he determination of whether employer-employee relation exists between the parties is very important.

For one, entitlement to labor standards benefits such as minimum wages, hours of work, overtime pay,
etc., or to social benefits under laws such as social security law, workmen’s compensation law, etc., or to
termination pay, or to unionism and other labor relations provisions under the Labor Code, are largely
dependent on the existence of employer-employee relationship between the parties.

Another thing is that the existence of employer-employee relationship between the parties will
determine whether the controversy should fall within the exclusive jurisdiction of labor agencies or not.
If for example the parties are not employer-employee of each other, respectively, but perhaps partners
or associates, then any dispute between them will be not be covered by the jurisdiction of labor agencies
but by regular courts.

Three test to determine employer-employee relationship

There are three test commonly used to determine the existence of employer-employee relationship, viz.:

Four-fold test

Economic reality test

Two-tiered test (or Multi-factor test)

Four-fold test elements

The usual test used to determine the existence of employer-employer relationship is the so-called four-
fold test. In applying this test, the following elements are generally considered:

Right to hire or to the selection and engagement of the employee.

Payment of wages and salaries for services.

Power of dismissal or the power to impose disciplinary actions.

Power to control the employee with respect to the means and methods by which the work is to be
accomplished. This is known as the right-of-control test.

Right of control test is considered as the most important element in determining the existence of
employment relation.Of the above-mentioned elements, the right of control test is considered as the
most important element in determining the existence of employment relation. The control test initially
found application in the case of Viaña vs. Al-Lagadan and Piga, where the court held that there is an
employer-employee relationship when the person for whom the services are performed reserves the
right to control not only the end achieved but also the manner and means used to achieve that end.

Control test thus refers to the employer’s power to control the employee’s conduct not only as to the
result of the work to be done but also with respect to the means and methods by which the work is to
be accomplished.
In applying this test, it is the existence of the right, and not the actual exercise thereof, that is important.

Economic reality test

In view of today’s highly specialized workforce, the court are often faced with situations where the right-
of-control-test alone can no longer adequately determine the existence of employer-employer
relationship. Subsequently, another test has been devised to fill the gap, known as the economic reality
test.

In Sevilla v. Court of Appeals, the Court observed the need to consider the existing economic conditions
prevailing between the parties, in addition to the standard of right-of-control, to give a clearer picture in
determining the existence of an employer-employee relationship based on an analysis of the totality of
economic circumstances of the worker.

Economic realities of the employment relations help provide a comprehensive analysis of the true
classification of the individual, whether as employee, independent contractor, corporate officer or some
other capacity.

Under economic reality test, the benchmark in analyzing whether employment relation exists between
the parties is the economic dependence of the worker on his employer. That is, whether the worker is
dependent on the alleged employer for his continued employment in the latter’s line of business.

Applying this test, if the putative employee is economically dependent on putative employer for his
continued employment in the latter’s line of business, there is employer-employee relationship between
them. Otherwise, there is none.

Two-tiered test (or Multi-factor test)

The economic reality test is not meant to replace the right of control test. Rather, these two test are
often use in conjunction with each other to determine the existence of employment relation between
the parties. This is known as the two-tiered test, or multi-factor test. This two-tiered test involves the
following tests:

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

The underlying economic realities of the activity or relationship.