Module 2: Employer-Employee Relationship
above-cited example will not prosper on the ground that the
1. CONCEPT OF EMPLOYER-EMPLOYEE (LABOR
STANDARDS)
Art 97b.” Employer” includes any person directly or
indirectly in the interest of an employer in relation to an
employee and shall include the Government and all its
branches, subdivision and instrumentalities, all government-
owned or controlled corporations and institutions, as well as
non-profit private institutions, or organizations. (Expanded
definition)
Art 97c. “Employee” includes any individual employed by an
employer.
Art 212e. “Employer” includes any person acting in the
interest of an employer, directly or indirectly. The term shall
not include any labor organization or any of its officer or
agents except when acting as employer.
Art 212f. “Employee” includes any person in the employ of
the employer. The term shall not be limited to the employees
of a particular employer, unless this code so expressly states. It
shall include any individual whose work has ceased as a result
of or in connection with any current labor dispute or because
of any unfair labor practice if he has not obtained any other
substantially equivalent and regular employment. (Expanded
definition)
It is in personam, involves the rendition of personal service by
the employee, and partakes of master and servant relationship.
EMPLOYER
 May be NATURAL OR JURIDICAL, a single
proprietorship, a partnership or a corporation.
The Government is an employer within the meaning of the
Labor Code in Labor Standards.
So, a government agency with an original charter contract with
a security agency to supply security guards, and this security
agency is unable to pay the wages of its guards.
Q: Is principal government agency considered jointly and
severally liable with the security agency? Will Article 106-
109, LC apply to them? Can the guards file with the labor
complaint with the nearest arbitration branch of the NLRC and
sue both the security and government agency?
A: YES, the Labor Code will govern. The government agency
cannot move for the dismissal of the complaint for lack of
jurisdiction on the part of the Labor Arbiter and say that they
are governed by the Civil Service Law Rules and Regulations.
The government agency contracted the services of an
independent contractor, so they are considered principals.
Therefore, the LC will govern regarding the monetary claims
of the security guards.
A motion to dismiss filed by the government agency in the
Labor. Arbiter has no jurisdiction, because the term
“Employer” includes government agencies. It does not make
any qualifications whether it is one with or without original
charter.
EMPLOYEE
 An employee is always a NATURAL PERSON
may include Filipino citizens or foreigners.
Example: Dumon Sari-sari Store (single proprietorship).
Q: Who is considered the employer?
A: Wilbert Dumon will be the employer, because the sari-sari
store does not have a separate juridical personality. So, if
Dumon is made a defendant in a labor case, the caption will be
– “Employee vs. Wilbert Dumon, doing business under the
name and style of Dumon Sari-sari Store.”
Hiring of employees
 Foreigners – Art. 40-42, PD 442 applies
 Filipino- there is none. The Constitution and the Labor
Code encourage the employment of Filipinos.
Foreign Investment Code
Of those corporations owned by foreigners, if they want to
employ alien as their employees, the following requirements
must be complied with:
1. Such domestic or foreign companies should obtain a
permit from the DOLE (Alien Employment Permit)
at the nearest regional office
2. There must be a determination of the non- availability
of a person in the Philippines, who is competent,
able, willing at the time of application to perform the
services for which the alien is desired.
 The purpose of the law is to protect the Filipinos.
2. DETERMINING THE EXISTENCE OF
EMPLOYER-EMPLOYEE RELATIONSHIP
Four-Fold Test
Selection and Engagement of Employees
1. Exercise of Right/Prerogative: Absolute?
Our laws recognize and respect the exercise by management
of certain rights and prerogatives. For this reason, courts often
decline to interfere in legitimate business decisions of
employers. In fact, labor laws discourage interference in
employers’ judgment concerning the conduct of their business.
(Philippine Industrial Security Agency Corporation vs.
Aguinaldo, G. R. No. 149974, June 15, 2005; Mendoza vs.
Rural Bank of Lucban, G.R. No. 155421, July 7, 2004).
An employer can regulate, generally without restraint,
according to its own discretion and judgment, every aspect of
its business. (Deles, Jr. vs. NLRC, G. R. No. 121348, March 9,
2000). chanrobles virtual law library
This privilege is inherent in the right of employers to control
and manage their enterprise effectively. (Mendoza vs. Rural
Bank of Lucban, G.R. No. 155421, 07 July 2004).
2. Management Prerogative
Needless to state, the exercise of management prerogative is
not absolute. The exercise of management prerogative is
subject to the limitations imposed by law or by CBA,
employment contract, employer policy or practice and general
principles of fair play and justice. (The Philippine American
Life and General Insurance Co. vs. Gramaje, G. R. No.
156963, Nov. 11, 2004).
3. Legal Limitations/Prohibitions prior to hiring:
Prohibition Against Stipulation of Marriage - Art. 134, LC
- (a) Establishments which are required by law to
maintain a clinic or infirmary shall provide free family
planning services to their employees which shall
include, but not be limited to, the application or use of
contraceptive pills and intrauterine devices.
- (b) In coordination with other agencies of the
government engaged in the promotion of family
planning, the Department of Labor and Employment
shall develop and prescribe incentive bonus schemes to
encourage family planning among female workers in
any establishment or enterprise.
Minimum Employable Age - Art. 139, LC
- (a) No child below fifteen (15) years of age shall be
employed, except when he works directly under the sole
responsibility of his parents or guardian, and his
employment does not in any way interfere with his
schooling.
- (b) Any person between fifteen (15) and eighteen (18)
years of age may be employed for such number of hours
and such periods of the day as determined by the
Secretary of Labor and Employment in appropriate
regulations.
- (c) The foregoing provisions shall in no case allow the
employment of a person below eighteen (18) years of
age in an undertaking which is hazardous or deleterious
in nature as determined by the Secretary of Labor and
Employment.
Unfair Labor Practices of Employers - Art. 259[b], LC
Prohibiting the Employment of Children Below 15 years of
Age in Public and Private Undertakings - R.A. No. 7658
Prohibits employment of children below 15 except
when employed directly by the child's parents or legal
guardian, provided that the work does not endanger the child's
health and morals, and that the child is provided with primary
and/or secondary education. Also permits children to be
employed in entertainment productions, provided a permit is
secured from the Department of Labor and Employment.
Sec. 14, R.A. No. 7610
- Section 14. Prohibition on the Employment of Children
in Certain Advertisements. – No person shall employ
child models in all commercials or advertisements
promoting alcoholic beverages, intoxicating drinks,
tobacco and its byproducts and violence.
Guidelines in Assessing and Determining Hazardous Work
in the Employment of Persons below 18 years of age - DOLE
D.O. No. 149 s. 2016
Sec. 3, Anti-Sexual Harassment Act - R.A. No. 7877
- SEC. 3. Work, Education or Training-related Sexual
Harassment Defined. —
- Work, education or training-related sexual harassment is
committed by an employer, employee, manager,
supervisor, agent of the employer, teacher, instructor,
professor, coach, trainer, or any other person who,
having authority, influence or moral ascendancy over
another in a work or training or education environment,
demands, requests or otherwise requires any sexual
favor from the other, regardless of whether the demand,
request or requirement for submission is accepted by the
object of said Act.
- (a) In a work-related or employment environment,
sexual harassment is committed when:
- (1) The sexual favor is made as a condition in the hiring
or in the employment, re-employment or continued
employment of said individual, or in granting said
individual favorable compensation, terms, conditions,
promotions, or privileges; or the refusal to grant the
sexual favor results in limiting, segregating or
classifying the employee which in any way would
discriminate, deprive or diminish employment
opportunities or otherwise adversely affect said
employee;
- (2) The above acts would impair the employee’s rights
or privileges under existing labor laws; or
- (3) The above acts would result in an intimidating,
hostile, or offensive environment for the employee.
- (b) In an education or training environment, sexual
harassment is committed:
- (1) Against one who is under the care, custody or
supervision of the
- offender;
- (2) Against one whose education, training,
apprenticeship or tutorship is entrusted to the offender;
- (3) When the sexual favor is made a condition to the
giving of a passing grade, or the granting of honors and
scholarships, or the payment of a stipend, allowance or
other benefits, privileges, or considerations; or
- (4) When the sexual advances result in an intimidating,
hostile or offensive environment for the student, trainee
or apprentice.
Any person who directs or induces another to commit any act
of sexual harassment as herein defined, or who cooperates in
the commission thereof by another without which it would not
have been committed, shall also be held liable under this Act.
Sec. 35, Philippine AIDS Prevention and Control Act of
1998 - R.A. 8504
Sec. 35. Discrimination in the workplace. –
Discrimination in any form from pre-employment to post-
employment, including hiring, promotion or assignment,
based on the actual, perceived or suspected HIV status of
an individual is prohibited. Termination from work on the
sole basis of actual, perceived or suspected HIV status is
deemed unlawful.
Sec. 55.04, General Banking Laws of 200 - R.A. no.
8791
- 55.4. Consistent with the provisions of Republic
Act No. 1405, otherwise known as the Banks
Secrecy Law, no bank shall employ casual or non-
regular personnel or too lengthy probationary
personnel in the conduct of its business involving
bank deposits.
Sec. 23[c], Responsible Parenthood & Reproductive
Health Act of 2012 - R.A. No. 10354
- Sec. 23 (c) Any employer who shall suggest, require,
unduly influence or cause any applicant for employment
or an employee to submit himself/herself to sterilization,
use any modern methods of family planning, or not use
such methods as a condition for employment, continued
employment, promotion or the provision of employment
benefits. Further, pregnancy or the number of children
 shall not be a ground for non-hiring or termination from
employment;
Secs. 4-7, Anti-Age Discrimination in Employment Act -
R.A. No. 10911 (see also DOLE DO No. 170 S. 2017)
Section 4. Coverage. - The provisions of this Act shall apply
to all employers, labor contractors or subcontractors, if any,
and labor organizations.
Section 5. Prohibition of Discrimination in Employment on
Account of Age –
(a) It shall be unlawful for an employer to:
(1) Print or publish, or cause to be printed or
published, in any form of media, including
the internet, any notice of advertisement
relating to employment suggesting
preferences, limitations, specifications, and
discrimination based on age;
(2) Require the declaration of age or birth date
during the application process;
(3) Decline any employment application because
of the individual’s age;
(4) Discriminate against an individual in terms of
compensation, terms and conditions or
privileges of employment on account of such
individual’s age;
(5) Deny any employee’s or worker’s promotion
or opportunity for training because of age;
(6) Forcibly lay off an employee or worker
because of old age; or
(7) Impose early retirement on the basis of such
employee’s or worker’s age.
(b) It shall be unlawful for a labor contractor or
subcontractor, if any, to refuse to refer for
employment or otherwise discriminate against any
individual because of such person’s age.
(c) It shall be unlawful for a labor organization to:
(1) Deny membership to any individual because
of such individual’s age;
(2) Exclude from its membership any individual
because of such individual’s age; or
(3) Cause or attempt to cause an employer to
discriminate against an individual in violation
of this Act.
(d) It shall be unlawful for a publisher to print or publish
any notice of advertisement relating to employment
suggesting preferences, limitations, specifications,
and discrimination based on age.
Section 6. Exceptions. - It shall not be unlawful for an
employer to set age limitations in employment if:
(a) Age is a bona fide occupational qualification
reasonably necessary in the normal operation of a
particular business or where the differentiation is
based on reasonable factors other than age;
(b) The intent is to observe the terms of a bona fide
seniority system that is not intended to evade the
purpose of this Act;
(c) The intent is to observe the terms of a bona fide
employee retirement or a voluntary early retirement
plan consistent with the purpose of this Act:
Provided, That, such retirement or voluntary
retirement plan is in accordance with the Labor Code,
as amended, and other related laws; or
(d) The action is duly certified by the Secretary of Labor
and Employment in accordance with the purpose of
this Act.
Section 7. Penalty. - Any violation of this Act shall be
punished with a fine of not less than fifty thousand pesos
(₱50,000.00) but not more than five hundred thousand pesos
(₱500,000.00), or imprisonment of not less than three (3)
months but not more than two (2) years, or both, at the
discretion of the court. If the offense is committed by a
corporation, trust, firm, partnership or association or other
entity, the penalty shall be imposed upon the guilty officer or
officers of such corporation, trust, firm, partnership or
association or entity.
Payment of Wages
ART. 102. Forms of payment. - No employer shall pay the
wages of an employee by means of promissory notes,
vouchers, coupons, tokens, tickets, chits, or any object other
than legal tender, even when expressly requested by the
employee.
Payment of wages by check or money order shall be allowed
when such manner of payment is customary on the date of
effectivity of this Code, or is necessary because of special
circumstances as specified in appropriate regulations to be
issued by the Secretary of Labor and Employment or as
stipulated in a collective bargaining agreement.
Art. 1705 (CC). The laborer's wages shall be paid in legal
currency.
EXCEPTIONS (IRR Book III, Rule VIII, Section 2):
Section 2. Payment by check. — Payment of wages by bank
checks, postal checks or money orders is allowed where such
manner of wage payment is customary on the date of the
effectivity of the Code, where it is so stipulated in a collective
agreement, or where all of the following conditions are met:
(a) There is a bank or other facility for encashment within a
radius of one (1) kilometer from the workplace;
(b) The employer or any of his agents or representatives does
not receive any pecuniary benefit directly or indirectly from
the arrangement;
(c) The employees are given reasonable time during banking
hours to withdraw their wages from the bank which time shall
be considered as compensable hours worked if done during
working hours; and
(d) The payment by check is with the written consent of the
employees concerned if there is no collective agreement
authorizing the payment of wages by bank checks.
 If all of these conditions are met, the employer can
validly, by himself, pay wages by checks.
 Note the differences of the instances in the rules that
allow payment by check and place of payment, because
that it usually the mistake of students when they
interchange the instances and of course, these being
different, they will end up wrong.
 Note that the employer should not enter into an
arrangement with the bank that the employer will receive
commission if the employer pays in the form of check.
There should be no pecuniary benefit from this
arrangement of payment through check.
NOTES: Where the employee alleges non-payment of wages
and/or commission, the employer has the burden to prove
payment.
Power of Dismissal
Whether or not employer has the power to dismiss employee.
Power of Control
Whether or not the employer has the power of control over the
employee.
Two-Tiered Test / Economic Reality Test
“The better approach would be to adopt a TWO-TIERED
TEST involving (1) the putative employer’s power to
control the employee with respect to the means and
methods by which the work is to be accomplished and (2)
the underlying economic realities of the activity or
relationship.
This two-tiered test would provide us with a framework of
analysis, which would take into consideration the totality of
circumstances surrounding the true relationship between the
parties.
This is especially APPROPRIATE in this case where there is
no written agreement or terms of reference to base the
relationship on; and due to the complexities of the relationship
based on the various positions and responsibilities given to the
worker over the period of the latter’s employment.
The determination of the relationship between employer and
employee depends upon the circumstances of the whole
economic activity. The PROPER STANDARD OF
ECONOMIC DEPENDENCE is whether the worker is
dependent on the alleged employer for his continued
employment in that line of business.
Under the broader ECONOMIC REALITY TEST, the
petitioner can likewise be said to be an employee of
respondent corporation because she had served the company
for six years before her dismissal, receiving check vouchers
indicating her salaries/ benefits, 13th month pay, bonuses and
allowances as well as deductions and SSS contributions. It is
therefore apparent that petitioner is economically dependent
on respondent for her continued in the latter’s line of
business.”
Q: How to determine that a person is economically
dependent?
1. Number of years in the company
2. Reported to SSS, good indicator of treating him as an
employee.
3. Registered in the payroll
4. Identification card
5. Company uniform
 Determine the underlying economic realities of the
activity or relationships.
 The determination of the relationship between employer
and employee depends upon the circumstances of the
whole economic activity.
1. The (broad) extent to which the services performed
are an integral part of the employer’s business.
2. The (limited) extent of the worker’s investment in the
equipment and facilities.
3. The nature (close supervision) and (high) degree of
control exercised by the employer
4. The workers (limited) opportunities for profit and
loss
5. The (small) amount of initiative, skill, judgment or
foresight required for the success of the claimed
independent enterprise
6. The (high degree of) permanency and duration of the
relationship between the worker and the employer
7. The degree of dependency of the worker upon the
employer for his continued employment in that line
of business.
3. Distinguish Employer-Employee Relationship from:
Principal-Agent Relationship
Art 1868 NCC: By the contract of agency, a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent or
authority of the latter.
It is the principal who selects the agent. An agent is
compensated under the contract of agency of services
rendered. He is disciplined by the principal as in the case of an
employee because the agent is under the authority of the
principal. The principal controls the means and methods of the
work of an agent. In this relationship, there is only one party.
The agent is merely an extension of the principal. They are
regarded as one. So, if there is a contractor relationship, it is
not among three parties but is between the principal/agent and
the other party.
Thus, to make a distinction between a principal-agent and
employer-employee, the four-fold test will not be used
because the agent is selected by the principal and is also
compensated by the principal and most oftentimes, the The definition says that aside from engaging in a business
principal substitutes his own judgment for that of the agent. separately distinct from the principal, to perform job, work or
service, according to his own means and methods, free from
Note: To make a distinction between a principal-agent control and direction of the principal except as to the results
relationship and that of an employer-employee relationship, thereof.
the four-fold test will not be used because the 1) agent is
selected by the principal 2) compensated by the principal 3)
and most oftentimes, the principal also substitutes his own
judgment for that of the agent.

Principal-Contractor Relationship

The principal selects the contractor. The contractor is

compensated for services rendered. The contractor is not under
the discipline of the principal. The distinction says that aside
from engaging in the business separately distinct from the
principal, the performed job, work, or services is according to
his own means and methods free from the control and
direction of the principal except as to the results thereof.

 Contractor may be Individual, Corporate Juridical Entity

– no need of protection from labor code because they
earn better.

Working Conditions in the Movie & Television Industry –

DOLE Advisory No. 04 s. 2016

4. Contracting and Subcontracting Arrangement

Art. 106 of the Labor Code

Art. 106. Contractor or subcontractor. Whenever an employer
enters into a contract with another person for the performance
of the former’s work, the employees of the contractor and of
the latter’s subcontractor, if any, shall be paid in accordance
with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay the
wages of his employees in accordance with this Code, the
employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent of
the work performed under the contract, in the same manner
and extent that he is liable to employees directly employed by
him.
The Secretary of Labor and Employment may, by appropriate
regulations, restrict or prohibit the contracting-out of labor to
protect the rights of workers established under this Code. In so
prohibiting or restricting, he may make appropriate
distinctions between labor-only contracting and job
contracting as well as differentiations within these types of
contracting and determine who among the parties involved
shall be considered the employer for purposes of this Code, to
prevent any violation or circumvention of any provision of this
Code.
There is “labor-only” contracting where the person supplying
workers to an employer 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 such employer. In such
cases, the person or intermediary shall be considered merely as
an agent of the employer who shall be responsible to the
workers in the same manner and extent as if the latter were
directly employed by him.
Trilateral Relationship – refers to the relationship in a
contracting or subcontracting arrangement where there is a
contract for a specific job, work or service between the
principal and the contractor, and a contract of employment
between the contractor and its workers.
There are three (3) parties involved in these arrangements: the
principal who decides to farm out a job, work or service to a
contractor; the contractor who has the capacity to
independently undertake the performance of the job, work or
service; and the contractual workers engaged by the contractor
to accomplish the job, work or service.
Section 5. Trilateral relationship in contracting arrangements;
Solidary liability. – In legitimate contracting or subcontracting
arrangement there exists:
(a) An employer-employee relationship between the contractor
and the employees it engaged to perform the specific job,
work or service being contracted; and
(b) A contractual relationship between the principal and the
contractor as governed by the provisions of the Civil Code.
In the event of any violation of any provision of the Labor
Code, including the failure to pay wages, there exists a
solidary liability on the part of the principal and the contractor
for purposes of enforcing the provisions of the Labor Code
and other social legislation, to the extent of the work
performed under the employment contract.
However, the principal shall be deemed the direct employer of
the contractor’s employee, in cases where there is a finding by
a competent authority of labor-only contracting, or
commission of prohibited activities as provided in Section 7,
or a violation of either Sections 8 or 9 hereof.
Legitimate Contracting/ Subcontracting v. Labor-Only
Contracting
Is there a significance of knowing the difference between Job
contracting and Labor-only contracting? THERE IS. Job
contracting is valid and recognized by law while Labor-only
contracting is a prohibited act. A finding that a contractor is a
labor-only contractor is equivalent to a declaration that there is
an employer-employee relationship between the principal and
the employees of the labor-only contractor. In such a case the
labor-only contractor shall be responsible to the workers in the
manner and extent as if said workers were directly employed
by him.
DOLE Department Order No. 174, Series of 2017
Elements of Legitimate Job Contracting
Under the Labor Code, the State may restrict or prohibit the
contracting out of labor to protect the rights of workers. Job
contracting is not absolutely prohibited. The Department of
Labor and Employment’s (DOLE) latest issuance, Department
Order (DO) 174, s. 2017, sets out parameters for permissible
contracting arrangements.
The concurrence of the following is essential for a contractor
to be considered as a legitimate job contractor:
a) The contractor or subcontractor is engaged in a distinct and
independent business and undertakes to perform the job or
work on its own responsibility, according to its own manner
and method;

b) The contractor or subcontractor has substantial capital to

carry out the job farmed out by the principal on his account,
manner and method, investment in the form of tools,
equipment, machinery and supervision;

c) In performing the work farmed out, the contractor or

subcontractor is free from the control and/or direction of the
principal in all matters connected with the performance of the
work except as to the result thereto; and

d) The Service Agreement ensures compliance with all the

rights and benefits for all the employees of the contractor or
subcontractor under the labor laws.

Effects of Labor-Only Contracting

Labor-only contracting refers to arrangement where the

contractor or subcontractor merely recruits, supplies or places
workers to perform a job or work for a principal. There are
two variants of labor-only contracting:

1. When the contractor or subcontractor does not exercise the

right to control over the performance of the work of the
employees.

2. When: (i) the contractor or subcontractor does not have

substantial capital, or does not have investments in the form
of tools, equipment, machineries, supervision, work premises,
among others; and (ii) the contractor’s or subcontractor’s
employees recruited and placed are performing activities
which are directly related to the main business operation of
the principal.

LIABILITY OF PRINCIPAL

In instances where there is a finding of labor-only contracting

or illegal employment arrangements, the principal shall be
deemed the direct employer of the contractor’s or
subcontractor’s employees.

In labor-only contracting, the statute creates an employer-

employee relationship for a comprehensive purpose: to
prevent a circumvention of labor laws. The contractor is
considered merely an agent of the principal employer and the
latter is responsible to the employees of the labor-only
contractor as if such employees had been directly employed by
the principal employer. A finding of a “labor-only” contractor
is equivalent to a finding that an employer-employee
relationship exists between the company and the labor
contractor’s employee, the relationship being such as provided
by the law itself. (In technical terms, the principal employer is
solitarily liable with the labor-only contractor for all the
rightful claims of the employees

Other Illicit Forms of Employment

DOLE Department Order No. 174, Series of 2017