CONTROL IN THE CONTEXT OF AGENCY VS.

CONTROL AS ELEMENT OF
EMPLOYER-EMPLOYEEE RELATIONSHIP UNDER THE LABOR CODE by Atty.
Elvin Villanueva

We know for a fact that an agent is primarily governed by the rules on Agency under the
Civil Code while an employee by the Labor Code.

The confusing part lies in the element of control exercised by the principal in an
agency agreement and the control that establishes employer-employee relationship. In
the light of this dilemma, is an insurance agent an employee of the insurance company
or an independent contractor who has no employment relationship with the latter?

This is one of the major issues that the Supreme Court resolved in the case
of Gregorio V. Tongko vs. The Manufacturers Life Insurance Co. (Phils.), Inc., G.R. No.
167622, June 29, 2010.
The cited decision is the Courts ruling on a Motion for Reconsideration filed by
the Manulife.

The case arose from a complaint for illegal dismissal with various claims filed by Tongko
against Manulife. Tongko alleged that he was an employee of the company since the
latter exercised control over him. Of course, Manulife claims otherwise insisting that he
was an agent.

The Labor Arbiter dismissed the case not finding any employer-employee
relationship. This was reversed by the NLRC. On appeal to the CA, the latter ruled in
favor of Manulife finding no employer-employee relationship. Hence, Tongko appealed
to the Supreme Court.

THE SUPREME COURTS ORIGINAL

DECISION
Central to the resolution of the Supreme Court in the appeal was the disquisition
on the existence of employer-employee relationship. The significance of this finding is
that if it is found that no such relationship exists, the labor courts have no jurisdiction
over this case. The employer-employee relationship is established by the four-fold test,
as follows:

(a) the selection and engagement of the employee;

(b) the payment of wages;

(c) the power of dismissal; and

(d) the employers power to control the employees conduct.

As foundation for its decision, the Supreme Court held that if the specific rules and
regulations that are enforced against insurance agents or managers are such that would
directly affect the means and methods by which such agents or managers would achieve
the objectives set by the insurance company, they are employees of the insurance
company. Applying said standard, the Court held that Tongko was an employee of
Manulife since the latter had the power of control over the former.

The Court accorded much weight on the various codes of conduct that Tongko had to
observe pursuant to the agency agreement. It held:

Thus, with the company regulations and requirements alone, the fact that Tongko was
an employee of Manulife may already be established. Certainly, these requirements
controlled the means and methods by which Tongko was to achieve the companys goals.

More importantly, Manulifes evidence establishes the fact that Tongko was tasked to
perform administrative duties that establishes his employment with Manulife.

In short, the Supreme Court ruled in favor of Tongko which prompted Manulife to file
its Motion for Reconsideration.

THE MOTION FOR RECONSIDERATION

In disposing of this Motion for Reconsideration, the Supreme Court placed heavy
significance on the application of the Civil Code and Insurance provisions on agency.
The original Agreement of Tongko with the company dictates that he is an insurance
agent. No other documentary evidence was found to support subsequent stipulations as
to their relationship that would negate the agency, and not employment, relationship on
the original agreement.

It was found by the Court that Tongko declared himself as business or self-employed
person in his income tax return. In a sense, an independent contractor. This bolsters the
content of the Agreement mentioned above that he was an insurance agent in the
context of the Insurance Code and the Civil Code. To the Court, this aspect of the
evidence was not considered in its original decision, which had they been given
importance, would have changed the decision as it is an admission against interest on
the part of Tongko.

Another principle that surfaced here is the concept of estoppel. Tongkos previous
admissions in several years of tax returns as an independent agent, as against his
belated claim that he was all along an employee, are too diametrically opposed to be
simply dismissed or ignored.
As to the value of the Code of Conduct relied upon by Tongko in claiming that he is an
employee, the Court posits:

What, to Tongko, serve as evidence of labor law control are the codes of conduct that
Manulife imposes on its agents in the sale of insurance. The mere presentation of codes
or of rules and regulations, however, is not per se indicative of labor law control as the
law and jurisprudence teach us.

As already recited above, the Insurance Code imposes obligations on both the insurance
company and its agents in the performance of their respective obligations under the
Code, particularly on licenses and their renewals, on the representations to be made to
potential customers, the collection of premiums, on the delivery of insurance policies,
on the matter of compensation, and on measures to ensure ethical business practice in
the industry.

The general law on agency, on the other hand, expressly allows the principal an element
of control over the agent in a manner consistent with an agency relationship. In this
sense, these control measures cannot be read as indicative of labor law control.
Foremost among these are the directives that the principal may impose on the agent to
achieve the assigned tasks, to the extent that they do not involve the means and manner
of undertaking these tasks. The law likewise obligates the agent to render an account; in
this sense, the principal may impose on the agent specific instructions on how an
account shall be made, particularly on the matter of expenses and reimbursements. To
these extents, control can be imposed through rules and regulations without intruding
into the labor law concept of control for purposes of employment.

The Court further held that a commitment to abide by the rules and regulations of an
insurance company does not ipso facto make the insurance agent an employee. Neither
do guidelines somehow restrictive of the insurance agents conduct necessarily indicate
control as this term is defined in jurisprudence. Guidelines indicative of labor law
control, should not merely relate to the mutually desirable result intended by the
contractual relationship; they must have the nature of dictating the means or methods
to be employed in attaining the result, or of fixing the methodology and of binding or
restricting the party hired to the use of these means. In fact, results-wise, the principal
can impose production quotas and can determine how many agents, with specific
territories, ought to be employed to achieve the companys objectives. These are
management policy decisions that the labor law element of control cannot reach. Thus,
as will be shown more fully , Manulifes codes of conduct, all of which do not intrude
into the insurance agents means and manner of conducting their sales and only control
them as to the desired results and Insurance Code norms, cannot be used as basis for a
finding that the labor law concept of control existed between Manulife and Tongko.

Thus, the Court did not see the existence of such relationship and reversed its earlier
ruling which granted Tongko millions in backwages and damages, among others.