CHAPTER 2

Review of Related Literature

This chapter is devoted to the presentation of relevant and scholarly concepts

in literature and research study forms. These related literature and studies came from
experts in the field of law and psychology and also existing reports of the
International Labor Organization.

Conceptual Literature

At the outset, the determination of whether employment relation exists

between the parties is very important. For one, entitlement to labor standards benefits
is largely dependent on the existence of employer-employee relationship between the
parties. Also, 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.

In a trilateral employment relationship, various authors established how

employment relationship subsists in this three-way system. Between the principal and
the contractor, the major laws applicable to their work relationship are the Civil Code
and pertinent commercial laws. Between the contractors and their employees, the
major laws pertinent to their work relationship are the Labor Code and special labor
laws. Between the principal and the contractors employees, no employer-employee

relationship exists, because the contractor, being himself a businessman, is the

employer1.

This manifests the fact the most important requirement for the Labor Code to
apply; employer-employee relationship must be present. Without this relationship, the
Code will not apply2.

According to an article published by Towner, triangular arrangements are not

uncommon. An end user hires labor from a third party provider, perhaps on a
permanent basis or for casual relief as and when required. The arrangement may be
formalized by a commercial contract between the user and provider parties. The
provider typically employs individuals (or alternatively contracts with them) to perform
the work required3.

Towner further stated that statutory protections under the Employment

Relations Act 2000 (ERA)4 apply where there is an employment relationship, for
example between a worker and their employer labor company. However, there is no

1 Cesario Alvero Azucena. The Labor Code with Comments and Cases. Edition 8. Volume I. Rex Book
Store, 2007.

2 Prof. Joselito Guianan Chan .Bar Review Guide on Labor Law.2010

3 Rob Towner. Tangled Web of Triangular Employment Relationships - Agency Worker Could be
Client's Employee. http://www.bellgully.co.nz/resources/resource.02673.asp. Retrieval date:
September 15,2015.

4 The New Zealand Employment Relations Act 2000 (sometimes known by its acronym, ERA) is a
statute of the Parliament of New Zealand.

recourse for a worker against an end user under the ERA, unless the worker can
demonstrate that they were an employee of the end user under a contract of service 5.
One can deduce from the foregoing that there is a substantial similarity
between the ERA and our Labor Code, that is these two laws only apply when
employer-employee relationship exists. This is also the situation in most countries
evident from the reports of the International Labor Organization, which shall be
discussed on the succeeding parts of this study.

Related Literature

The widespread emergence of new forms of employment is brought about by

the manifested changes in the organization of work and flexible work arrangements.
In some countries and in some sectors, employment relationships have become more
diversified. They have become much more versatile and, alongside traditional fulltime employees, employers are increasingly employing workers in other ways which
allow them to use their labor as efficiently as possible. Recourse to various types of
employment is in itself a legitimate response to the challenges faced by enterprises,
as well as meeting the needs of some employees for more flexible work
arrangements. These various types of work arrangements lie within the framework of
the employment relationship6.

5 Loc cit.
6 The Employment Relationship. International Labour Conference, 95th Session, 2006.

But a major problem was revealed when the so called triangular employment
relationship arose. Workers under this employment relationship are hired by an
enterprise (the provider) who perform work for a third party (the user) to whom
their employer provides labor or services. For these employees, their employment
status is not in doubt, but they frequently face difficulties in establishing who their
employer is, what their rights are and who is responsible for them 7.

Morcasdelli, in her paper, found out that in a trilateral arrangement, despite of

good effects, problems arise when companies have independent contractors
providing services, but there are some aspects of the relationship that suggest or
resemble a traditional employer/ employee relationship. 8

This particular statement of Morcasdelli is of great bearing to the study at hand

since most often than not, parties involved in the tangled web of triangular
employment relationship also mix some elements of traditional employer-employee
relationship. This is evident when the user company also directs on how the work
should be accomplishedan important evidence of control which must exclusively be
exercised by the real employer.

7 Employment Relationship: Overview of Challenges and Opportunities. International Labor

Organization. 2005. Geneva Switzerland.

8 Anna Morcasdelli. Employee vs. Independent Contractor.

The researchers agree with Flanagan et.al. 9 they said that the issue of whether
an individual is an employee or independent contractor is important because the
status as an employee will trigger the application of certain statutory rights and
obligations.

Indeed, employment status is one of the determinants whether a certain grant

under prevailing statutes shall apply or not. This is also in the case of a trilateral
employment relationship; if it is proven that the employer is indeed the independent
contractor, then workers cannot claim benefits from the principal.

In relation to the fact that the trilateral employment relationship is the nontraditional form of employment system, Ebisui said that the increasing use of nonstandard forms of work arrangements which allow greater flexibility has led to more
uncertainty and precariousness among the growing number of workers who
involuntarily engage in them10.

Ebisuis findings have also a merit in the Philippine setting. As being pointed
out by this study, uncertainties and doubts as to the identity of the real employer is
the main problem. Precarious working status is also brought about by the scheme
since the availability of work of a certain employee of a subcontractor is dependent
upon the availability of enterprises availing of their services. Without these
9 Jamie Flanagan et. al. The Employment Relationship: Independent Contractor or Employee?
Defining the Scope of Relationship and its Consequences. Published by McCarthy Ttrault LLP .March
11, 2005_

10 Working Paper No. 36 Non-standard workers: Good Practices of Social Dialogue and Collective
Bargaining. International Labor Office- Industrial and Employment Relations Department. Geneva,
Switzerland. April 2012.

enterprises, most often than not, these workers have no job, hence stability of work is
another fruit of a larger problem.

Related Studies
A study of Davinov, a distinguished Law Professor at the University of Haifa, Israel,
was one of the major highlights of researches on the trilateral employment
relationship. Vosco, as cited by Davinov said:

In some countries, the temporary help industry now offers it all; agencies take
over many of the burdens of being an employer by accepting the title of a
legal employer even with regard to employees that work for the same firm for
long or indefinite periods of time.11

It can be gleaned in Davinovs pronouncement that in some cases, the scheme

only amounts to nothing less than complete outsourcing of employers
responsibilities.

Davinov further added that a basic problem raised in such relationships is who should
be considered the legal employer of the worker in question. This is the flip side of
the age-old legal problem of identifying whether one is an employee (as opposed to
an independent contractor). While there is no doubt, in triangular employment
relationships, that the worker is an employee, the question is who should assume
11 Guy Davidov. Joint Employers Status in Triangular Employment Relationships. Faculty of Law,
University of Haifa, Israel

the legal responsibilities of the employer, whether the agency or the user firm. The
answer is crucial for everybody involved. Workers enjoy a different salary, and a
vastly different package of rights and benefits, if they are employees of the user firm.
They are also less at risk of losing some of their entitlements as a result of the
employers insolvency, since the agencies, especially smaller ones, can be expected
to be at a higher risk of becoming insolvent 12.
In another study, it was concluded that both the temporary work agency and the user
firm have some of the characteristics of an employer. While economic and
social/psychological dependency will usually be on the agency, democratic deficits
are found in both of the workers relationships, with the agency as well as the user
firm. In order to ensure that this vulnerable group of workers is protected, then, both
the agency and the user firm should be considered the legal employers 13.

Contreras, et. al., agreed with Vosco when they said;

In the case of three way legal relationships a dual employer
situation degrades or transforms the subordination bond between
employer

and

employee

apparent

in

traditional

employment

relationships. In the case of temporary agency work, subcontracting

and posting of workers the complexity of employment derives from the
shared employers responsibility, whose rights and obligations are
divided between two (agency work, posting), or even more employers
(subcontracting)14

12 Ibid.
13 Vosko, L.F. (2000) Temporary Work: The Gendered Rise of a Precarious Employment
Relationship.Toronto: University of Toronto.

14Ricardo Rodrguez Contreras. The Impact of New Forms of Labor on Industrial Relations and the
Evolution of Labor Law in the European Union. European Parliament, June 2008.

Furthermore, Contreras et al also synthesized that the weakening of the

employers direct control is a general trend in various employment and nonemployment relationships. The worker is less subject or dependent on the employer
as a consequence of a restricted right to order (home working and telework), flexible
working time arrangements (e.g. flexitime) and stronger personal liability and relaxed
relationship between the parties (civil law contracts, occasional work, etc.) 15

The findings of the study of Contreras et.al only evinces how direct control is affected
in the employment relationship under consideration. This effect is not positive but an
adverse effect that can inevitably affect the application not only of labor laws but also
of the generally accepted principle of justice and equity since what may be due to the
contractuals may not actually be given to them since even they are confused on
where these matters should be recovered or be demanded.

Like the employers, the agencies structural positions of providers of

organizational flexibility had weakened, resulting in a loss of control which forced
them also to become more flexible. The study has shown that there is a link between
flexibility, structural power and financial circumstances. Financial difficulties can mean
less control, and this is what happened with the agencies. Although temporary
workers had more power than they had in the past, they still remained the most
underpowered group16.

As a consequence of this shifting power in the industry, all three players in the
trilateral relationship experienced some loss of control and flexibility (Davy, 2010).

15 Ibid.
16 Supra at note 9

Fernandez17, in his research, said that there is no doubt that the control test
will continue to be the standard test. Its value will continue particularly in cases where
liability for specific benefit is concerned, such as claims for wages, premium pay, and
bonuses. On the other hand, it has its limitations due to industrial complexity.
Increasingly, service arrangements are being developed which are considered
business or professional relationships, but which under the control test may constitute
an employment relationship.
Myriad types of small business serve one or two large firms, under terms
virtually dictated by the latter. Thousands of highly skilled professionals work for
business firms under minimal supervision. Service cooperatives may provide
particular skills for just one employer. In such situations, the control test may not yield
satisfactory results18.

Taken altogether, it is glaring that different organizations around the globe, including
the ILO and the European Parliament, have observed that problems regarding the
trilateral employment relationship in turn produce another problem. The root cause of
all of these is not the scheme per se, but its proper implementation. Should all parties
are properly informed of the delineation and extent of their duties and responsibilities
under the relationship; problem would not be of this degree. What makes the scheme
more murky, as pointed out by the cited literatures, is that both the sub-contractor and
the principal employs certain degree of control over the contractual employees. With
this, the trilateral employment scheme indeed has not only caught the attention of the
researchers but also intrigued them. This is added by the fact that the paper of
Fernandez is the only available one in the Philippines, hence, a need for a study for
the same is imperative.

17Professor of Law, College of Law, University of the Philippines.

18 Perfecto V. Fernandez. Problems of Coverage in Labor Relations Law. May 26, 1975.