Facts:
The
contractual relationship between Tongko and Manulife had two basic phases. The
first or initial phase began on July 1, 1977, under a Career Agent’s Agreement
that provided:
It is
understood and agreed that the Agent is an independent contractor and nothing
contained herein shall be construed or interpreted as creating an
employer-employee relationship between the Company and the Agent.
a) The
Agent shall canvass for applications for Life Insurance, Annuities, Group policies
and other products offered by the Company, and collect, in exchange for
provisional receipts issued by the Agent, money due to or become due to the
Company in respect of applications or policies obtained by or through the Agent
or from policyholders allotted by the Company to the Agent for servicing,
subject to subsequent confirmation of receipt of payment by the Company as
evidenced by an Official Receipt issued by the Company directly to the
policyholder.
The
Company may terminate this Agreement for any breach or violation of any of the
provisions hereof by the Agent by giving written notice to the Agent within
fifteen (15) days from the time of the discovery of the breach. No waiver,
extinguishment, abandonment, withdrawal or cancellation of the right to
terminate this Agreement by the Company shall be construed for any previous
failure to exercise its right under any provision of this Agreement.
Either
of the parties hereto may likewise terminate his Agreement at any time without
cause, by giving to the other party fifteen (15) days notice in writing.
Tongko
additionally agreed (1) to comply with all regulations and requirements of
Manulife, and (2) to maintain a standard of knowledge and competency in the
sale of Manulife’s products, satisfactory to Manulife and sufficient to meet
the volume of the new business, required by his Production Club membership.
The
second phase started in 1983 when Tongko was named Unit Manager in Manulife’s
Sales Agency Organization. In 1990, he became a Branch Manager. Six years later,
Tongko became a Regional Sales Manager.
Tongko’s
gross earnings consisted of commissions, persistency income, and management
overrides. Since the beginning, Tongko consistently declared himself
self-employed in his income tax returns. Thus, under oath, he declared his
gross business income and deducted his business expenses to arrive at his
taxable business income. Manulife withheld the corresponding 10% tax on
Tongko’s earnings.
De Dios
addressed a letter to Tongko stating that the former found the latter’s views
and comments unaligned with the directions the company was taking. The
allegations stated that some Managers were unhappy with their earnings.
However, no Managers confirmed the said allegations. De Dios worried about
Tongko’s inability to push for the company’s development and growth.
Subsequently,
de Dios wrote Tongko another letter terminating Tongko’s services. Tongko
responded by filing an illegal dismissal complaint with the NLRC Arbitration
Branch. He essentially alleged – despite the clear terms of the letter
terminating his Agency Agreement – that he was Manulife’s employee before he
was illegally dismissed.
Tongko
asserted that as Unit Manager, he was paid an annual over-rider not exceeding
₱50,000.00, regardless of production levels attained and exclusive of
commissions and bonuses. He also claimed that as Regional Sales Manager, he was
given a travel and entertainment allowance of ₱36,000.00 per year in addition
to his overriding commissions; he was tasked with numerous administrative
functions and supervisory authority over Manulife’s employees, aside from
merely selling policies and recruiting agents for Manulife; and he recommended
and recruited insurance agents subject to vetting and approval by Manulife. He
further alleges that he was assigned a definite place in the Manulife offices
when he was not in the field for which he never paid any rental. Manulife provided
the office equipment he used, and paid for the electricity, water and telephone
bills. As Regional Sales Manager, Tongko additionally asserts that he was
required to follow at least three codes of conduct.
Manulife
argues that Tongko had no fixed wage or salary. Under the Agreement, Tongko was
paid commissions of varying amounts, computed based on the premium paid in full
and actually received by Manulife on policies obtained through an agent. As
sales manager, Tongko was paid overriding sales commission derived from sales
made by agents under his unit/structure/branch/region. Manulife also points out
that it deducted and withheld a 10% tax from all commissions Tongko received;
Tongko even declared himself to be self-employed and consistently paid taxes as
such—i.e., he availed of tax deductions such as ordinary and necessary trade,
business and professional expenses to which a business is entitled.
Manulife
asserts that the labor tribunals have no jurisdiction over Tongko’s claim as he
was not its employee as characterized in the four-fold test.
The
labor arbiter decreed that no employer-employee relationship existed between
the parties. However, the NLRC reversed the labor arbiter’s decision on appeal;
it found the existence of an employer-employee relationship and concluded that
Tongko had been illegally dismissed. In the petition for certiorari with the CA,
the appellate court found that the NLRC gravely abused its discretion in its
ruling and reverted to the labor arbiter’s decision that no employer-employee
relationship existed between Tongko and Manulife.
In the
Supreme Court’s Decision of November 7, 2008, the Court reversed the CA ruling
and found that an employment relationship existed between Tongko and Manulife
for the following reasons:
1. Our
ruling in the first Insular case did not foreclose the possibility of an
insurance agent becoming an employee of an insurance company; if evidence
exists showing that the company promulgated rules or regulations that
effectively controlled or restricted an insurance agent’s choice of methods or
the methods themselves in selling insurance, an employer-employee relationship
would be present. The determination of the existence of an employer-employee
relationship is thus on a case-to-case basis depending on the evidence on
record.
2.
Manulife had the power of control over Tongko, sufficient to characterize him
as an employee, as shown by the following indicators:
2.1
Tongko undertook to comply with Manulife’s rules, regulations and other
requirements, i.e., the different codes of conduct such as the Agent Code of
Conduct, the Manulife Financial Code of Conduct, and the Financial Code of
Conduct Agreement;
2.2 The
various affidavits of Manulife’s insurance agents and managers, who occupied
similar positions as Tongko, showed that they performed administrative duties
that established employment with Manulife;12 and
2.3
Tongko was tasked to recruit some agents in addition to his other
administrative functions. De Dios’ letter harped on the direction Manulife
intended to take, viz., greater agency recruitment as the primary means to sell
more policies; Tongko’s alleged failure to follow this directive led to the
termination of his employment with Manulife.
Manulife
disagreed filed the present motion for reconsideration for the following
grounds:
1. The
November 7[, 2008] Decision violates Manulife’s right to due process by: (a)
confining the review only to the issue of "control" and utterly
disregarding all the other issues that had been joined in this case; (b)
mischaracterizing the divergence of conclusions between the CA and the NLRC
decisions as confined only to that on "control"; (c) grossly failing
to consider the findings and conclusions of the CA on the majority of the
material evidence, especially [Tongko’s] declaration in his income tax returns
that he was a "business person" or "self-employed"; and (d)
allowing [Tongko] to repudiate his sworn statement in a public document.
2. The
November 7[, 2008] Decision contravenes settled rules in contract law and
agency, distorts not only the legal relationships of agencies to sell but also
distributorship and franchising, and ignores the constitutional and policy
context of contract law vis-Ă -vis labor law.
3. The
November 7[, 2008] Decision ignores the findings of the CA on the three
elements of the four-fold test other than the "control" test,
reverses well-settled doctrines of law on employer-employee relationships, and
grossly misapplies the "control test," by selecting, without basis, a
few items of evidence to the exclusion of more material evidence to support its
conclusion that there is "control."
4. The
November 7[, 2008] Decision is judicial legislation, beyond the scope
authorized by Articles 8 and 9 of the Civil Code, beyond the powers granted to
this Court under Article VIII, Section 1 of the Constitution and contravenes
through judicial legislation, the constitutional prohibition against impairment
of contracts under Article III, Section 10 of the Constitution.
5. For
all the above reasons, the November 7[, 2008] Decision made unsustainable and
reversible errors, which should be corrected, in concluding that Respondent
Manulife and Petitioner had an employer-employee relationship, that Respondent
Manulife illegally dismissed Petitioner, and for consequently ordering
Respondent Manulife to pay Petitioner backwages, separation pay, nominal
damages and attorney’s fees.
Issue:
Whether
or not there is an existing employer-employee relationship.
Held:
The
primary evidence in the present case is the July 1, 1977 Agreement that
governed and defined the parties’ relations until the Agreement’s termination
in 2001. This Agreement stood for more than two decades and, based on the
records of the case, was never modified or novated. It assumes primacy because
it directly dealt with the nature of the parties’ relationship up to the very
end; moreover, both parties never disputed its authenticity or the accuracy of
its terms.
By the
Agreement’s express terms, Tongko served as an "insurance agent" for
Manulife, not as an employee. To be sure, the Agreement’s legal
characterization of the nature of the relationship cannot be conclusive and
binding on the courts; the characterization of the juridical relationship the
Agreement embodied is a matter of law that is for the courts to determine. At
the same time, though, the characterization the parties gave to their
relationship in the Agreement cannot simply be brushed aside because it
embodies their intent at the time they entered the Agreement, and they were
governed by this understanding throughout their relationship. At the very
least, the provision on the absence of employer-employee relationship between
the parties can be an aid in considering the Agreement and its implementation,
and in appreciating the other evidence on record.
Evidence
shows that Tongko’s role as an insurance agent never changed during his
relationship with Manulife. If changes occurred at all, the changes did not
appear to be in the nature of their core relationship. Tongko essentially
remained an agent, but moved up in this role through Manulife’s recognition
that he could use other agents approved by Manulife, but operating under his
guidance and in whose commissions he had a share. For want of a better term,
Tongko perhaps could be labeled as a "lead agent" who guided under
his wing other Manulife agents similarly tasked with the selling of Manulife
insurance.
Evidence
suggests that these other agents operated under their own agency agreements. Thus,
if Tongko’s compensation scheme changed at all during his relationship with
Manulife, the change was solely for purposes of crediting him with his share in
the commissions the agents under his wing generated. As an agent who was
recruiting and guiding other insurance agents, Tongko likewise moved up in
terms of the reimbursement of expenses he incurred in the course of his lead
agency, a prerogative he enjoyed pursuant to Article 1912 of the Civil Code.
Thus, Tongko received greater reimbursements for his expenses and was even
allowed to use Manulife facilities in his interactions with the agents, all of
whom were, in the strict sense, Manulife agents approved and certified as such
by Manulife with the Insurance Commission.
There
case is the lack of evidence on record showing that Manulife ever exercised
means-and-manner control, even to a limited extent, over Tongko during his
ascent in Manulife’s sales ladder. In 1983, Tongko was appointed unit manager.
Inexplicably, Tongko never bothered to present any evidence at all on what this
designation meant. This also holds true for Tongko’s appointment as branch
manager in 1990, and as Regional Sales Manager in 1996. The best evidence of
control – the agreement or directive relating to Tongko’s duties and responsibilities
– was never introduced as part of the records of the case. The reality is,
prior to de Dios’ letter, Manulife had practically left Tongko alone not only
in doing the business of selling insurance, but also in guiding the agents
under his wing.
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.
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.
According
to the Insular Life case, 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 agent’s conduct
necessarily indicate "control" as this term is defined in
jurisprudence. Guidelines
indicative of labor law "control," as the first Insular Life case
tells us, 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 company’s objectives. These are management policy decisions that
the labor law element of control cannot reach.
Aside
from these affidavits however, no other evidence exists regarding the effects
of Tongko’s additional roles in Manulife’s sales operations on the contractual relationship
between them.
A
"coordinative" standard for a manager cannot be indicative of
control; the standard only essentially describes what a Branch Manager is – the
person in the lead who orchestrates activities within the group. To
"coordinate," and thereby to lead and to orchestrate, is not so much
a matter of control by Manulife; it is simply a statement of a branch manager’s
role in relation with his agents from the point of view of Manulife whose
business Tongko’s sales group carries.
The
following portions of the affidavit of Regional Sales Manager John Chua, with
counterparts in the other affidavits, were not brought out in the Decision of
November 7, 2008, while the other portions suggesting labor law control were
highlighted. Specifically, the following portions of the affidavits were not
brought out:
1.a. I
have no fixed wages or salary since my services are compensated by way of
commissions based on the computed premiums paid in full on the policies
obtained thereat;
1.b. I
have no fixed working hours and employ my own method in soliticing insurance at
a time and place I see fit;
1.c. I
have my own assistant and messenger who handle my daily work load;
1.d. I
use my own facilities, tools, materials and supplies in carrying out my
business of selling insurance;
x x x x
6. I
have my own staff that handles the day to day operations of my office;
7. My
staff are my own employees and received salaries from me;
x x x x
9. My
commission and incentives are all reported to the Bureau of Internal Revenue
(BIR) as income by a self-employed individual or professional with a ten (10)
percent creditable withholding tax. I also remit monthly for professionals.
These
statements, read with the above comparative analysis of the Manulife and
the Grepalife cases, would have readily yielded the conclusion
that no employer-employee relationship existed between Manulife and Tongko.
Even de
Dios’ letter is not determinative of control as it indicates the least
amount of intrusion into Tongko’s exercise of his role as manager in guiding
the sales agents. Strictly viewed, de Dios’ directives are merely operational
guidelines on how Tongko could align his operations with Manulife’s re-directed
goal of being a "big league player." The method is to expand coverage
through the use of more agents. This requirement for the recruitment of more
agents is not a means-and-method control as it relates, more than anything
else, and is directly relevant, to Manulife’s objective of expanded business
operations through the use of a bigger sales force whose members are all on a
principal-agent relationship. Tongko was not supervising regular full-time
employees of Manulife engaged in the running of the insurance business; Tongko
was effectively guiding his corps of sales agents, who are bound to Manulife
through the same Agreement that he had with Manulife, all the while sharing in
these agents’ commissions through his overrides. This is the lead agent concept
mentioned above for want of a more appropriate term, since the title of Branch
Manager used by the parties is really a misnomer given that what is involved is
not a specific regular branch of the company but a corps of non-employed
agents, defined in terms of covered territory, through which the company sells
insurance. Tongko was not even setting policies in the way a regular company
manager does; company aims and objectives were simply relayed to him with
suggestions on how these objectives can be reached through the expansion of a
non-employee sales force.
What happened
in Tongko’s case was the grant of an expanded sales agency role that recognized
him as leader amongst agents in an area that Manulife defined.
Under
this legal situation, the only conclusion that can be made is that the absence
of evidence showing Manulife’s control over Tongko’s contractual duties points
to the absence of any employer-employee relationship between Tongko and
Manulife. In the context of the established evidence, Tongko remained an agent
all along; although his subsequent duties made him a lead agent with leadership
role, he was nevertheless only an agent whose basic contract yields no evidence
of means-and-manner control.
The the
sufficiency of Tongko’s failure to comply with the guidelines of de Dios’
letter, as a ground for termination of Tongko’s agency, is a matter that the
labor tribunals cannot rule upon in the absence of an employer-employee
relationship. Jurisdiction over the matter belongs to the courts applying the
laws of insurance, agency and contracts.
There was no employer-employee relationship and the dismissal was legal?
ReplyDelete