Topic 2.

Basic Principles
Objectives: Explain the concept of employer-employess relationship, and distinguish it from
other contractual relationship.

Constitutional Rights of Workers

Article XIII, Section 3 of the Constitution. The State shall afford full protection to labor, local
and overseas, organized and unorganized, and promote full employment and equality of
employment opportunities for all.

It shall guarantee the rights of all workers to self-organization, collective bargaining and
negotiations, and peaceful concerted activities, including the right to strike in accordance with
law. They shall be entitled to security of tenure, humane conditions of work, and a living
wage. They shall also participate in policy and decision-making processes affecting their rights
and benefits as may be provided by law.

The State shall promote the principle of shared responsibility between workers and employers
and the preferential use of voluntary modes in settling disputes, including conciliation, and shall
enforce their mutual compliance therewith to foster industrial peace.

The State shall regulate the relations between workers and employers, recognizing the right of
labor to its just share in the fruits of production and the right of enterprises to reasonable
returns to investments, and to expansion and growth.

Statutory Rights of Workers

Security of tenure
-Workers cannot be dismissed without just and authorized causes
-Workers shall be made regular after 6 months probation unless a different period is
agreed upon by the worker and the employee

Hours of work
-Normal working hours of eight hours a day
-Meal and rest period: meal break of less than one hour shall be considered compensable
working time

Wage and wage related benefits

-Minimum Wage
-Holiday Pay – one day for every regular holiday even if unworked subject to certain
conditions
-Premium pay for work within 8 hours on:
-Special Rest Day - 30% of the basic daily rate
-Rest Day falling on a Special Day - plus 50%
-Rest day falling on a Regular Holiday - plus 30% of the 200% of the basic daily
rate

Overtime pay
-Ordinary days: 25% of the basic hourly rate
 -Special/rest/holiday: 30% of the regular hourly rate on said days

Night shift differential pay

-10% of the basic or regular rate between 10pm and 6am

Service incentive leave

-5 days with pay per year after one year of service

Service charges
-85 % (distribution to rank and file employees); 15% (losses, breakages, distribution to
managerial employees)

Separation pay
-½ month pay for every year of service for authorized causes of separation

13th month pay

-1/12 of the total basic salary earned within the calendar year

Payment of wages
-Shall be paid in cash, legal tender, at or near the place of work
-May be made through a bank upon written petition of majority of the workers in
establishments with 25 or more employees and within one kilometer radius to a bank
-Shall be made direct to the employees
-Shall be given not less than once every 2 weeks or twice within a month at intervals not
exceeding 16 days

Labor-only contracting is prohibited and the person acting as contractor is merely an agent of the
employer

Preference of workers money claims over government and other creditors in case of bankruptcy
or liquidation of business

Safe and healthful conditions of work and welfare services

-Proper illumination and ventilation, fire exits and extinguishers, occupational health
personnel services, family welfare or family planning services at the workplace)

Employment of Young Workers

-Minimum employable age is 15 age
-A worker below 15 should be directly under the sole responsibility of parents or
guardians; work does not interfere with child’s schooling and normal development
-No person below eighteen can be employed in hazardous or deleterious undertaking

Self-organization and collective bargaining

-Employees can form organizations such as union and welfare committees
-An employee can join a union on the very first day of his employment
 -Collective Bargaining– a contract between workers and employers on terms and
conditions of employment which are OVER and ABOVE those mandated by law

Labor education through seminars, dialogues, and information, education and communication
materials

Peaceful concerted activities in accordance with law

Participation in policy and decision-making processes affecting their rights and benefits

Free access to the courts and quasi-judicial bodies and speedy disposition of their cases

ECC benefits for work-related contingencies

-medical benefits for sickness and injuries
-disability benefits
-rehabilitation
-death and funeral

SSS Benefits
-maternity
-sickness
-disability
-retirement
-death

Aspects of Labor Standards

Meliorative Labor Standard - Intended to expand the flow of income or benefits to workingman
that are required for a decent living. Examples are overtime pay and premium pay.

Protective Labor Standard - Intended to protect harsh and oppressive conditions of work that are
inimical to health, safety and well-being of the workers. Example is prescribed hours of work.

Purpose/s of Labor Standards

Remedial and humanitarian

Source/s of Labor Standards

The ff. are the sources of labor standards:
1. Constitution
2. Statutes primarily the labor code and other special labor laws
3. Supreme Court decisions
4. Omnibus rules issued by the DOLE
5. Opinions of DOLE and other labor agencies
6. Decisions of foreign courts where our labor statutes are based or patterned

In addition are the employment contract, company policies and practices, and collective
bargaining agreement.
Offer of Employment

An employment contract, like any other contract, is perfected at the moment the parties come to
agree upon its terms and conditions, and thereafter, concur in the essential elements thereof. In
this relation, the contracting parties may establish such stipulations, clauses, terms, and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order or public policy.

In this case, the Court agrees with the finding of the CA that there was already a perfected
contract of employment when petitioner signed ANZ's employment offer and agreed to the terms
and conditions that were embodied therein. Nonetheless, the offer of employment extended to
petitioner contained several conditions before he may be deemed an employee of ANZ. Among
those conditions for employment was the "satisfactory completion of any checks (e.g.
background, bankruptcy, sanctions and reference checks) that may be required by ANZ."
Accordingly, petitioner's employment with ANZ depended on the outcome of his background
check, which partakes of the nature of a suspensive condition, and hence, renders the obligation
of the would-be employer, i.e., ANZ in this case, conditional. Article 1181 of the Civil Code
provides:

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which constitutes
the condition.

In the realm of civil law, a condition is defined as "every future and uncertain event upon which
an obligation or provision is made to depend. It is a future and uncertain event upon which the
acquisition or resolution of rights is made to depend by those who execute the juridical act."
Jurisprudence states that when a contract is subject to a suspensive condition, its effectivity shall
take place only if and when the event which constitutes the condition happens or is fulfilled. A
contract is one of the five (5) sources of obligations as stated in the Civil Code. An obligation is
defined as the juridical necessity to give, to do or not to do. While a contract may be perfected in
the manner of operation described above, the efficacy of the obligations created thereby may be
held in suspense pending the fulfillment of particular conditions agreed upon. In other words, a
perfected contract may exist, although the obligations arising therefrom - if premised upon a
suspensive condition - would yet to be put into effect.

Here, the subject employment contract required a satisfactory completion of petitioner's

background check before he may be deemed an employee of ANZ. Considering, however, that
petitioner failed to explain the discrepancies in his declared information and documents that were
required from him relative to his work experience at Siemens, ANZ's obligations as a would-be
employer were held in suspense and thus, had yet to acquire any obligatory force. To reiterate,
in a contract with a suspensive condition, if the condition does not happen, the obligation does
not come into effect. Thus, until and unless petitioner complied with the satisfactory background
check, there exists no obligation on the part of ANZ to recognize and fully accord him the rights
under the employment contract. (Sagun vs ANZ Global Services and Operations, GR 220399,
August 22, 2016)
Perfection of Employment Contract
Contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of the parties. Perfection or
birth of the contract takes place when the parties agree upon the essential elements of the
contract. Consummation occurs when the parties fulfill or perform the terms agreed upon in the
contract, culminating in the extinguishment thereof.

Under Article 1315 of the Civil Code, a contract is perfected by mere consent and from
that moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.

An employment contract, like any other contract, is perfected at the moment (1) the
parties come to agree upon its terms; and (2) concur in the essential elements thereof: (a) consent
of the contracting parties, (b) object certain which is the subject matter of the contract and (c)
cause of the obligation.

Concept of Employer-Employee
An employer-employee relationship is the same as the wage system of labor where a person
offers his services to another under an employment contract for which such service is paid by
wages. The employee is under the control and supervision of an employer as to the means,
manner or method of which the work is to be accomplished including the result thereof and is
paid for the work done in terms of wage.

It is important to determine if an employer-employee relationship exists in order to determine the

applicable law and the proper tribunal to resolve in case is disputes.

Commencement of Employer-Employee Relationship

The commencement of an employer-employee relationship must be treated separately
from the perfection of an employment contract. Santiago v. CF Sharp Crew Management,
Inc., which was promulgated on 10 July 2007, is an instructive precedent on this point. In said
case, petitioner was hired by respondent on board MSV Seaspread for US$515.00 per month for
nine (9) months, plus overtime pay. Respondent failed to deploy petitioner from the port of
Manila to Canada. We made a distinction between the perfection of the employment contract and
the commencement of the employer-employee relationship, thus:

The perfection of the contract, which in this case coincided with the date
of execution thereof, occurred when petitioner and respondent agreed on the
object and the cause, as well as the rest of the terms and conditions therein. The
commencement of the employer-employee relationship, as earlier discussed,
would have taken place had petitioner been actually deployed from the point of
hire. Thus, even before the start of any employer-employee relationship,
contemporaneous with the perfection of the employment contract was the birth of
 certain rights and obligations, the breach of which may give rise to a cause of
action against the erring party.

Despite the fact that the employer-employee relationship has not commenced due to the
failure to deploy respondents in this case, respondents are entitled to rights arising from the
perfected Contract of Employment, such as the right to demand performance by C.F. Sharp of its
obligation under the contract.

Four-fold Test
The four-fold test are:
1. Selection and engagement of employees
2. Payment of wages
3. Power of dismissal
4. Power of control over employee’s conduct and over the means and methods by which
the work is to be accomplished

The number 4 which is the control test is the most important. The fourth element is lacking in
independent contractorship.

Two-tiered Test in Determining Employer-Employee Relationship

The two-tiered test are: (ECONOMIC POWER)
1. Power of control over employee’s conduct and over the means and methods by
which the work is to be accomplished
2. The underlying economic realities of the activity or relationship such that the
employee is economically dependent for his continued employment to the employer
(Economic Reality Test)

The ff. are the indications that an employee 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

The two-tiered test is usually applied only when there is doubt whether the relationship is
actually an employer-employee relationship or if there is no written employment contract. If
there's an employment contract, there is no doubt that there is an employer-employee
relationship.

Principal & Agent

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 principal substitutes his own judgment for that of the agent.

Principal & Individual Independent Contractor (Free Artisan)

An individual contractor or free artisan carries a distinct and independent business and
undertakes to perform the job, work, or service on its own account and under its own
responsibility, according to its own manner and method and free from the control and
direction of the principal in all matters connected with the performance of the work except
as to the results thereof.

The Civil Code applies in independent contractorship.

Chief Characteristics of Employee

Economic Dependence
-Employee cannot bargain the terms and conditions of employment and is dependent to
the employer for his continued employment.

Subordination in Work Relation

-Employer exercises control not only the means and methods but also the results thereof.

Does an independent contractor depend on a particular person for his income?

No, his income depends on the number of clients that he has and not on one particular
person or entity (employer).

If you are an employee, do you perform specialized service? No.

Do independent contractor perform specialized services? Yes.

Talents under DOLE Labor Advisory No. 04, S. 2016, dated April 26, 2016 on Working
Conditions in the Movie & Television Industry
Purpose and Coverage: to ensure compliance with Labor Standards and Occupational Safety and
Health Standards and better working conditions for all workers and/or talents, including children
and elderly, in the Movie and Television Industry

"Talent" refers to an independent contractor or individual who has unique skills, experience and
talents or celebrity status and whose means and methods in the performance of his/her work is
outside the control of another or the hiring party, and his/her service/engagement contract is
governed by the Civil Code provisions on contracts and other applicable laws, but in no case
lower than the standards provided by the Labor Code, as amended.

See DOLE Labor Advisory No. 04, S. 2016, dated April 26, 2016 (for more details)