinant of the nature of his engagement, invoking precedents to the effect that the
critical feature distinguishing the status of an employee from that of an independent
contractor is control, that is, whether or not the party who engages the services of another
has the power to control the latter's conduct in rendering such services. Pursuing the
argument, the respondents draw attention to the provisions of Basiao's contract obliging him
to "... observe and conform to all rules and regulations which the Company may from time
to time prescribe ...," as well as to the fact that the Company prescribed the qualifications of
applicants for insurance, processed their applications and determined the amounts of
insurance cover to be issued as indicative of the control, which made Basiao, in legal
contemplation, an employee of the Company.
9

It is true that the "control test" expressed in the following pronouncement of the Court in the
1956 case of Viana vs. Alejo Al-Lagadan
10

... In determining the existence of employer-employee relationship, the
following elements are generally considered, namely: (1) the selection and
engagement of the employee; (2) the payment of wages; (3) the power of
dismissal; and (4) the power to control the employees' conduct although
the latter is the most important element (35 Am. Jur. 445). ...
has been followed and applied in later cases, some fairly recent.
11
Indeed, it is without question
a valid test of the character of a contract or agreement to render service. It should, however, be obvious
that not every form of control that the hiring party reserves to himself over the conduct of the party hired in
relation to the services rendered may be accorded the effect of establishing an employer-employee
relationship between them in the legal or technical sense of the term. A line must be drawn somewhere, if
the recognized distinction between an employee and an individual contractor is not to vanish altogether.
Realistically, it would be a rare contract of service that gives untrammelled freedom to the party hired and
eschews any intervention whatsoever in his performance of the engagement.
Logically, the line should be drawn between rules that merely serve as guidelines towards
the achievement of the mutually desired result without dictating the means or methods to be
employed in attaining it, and those that control or fix the methodology and bind or restrict
the party hired to the use of such means. The first, which aim only to promote the result,
create no employer-employee relationship unlike the second, which address both the result
and the means used to achieve it. The distinction acquires particular relevance in the case
of an enterprise affected with public interest, as is the business of insurance, and is on that
account subject to regulation by the State with respect, not only to the relations between
insurer and insured but also to the internal affairs of the insurance company.
12
Rules and
regulations governing the conduct of the business are provided for in the Insurance Code and enforced
by the Insurance Commissioner. It is, therefore, usual and expected for an insurance company to
promulgate a set of rules to guide its commission agents in selling its policies that they may not run afoul
of the law and what it requires or prohibits. Of such a character are the rules which prescribe the
qualifications of persons who may be insured, subject insurance applications to processing and approval
by the Company, and also reserve to the Company the determination of the premiums to be paid and the
schedules of payment. None of these really invades the agent's contractual prerogative to adopt his own
selling methods or to sell insurance at his own time and convenience, hence cannot justifiably be said to
establish an employer-employee relationship between him and the company.
There is no dearth of authority holding persons similarly placed as respondent Basiao to be
independent contractors, instead of employees of the parties for whom they worked.
In Mafinco Trading Corporation vs. Ople,
13
the Court ruled that a person engaged to sell soft drinks
for another, using a truck supplied by the latter, but with the right to employ his own workers, sell
according to his own methods subject only to prearranged routes, observing no working hours fixed by
the other party and obliged to secure his own licenses and defray his own selling expenses, all in
consideration of a peddler's discount given by the other party for at least 250 cases of soft drinks sold
daily, was not an employee but an independent contractor.
In Investment Planning Corporation of the Philippines us. Social Security System
14
a case
almost on all fours with the present one, this Court held that there was no employer-employee
relationship between a commission agent and an investment company, but that the former was an
independent contractor where said agent and others similarly placed were: (a) paid compensation in the
form of commissions based on percentages of their sales, any balance of commissions earned being
payable to their legal representatives in the event of death or registration; (b) required to put up
performance bonds; (c) subject to a set of rules and regulations governing the performance of their duties
under the agreement with the company and termination of their services for certain causes; (d) not
required to report for work at any time, nor to devote their time exclusively to working for the company nor
to submit a record of their activities, and who, finally, shouldered their own selling and transportation
expenses.
More recently, in Sara vs. NLRC,
15
it was held that one who had been engaged by a rice miller to
buy and sell rice and palay without compensation except a certain percentage of what he was able to buy
or sell, did work at his own pleasure without any supervision or control on the part of his principal and
relied on his own resources in the performance of his work, was a plain commission agent, an
independent contractor and not an employee.
The respondents limit themselves to pointing out that Basiao's contract with the Company
bound him to observe and conform to such rules and regulations as the latter might from
time to time prescribe. No showing has been made that any such rules or regulations were
in fact promulgated, much less that any rules existed or were issued which effectively
controlled or restricted his choice of methods or the methods themselves of selling
insurance. Absent such showing, the Court will not speculate that any exceptions or
qualifications were imposed on the express provision of the contract leaving Basiao "... free
to exercise his own judgment as to the time, place and means of soliciting insurance."
The Labor Arbiter's decision makes reference to Basiao's claim of having been connected
with the Company for twenty-five years. Whatever this is meant to imply, the obvious reply
would be that what is germane here is Basiao's status under the contract of July 2, 1968,
not the length of his relationship with the Company.
The Court, therefore, rules that under the contract invoked by him, Basiao was not an
employee of the petitioner, but a commission agent, an independent contractor whose claim
for unpaid commissions should have been litigated in an ordinary civil action. The Labor
Arbiter erred in taking cognizance of, and adjudicating, said claim, being without jurisdiction
to do so, as did the respondent NLRC in affirming the Arbiter's decision. This conclusion
renders it unnecessary and premature to consider Basiao's claim for commissions on its
merits.
WHEREFORE, the appealed Resolution of the National Labor Relations Commission is set
aside, and that complaint of private respondent Melecio T. Basiao in RAB Case No. VI-
0010-83 is dismissed. No pronouncement as to costs.
SO ORDERED.
Cruz, Gancayco, Grio-Aquino, and Medialdea, JJ., concur.