Francisco v.

NLRC
G.R. No. 170087. August 31, 2006.
Petitioner: Angelina Francisco
Private Respondents: Kasei Corporation and its officers: Takahashi, et al.

Facts:
In 1995, Petitioner Francisco was hired by Kasei Corp. as Accountant and Corporate Secretary during its
incorporation stage. She was also designated as Liaison Officer of the Corp. to Makati City for securing
permits, licenses, etc. for its initial operation.

One year after, she was designated Acting Manager, tasked to handle recruitment of employees, represent
the company in dealings with the government (BIR, SSS, Makati City Government.) Francisco performed
the duties of Acting Manager for 5 years (until 2000.)

In 2001, Francisco was replaced as Manager, but she was assured that she was still connected with Kasei
Corp as Technical Assistant to Seiji Kamura and in charge of BIR matters. Thereafter, her salary was
reduced by P2,500 monthly, from Jan. to Sept. 2001, for a total reduction of P22,500. On October 2001,
Francisco didn't receive her salary despite follow-ups with the company, but she was just told that the
company wasn't earning well. She asked her salary from the officers of the company but she was told that
she is no longer connected with the company. Since the company wasnt paying her anymore, Francisco
no longer reported for work and filed an action for constructive dismissal before the Labor Arbiter.

Private Respondents claim that Francisco is not an employee, as shown by the following:
1. She was hired as a consultant who performs her functions at her own discretion and without
control and supervision of Kasei Corp. In fact, she was not reported to the BIR, SSS as one of the
company's employees.
2. Francisco was not hired through the usual procedure of selection of employees, but through a
Board Resolution designating her as consultant.
3. The money Francisco received was her professional fee.

The Labor Arbiter found that Francisco was illegally dismissed. The NLRC affirmed. The CA, however,
granted the appeal of the. Private Respondents and dismissed the complaint, thus this appeal by
Francisco.

Issue/s:
1. W/N there was an employer-employee relationship between Francisco and Kasei Corporation
2. W/N Francisco was illegally dismissed (if there is such an employer-employee relationship)

Held/Ratio:
Yes and Yes. Generally, Courts have relied on the 'right of control test' where the person for whom the
services are performed reserves a right to control not only the end to be achieved but also the means to be
used in reaching such end. However, in certain cases, the control test is not sufficient, such as when the
economic realities of the employment relations help provide a comprehensive analysis of the true
classification of an individual, whether as employee, independent contractor, etc. 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. (discussed below)

The two-tiered test takes into consideration the totality of circumstances surrounding the true
nature of the 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 complexity of the
relationship based on the various positions and responsibilities given to the worker.

The determination of the relationship between employer and employee depends upon the circumstances
of the whole economic activity:
(1) the extent to which the services performed are an integral part of the employers business;
(2) the extent of the workers investment in equipment and facilities;
(3) the nature and degree of control exercised by the employer;
(4) the workers opportunity for profit and loss;
(5) the amount of initiative, skill, judgment or foresight required for the success of the claimed
independent enterprise;
(6) the permanency and duration of the relationship between the worker and the employer; and
(7) the degree of dependency of the worker upon the employer for his continued employment in that
line of business.

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.

By applying the control test, there is no doubt that Francisco is an employee of Kasei Corp. because she
was under the direct control and supervision of Seiji Kamura, the corporations Technical Consultant. She
reported for work regularly and served in various capacities (Accountant, Liaison Officer, etc.), that is,
performing functions necessary and desirable for the corporation.

Under the broader economic reality test, Francisco 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/wages, benefits, 13th month pay, bonuses and allowances, as well as
deductions and Social Security contributions.

It is therefore apparent that petitioner is economically dependent on Kasei Corp. for her continued
employment in the latters line of business. Based on the foregoing, Francisco is an employee of Kasei
Corp. She was selected and engaged by the company for compensation, and is economically dependent
upon the company for her continued employment in that line of business. Kasei Corp. hired and engaged
Francisco for compensation, with the power to dismiss her for cause. More importantly, Kasei Corp. had
the power to control petitioner with the means and methods by which the work is to be accomplished.

The corporation constructively dismissed Francisco when it reduced her salary by P2,500 a month
from January to September 2001. This amounts to an illegal termination of employment, where
Francisco is entitled to full backwages. Since her position as accountant is one of trust and confidence,
and under the principle of strained relations, she is further entitled to separation pay, in lieu of
reinstatement.

A diminution of pay is prejudicial to the employee and amounts to constructive dismissal. Constructive
dismissal is an involuntary resignation resulting in cessation of work resorted to when continued
employment becomes impossible, unreasonable or unlikely; when there is a demotion in rank or a
diminution in pay; or when a clear discrimination, insensibility or disdain by an employer becomes
unbearable to an employee.