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(10 pts)

The Pizza Corporation (PizCorp) and Ready Supply Cooperative (RSC) entered into a “service agreement”
wherein RSC, in consideration of service fees to be paid by PizCorp, will exclusively supply PizCorp with
a group of RSC motorcyle-owning cooperative members who will henceforth perform PizCorp’s pizza
delivery service. RSC assumes — under the agreement — full obligation for the payment of the salaries and
other statutory monetary benefits of its members deployed to PizCorp. The parties also stipulated that there
shall be no employer-employee relationship between PizCorp and the RSC members. However, if PizCorp
is materially prejudiced by any act of the delivery crew that violates PizCorp’s directives and orders,
PizCorp can directly impose disciplinary actions on, including the power to dismiss, the erring RSC

a) Is the contractual stipulation that there is no employer-employee relationship binding on labor officials?
Why? Explain fully. (3%)

No. The stipulation cannot prevail over the facts and the laws. The existence of employee-employer
relationship is determined by the facts and law and not by stipulation of parties. ( Insular Life vs NLRC)

b) Based on the test/s for employer-employee relationship, determine the issue of who is the employer of
the RSC members. (4%)

The employer of the RSC is PizCorp.

The four-fold test in determining employer-employee relationship is as follows:

(1) The selection and engagement of the employees;

(2) The payment of wages;

(3) The power of dismissal; and

(4) The power of control the employee‘s conduct.

Of the above, the power of control over the employees‘ conduct is the most crucial and determinative
indicator of the presence or absence of an employeremployee relationship.

Applying the Control Test, PizCorp is the employer of RSC members because ―if PizCorp is materially
prejudiced by any act of the delivery crew that violated PizCorp‘s directives and orders, Piz Corp can
directly impose disciplinary sanctions on, including the power to dismiss, the erring RSC member/s.―
clearly, PizCorop controls the RSC members‘ conduct not only as to the end to be achieved but also as to
the means of achieving the ends (Manaya v. Alabang Country Club, G.R. No. 168988, June 19, 2007).
c) Assume that RSC has a paid-up capitalization of P1,000,000.00. Is RSC engaged in “labor only”
contracting, permissible job contracting or simply, recruitment? (3%)

One is deemed to be engaged in labor only contracting where :

1) The person supplying workers to an employer does not have substantial capital or investment in
the form of tools, equipment, machineries, work premises, among others; and
2) The workers recruited and placed by such person are performing activities which are directly
related to the principal business of such employer. ( Baguio vs NLRC)

Under the Cooperative Code, the minimum capital requirement for Cooperatives is P5,000,000.00.
RSC’s capitalization of P1,000,000.00 is way below the prescribed minimum., hence, it is deemed to be
engaged in labor contracting, which is prohibited by law.